This week's Barrons has this blurb (link)
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Quant funds -- also pummeled in last year's selling storms -- typically buy "high quality" stocks and short "low quality" ones, as defined by balance sheets and valuation and other factors. It's been precisely the wrong approach lately, as low-priced and financially shaky stocks have led.
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Back when the bull market was going strong, 130/30 hedge funds sprang up like weeds. The concept is to buy the best stocks, short the worst and profit on both sides. The "problem" is trying to find that dividing line. An 130/30 fund shorts what they see as the 30% of stocks that are going to move lower, and then use that money to leverage 130% long on stocks that will move higher.
When it works, the profits might be substantial. When it doesn't, it is crash and burn time. Leverage and shorting can produce particularly large losses. As stocks move from column "A" to column "B" huge swings might occur. Not only would the stock be sold, the stock would be actively shorted.
The old Will Rodgers saw comes to mind:
"Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it."
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