I knew I’d have to educate people on this strategy, but I didn’t expect how much misinformation there would be from other advisors.

A lot of the confusion comes from unfamiliarity with long/short investing.

At its core, you’re:

• Going long companies you believe will outperform
• Shorting companies you believe will underperform
• Using modest leverage to express those relative value views

That leverage has a financing cost.

But you only take it on because the expected return from the strategy exceeds that cost.

For example:

You might be able to run an additional $100 long / -$100 short for ~0.8% financing cost.

For high earners, that cost is often tax-deductible, bringing the after-tax cost closer to ~0.4%.

So what are you getting in return?

A well-constructed tax-aware long/short SMA can:

• Reduce concentrated stock risk
• Increase expected return through long/short alpha
• Systematically harvest capital losses (a LOT of them)