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Sheets Smith Wealth Management's offices are located at 120 Club Oaks Court, Suite 200 in Winston-Salem, North Carolina. Click here for a Google Map.

 

To make an appointment to meet with David Gilbert  please call (336) 765-2020.

 

 

Frequently Asked Questions

Q) What is a paired trade and why do you use this strategy?

A. A paired trade consists of two positions in companies in the same industry that may be competitors. The first position is the long position (buying the stock of a company). The second position is the short position (selling the stock of a company with the hope of buying it back in the future at a lower price). The concept is that the stock of the company you own (long) will outperform the stock of the company you have sold (short) in up and down markets. In a perfect world the long position will rise and the short position will fall. However, if both stocks move in the same direction, then we hope our long position rises more or falls less than the short position. We make money on the difference (spread). In addition, we are paid interest on the cash we received from the stock we sold short.

We think of the paired trade strategy as an inexpensive form of insurance to potentially cushion the inevitable down drafts of the stock market. At times we may like the stock of a company whose industry is out of favor with the market. We think we can reduce the risk of holding this position by shorting a competitor.

Often we have companies that we think are extremely well managed and are great values especially compared to some of their competitors.  We believe we can lower the risk of investing in these companies by shorting their competitor.

We usually short $1 for every $4 or $5 we hold long in a position. We do not use the paired trade strategy for each of our long positions, but use it only when we think it will add value, reduce risk, and has a high probability of success.  

Thank you for your interest in The Piedmont Select Equity Fund. Please call David Gilbert at 336-765-2020 if you have any questions.