[Hong Jang-won’s Bull & Bear] “Everything we did lost money”: a surprising Wall Street hedge-fund account

An independent exercise, not a statement by the video creator or verification of every claim in the video.

Zero net exposure does not mean zero loss

Suppose a hypothetical portfolio has net assets of 100, long equities of 100 and an initial short-sale notional of 100. Initial net exposure is 0, but gross exposure is 200, or 2 times net assets. If the long holdings fall 8% and the shorted stocks rise 6% over the same period, the long side loses 8 and the short side loses 6. Total loss is 14 and net assets fall to 86. A rise in shorted stocks increases the cost of buying them back. Equal position amounts do not mean equal market beta, sector, style or liquidity risk. Label holdings with long or short signs and notionals, then calculate and combine each side’s profit or loss under adverse relative-price changes.

Check for yourself

1. Have you checked the sum of long and short exposure relative to net assets, as well as their difference?
2. How much market, sector and style risk do the positions share?
3. What happens if shorted stocks rise while borrowing fees and margin demands also worsen?

Limits of application

This hypothetical single-period calculation is not an actual hedge fund result. Costs, cash interest, dividend payments, rebalancing, hedge error and margin constraints are excluded. Zero initial net notional exposure does not guarantee beta neutrality or freedom from risk; actual shorting can create additional losses and liquidity constraints.