When I first met fellow Seeking Alpha contributor Harry Long, he was finishing up his undergraduate degree at Rice University and looking for a job. I was quite impressed by his deep interest in financial markets, his experience and his intellectual capabilities. The timing wasn't right, though, as he wasn't graduating for another semester, and we hired a classmate of his. I think it worked out well for Harry, who is Managing Partner at Contrarian Industries LLC, which specializes in systematic investment strategies.
Harry just published his first book:
The book promises not only the potential for 30% returns per year above the market by exploiting a repetitive error that humans invariably make, but to do so with an extremely simple solution. Every time I have read about systematic strategies, they have seemed rather difficult to actually pursue. This is certainly not the case with Harry's approach. He gives specific advice regarding which instruments, which weightings and how to rebalance.
Here's the bad news: I am not going to share the secret recipe! Now, here's the good news: This is an easy read, as Harry has shared some powerful ideas in just 9 short chapters that are aimed at the non-professional. He also includes an appendix geared towards professionals. To be fair, readers should understand terms like "time decay" and "contango" and have a basic understanding of volatility and options, though the strategy doesn't require options trading.
Is it actually "the most powerful trading system" and will it deliver in the future the returns that Harry suggests? I am not sure. But I am sure of this: Long's ideas are powerful and make sense to me. The strategy is based on just two ETFs that are sensitive to equity-risk and that are extremely liquid, meaning that anyone can employ it. Harry calls the strategy "Structural Arbitrage", and the back-test indicates a low correlation with the S&P 500 but 30% higher returns per year.
The shortcoming is confessed in chapter 8: The trade might not always be mispriced and offer such alpha. In fact, when Harry and I speak about his opus, I will quickly point to the fact that his back-test applies to a very specific time-frame (2009-2013) that may prove to have been an outlier. While I am not sure if Harry Long will be long remembered, as he hopes, for this contribution, I do think that he has a fascinating idea that is worth investigating.
Additional disclosure: Harry may have picked up the tab a few years ago when we met for drinks, and he provided me with a free electronic version of the book.