For the past 20 years, managing a short-bias or short-only hedge fund has been a little like one of the stunts performed by street magician and certified masochist David Blaine.  Like Blaine, short-only fund managers have voluntarily put themselves in highly uncomfortable, cramped, painful situations in pursuit of their mysterious craft.  The chart below showing the track record of the CS/Tremont Dedicated Short Index illustrates how the short-only crowd has endured the equivalent of being submerged in a tank of water, enclosed in a giant ice cube, suspended in a glass box, and forced to stand on a 75 ft. poll for a day and a half.  And still, they soldier on.

As passers-by gawk at the spectacle, some have marveled at the display of resilience and determination while others have scoffed at these managers – as they often do at Blaine - saying things like, “What a loser.  Why doesn’t he get a real job!”.  But everyone wonders what could possibly motivate such apparently irrational behavior.

More…