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CEFL’s Closed-End Funds’ Discounts To Book Value Defy Logic

The closed-end funds that comprise the index upon which CEFL is based are now trading at an average 13.8% discount to book value. This discount is beyond normal ranges and logically cannot be a function of market expectations. CEFL is projected to pay a monthly dividend of $0.3074, which brings the annualized monthly compounded yield to 23.7%. The high yield and discount to book value make a compelling case for CEFL. All 30 of the index components of the UBS ETRACS Monthly Pay 2xLeveraged Closed-End Fund ETN (NYSEARCA: CEFL ), and the YieldShares High Income ETF (NYSEARCA: YYY ), which is based on the same index and thus has the same components as CEFL, but without the 2X leverage, are now trading at discounts to book value. This is the first month since the inception of CEFL that this has been the case. Last month, two of the components were trading at premiums to book value. On a weighted average basis, the closed-end funds that comprise CEFL are trading at a 13.8% discount to book value as of September 18, 2015. The median discount for the 30 closed-end funds is 14.25%. Closed-end funds typically trade at either discounts or premiums to book value. On balance, there is a slight bias towards discounts. Because of significant changes in the composition of the index, comparisons of aggregate discounts to book value from previous years are not very meaningful. That said, the 13.8% discount is the largest since the inception of CEFL. The 13.8% weighted average discount to book value of the components that comprise the index is an increase in the discount that I computed last month of 13.1%. Five months ago, CEFL had an 8.6% weighted discount to book value. Thus, in just five months, the discount has increased from 8.6% to 13.8%. For many securities other than closed-end funds, such as common stocks, discounts or premiums to book values are logically based on the business prospects for companies. Thus, Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ) trades at significant premium to book value while Peabody Energy (NYSE: BTU ) trades at a significant discount to book value, reflecting differing market perceptions of the future prospects for those companies. Google trades at approximately 5X book value while BTU trades at about 1/5 of book value. In my article: mREITs Impacted By Enormous Price To Book Swing – MORL Yielding 27.6% , I discussed the large discounts to book value that mREITs such as American Capital Agency Corp. (NASDAQ: AGNC ) are trading at. The logic behind mREITs such as AGNC trading at significant discounts to book value is primarily based on the possible impacts of higher future interest rates. Whether one agrees or disagrees with the magnitudes of the discounts or premiums to book for securities such as Google, Peabody and American Capital Agency, there are facts and logic related to each company’s business prospects that could possibly explain or justify changes in the premiums or discounts that have occurred in those stocks. There are no such facts or changes in market forecasts of business prospects that can possibly explain or justify changes in the premiums or discounts that have occurred in the closed-end funds that comprise CEFL. For closed-end funds, changes in the premiums or discounts to book value should be solely based on the value that investors place on the relative advantages and disadvantages of the closed-end fund structure, rather than the differing market perceptions of the future prospects for the securities in the closed-end funds’ portfolios. Investors in closed-end funds could purchase the securities held by a closed-end fund themselves. In most cases, there are also open-end funds available to investors that have risk, return and expense characteristics similar to any given closed-end fund. Changes in market perceptions of the prospects of the securities that comprise the portfolios of closed-end funds cannot logically explain or justify any change in the magnitudes of the discounts or premiums to book for the closed-end funds. Any such changes in market perceptions of the prospects of the securities in the portfolio should be reflected in the prices of the portfolio securities themselves. Thus, the ratio of the price of the closed-end fund to its book value should not be related to the expectations of the prospects for the portfolio securities held by the closed-end fund. If investors value the advantages of diversification, management and possibly lower transaction costs associated with owning a closed-end fund rather than owning the individual securities that comprise the closed-end fund’s portfolio more than the fees and expenses which are the primary negative aspect of closed-end funds, then the closed-end fund will trade at a premium to book value. Conversely, if investors feel that the fees and expenses of the closed-end fund outweigh the advantages of diversification, management and possibly lower transaction cost associated with owning a closed-end fund, it will trade at a discount to book value. The trade-offs between the advantages and disadvantages associated with closed-end funds relative to the securities that comprise the portfolios of the closed-end funds are rational reasons for the closed-end funds to trade at discounts or premiums to book value. However, it is not rational for the discount or premium to be influenced by expectations of future returns on the securities that comprise the portfolios of the closed-end funds. If the market thinks that the securities in a closed-end fund’s portfolio will decline, and thus the net asset or book value of the closed-end fund will decline, there is no reason why the premium or discount that the closed-end fund is trading at should change. Some closed-end funds employ limited amounts of leverage. As investment companies, closed-end funds cannot have more than 33% leverage and most employ less, if any. That a closed-end fund does or does not employ a relatively small amount of leverage should not impact the premium or discount that the closed-end fund is trading at. Leverage is the easiest characteristic of a security to offset. Thus, if an investor was interested in a security but did not like the fact that the security employed 20% leverage, the investor could offset that leverage by combing that security with a risk-free asset. For example, if you had $10,000 to invest and you liked a closed-end fund but were unhappy with the 20% leverage, investing $8,000 in the closed-end fund and $2,000 in a risk-free asset will result in the same risk/return profile as investing $10,000 in the same closed-end fund, if that fund did not employ any leverage. Likewise, if you liked a closed-end fund but would rather that fund employed more leverage, you can buy that fund on margin and get in the same risk/return profile as investing in the fund if it had more leverage. Thus, leverage or lack of leverage should not influence the premium or discount that the closed-end fund is trading at since any leverage in a closed-end fund can be offset by an investor. There should be some limits as to how far away from book value a closed-end fund should trade. If a closed-end fund is trading at a sufficiently high premium to book value, an arbitrage opportunity could exist. Buying the securities in the closed-end fund’s portfolio and simultaneously selling the closed-end fund should generate a profitable arbitrage. Likewise if a closed-end fund is trading at a large enough discount buying the closed-end fund and selling the securities that comprise the portfolio, it could generate arbitrage profits. These types of arbitrage would be risk arbitrage as opposed to riskless arbitrage. In riskless arbitrage, one buys a security or commodity and simultaneously sells something that is the equivalent of what you sold. An example of riskless arbitrage would be, after a merger had been approved in which the acquirer is issuing one share of its stock for two shares of the company being acquired, you simultaneously buy two shares of the company being acquired for a total cost less than a share of the acquirer. This would essentially lock in a profit that would be realized when the merger closed and the values converged. Attempting to take advantage of the discount to book value being irrationally wide for a closed-end fund would be an example of risk arbitrage since there is no terminal event which will make the value of what you buy converge with what you sell. It may be irrational for a closed-end fund to trade at a 10% discount to book value. However, there is always the possibility that it could go to a 15% discount as Keynes famously said “The market can stay irrational longer than you can stay solvent.” Closed-end funds do not usually provide convenient opportunities for explicit risk arbitrage transactions where one security is bought and the other security is shorted. Retail investors usually cannot use the proceeds from selling some securities short to buy other securities. Hedge funds and institutions which may be able to use the proceeds from selling some securities short to buy others might find closed-end funds, and especially some of the securities that comprise the portfolios of the closed-end funds, not liquid enough to trade in. Even, market participants who are able to use the proceeds from selling some securities short to buy others might be dissuaded from buying closed-end funds and shorting the securities in the closed-end funds’ portfolio, because of the fees and expenses charged by the closed-end funds. However, if the discount to book value is large enough, the fees and expenses charged by the closed-end funds could be offset by the discount to book value and thus generate a positive carry for a long closed-end fund – short the fund’s portfolio position. This would be especially true for closed-end funds that specialize in securities that generate higher income, such as those in the index upon which CEFL and its unleveraged counterpart YYY are based. An example of the discount to book value more than offsetting the fees and expenses would be a hypothetical closed-end fund whose portfolio securities yielded 10% before expenses. Most income-oriented closed-end funds have expense ratios lower than 1%. Shorting $100 worth of the securities that comprise the fund would require payments of $10 representing 10% annually to those who the securities were borrowed from. The $100 proceeds from the short sale could be used to acquire $100 of the closed-end fund. If the closed-end fund was trading at a 14% discount, $100 of the fund would represent 100/.86 = $116.28 worth of the securities in the fund. These securities yield 10%, so the gross income from the fund position would be $11.63. The net income, assuming a 1% expense ratio, would be $10.63. Thus, even after expenses and fees, an account long the closed-end fund would generate higher income than the portfolio securities while it waited for the discount to narrow to realize the risk arbitrage profit. While explicit risk arbitrage where the portfolio securities are shorted and the proceeds are employed to buy the closed-end fund might not occur in significant quantities to narrow the discount to book value, implicit arbitrage should eventually have an impact. Implicit risk arbitrage would occur as investors holding or wanting to hold securities with similar risk/return characteristics as a closed-end fund or the portfolios held by the closed-end fund shift from other securities to the closed-end fund. Institutional investors that had portfolios which contained securities similar to or identical to those held in a close-end fund could improve their risk/return profile by shifting out of securities in the closed-end fund to the closed-end fund, if the discount to book value for the closed-end fund was large enough. Retail investors could switch from securities held in portfolios of close-end fund to the closed-end fund and improve their risk/return profile if the discount to book value for the closed-end fund was large enough. More important, investors could shift out open-end mutual funds into closed-end mutual funds with similar objectives and portfolios. Open-end mutual funds are sold and redeemed at net asset value. Thus, there is never any discount or premium to book value for an open-end mutual fund. Advantages for investors in no-load mutual funds are that there are no transactions costs and the funds can always be redeemed at net asset or book value. Closed-end funds usually require some brokerage commission to buy and sell them, and there is risk that the closed-end fund will fluctuate due to changes in the premium or discount to net asset value in addition to fluctuation in the portfolio securities. The advantages of no-load open-end mutual funds are somewhat offset by the lower fees and expenses that closed-end funds usually have. When closed-end funds are trading at large discounts to book value, investors can significantly increase their returns by switching from open-end funds to closed-end funds that have similar assets but are selling at discounts to net asset value and typically have lower fees and expenses. When an investor redeems an open-end fund at net asset value, the open-end fund sells portfolio securities to fund the redemption. That would tend to lower the market prices of those portfolio securities. If the investor uses the proceeds from the redemption of the open-end fund to buy shares in a closed-end fund that holds similar portfolio securities, the net effect would be to put downward pressure on the market prices of the portfolio securities and upward pressure of the market prices of the closed-end funds. Thus, the discount to book value for the closed-end funds will tend to decline. This large discount to net asset value alone is a good reason to be constructive on CEFL. If the discount to book value for the closed-end funds that comprise CEFL were to revert from the current 13.8% to the 8.6% level of five months ago, CEFL would increase in price by 10.2% even if the prices of all of the component closed-end funds remained exactly the same. It should be noted that saying CEFL components are now trading at a deeper discount to the net asset value of the closed-end funds that comprise the index does not mean that CEFL does not always trade at a level close to its own net asset value. Since CEFL is exchangeable at the holders’ option at indicative or net asset value, its market price will not deviate significantly from the net asset value. The net asset value or indicative value of CEFL is determined by the market prices of the closed-end funds that comprise the index upon which CEFL is based. My constructive view on CEFL stems not only from the wide discount to book value of the closed-end funds, but also from the very large dividends paid by CEFL. Of the 30 index components of CEFL, and YYY which is based on the same index and thus has the same components as CEFL, but without the 2X leverage, 29 now pay monthly. Only the Morgan Stanley Emerging Markets Domestic Debt Fund (NYSE: EDD ) now pays quarterly dividends in January, April, October, and July. Thus, EDD will be included in the October 2015 CEFL monthly dividend calculation. My calculation projects an October 2015 dividend of $0.3074. This is an increase of 4.6% from the September 2015 dividend of $0.2938 which did not include any contribution from EDD. A more relevant comparison is to the July 2015 which also included all 30 CEFL components. The projected October 2015 dividend of $0.3074 is a decline of 5.7% from the July 2015 CEFL dividend. The decline in the CEFL monthly dividend compared to July 2015 is primarily due to the reduction in the indicative or net asset value of CEFL. The indicative value of each CEFL share has decreased from $19.1358 on July 31, 2015, to $ 16.8889 on September 18, 2015. As I explained in MORL Dividend Drops Again In October, Now Yielding 21.5% On A Monthly Compounded Basis, if the dividends on all of the underlying components in a 2X leveraged ETN, such as CEFL, were to remain the same for a specific month, but the indicative value (aka net asset value or book value) was lower, the dividend paid, which is essentially a pass-through with no discretion by management, would also decrease. This is the result of the rebalancing of the portfolio each month required to bring the amount of leverage back to 2X. Of course, an increase in indicative value would result in a corresponding increase in the dividend. While the 2014 year-end rebalancing has reduced the monthly CEFL dividend, it is still very large. For the three months ending October 2015, the total projected dividends are $0.9031. The annualized dividends would be $3.61. This is a 21.4% simple annualized yield with CEFL priced at $16.85. On a monthly compounded basis, the effective annualized yield is 23.7%. Aside from the fact that with a yield above 20%, even without reinvesting or compounding, you get back your initial investment in only 5 years and still have your original investment shares intact. If someone thought that over the next five years markets and interest rates would remain relatively stable, and thus CEFL would continue to yield 23.7% on a compounded basis, the return on a strategy of reinvesting all dividends would be enormous. An investment of $100,000 would be worth $289,350 in five years. More interestingly, for those investing for future income, the income from the initial $100,000 would increase from the $23,700 initial annual rate to $68,576 annually. CEFL component weights as of August 28, 2015, prices as of September 18, 2015: Name Ticker Weight Price NAV price/NAV ex-div dividend frequency contribution return of capital First Trust Intermediate Duration Prf. & Income Fd (NYSE: FPF ) 4.81 21.96 23.53 0.9333 9/1/2015 0.1625 m 0.01202 DoubleLine Income Solutions (NYSE: DSL ) 4.54 18.41 20.49 0.8985 9/16/2015 0.15 m 0.01249 Eaton Vance Limited Duration Income Fund (NYSEMKT: EVV ) 4.47 13.03 15.28 0.8527 9/9/2015 0.1017 m 0.01178 MFS Charter Income Trust (NYSE: MCR ) 4.45 8.03 9.42 0.8524 9/15/2015 0.06378 m 0.01194 Eaton Vance Tax-Managed Global Diversified Equity Income Fund (NYSE: EXG ) 4.38 8.97 9.83 0.9125 9/21/2015 0.0813 m 0.01341 0.0676 BlackRock Corporate High Yield Fund (NYSE: HYT ) 4.37 10.26 12 0.8550 9/11/2015 0.07 m 0.01007 0.0012 Clough Global Opportunities Fund (NYSEMKT: GLO ) 4.33 11.07 13.49 0.8206 9/16/2015 0.1 m 0.01321 Alpine Total Dynamic Dividend (NYSE: AOD ) 4.32 7.93 9.56 0.8295 9/21/2015 0.0575 m 0.01058 PIMCO Dynamic Credit Income Fund (NYSE: PCI ) 4.29 18.88 21.98 0.8590 9/9/2015 0.164063 m 0.01259 Alpine Global Premier Properties Fund (NYSE: AWP ) 4.29 5.99 7.16 0.8366 9/21/2015 0.05 m 0.01210 Prudential Global Short Duration High Yield Fund (NYSE: GHY ) 4.24 14.11 16.7 0.8449 9/16/2015 0.11 m 0.01117 Eaton Vance Tax-Managed Diversified Equity Income Fund (NYSE: ETY ) 4.17 10.86 11.86 0.9157 9/21/2015 0.0843 m 0.01093 Western Asset Emerging Markets Debt Fund (NYSE: ESD ) 4.12 13.91 16.86 0.8250 9/16/2015 0.105 m 0.01050 0.0159 Voya Global Equity Dividend & Premium Opportunity Fund (NYSE: IGD ) 4.05 7.27 8.48 0.8573 9/1/2015 0.076 m 0.01430 0.0266 BlackRock International Growth & Income Trust (NYSE: BGY ) 3.83 6.29 7.2 0.8736 9/11/2015 0.049 m 0.01008 0.0490 GAMCO Global Gold Natural Resources & Income Trust (NYSEMKT: GGN ) 3.77 5.24 5.86 0.8942 9/14/2015 0.07 m 0.01701 0.0700 Morgan Stanley Emerging Markets Domestic Debt Fund (EDD) 3.52 7.51 8.99 0.8354 9/26/2015 0.22 q 0.03483 Prudential Short Duration High Yield Fd (NYSE: ISD ) 3.37 14.75 17.17 0.8591 9/16/2015 0.11 m 0.00849 Aberdeen Asia-Pacific Income Fund (NYSEMKT: FAX ) 3.26 4.53 5.47 0.8282 9/16/2015 0.035 m 0.00851 0.0143 MFS Multimarket Income Trust (NYSE: MMT ) 3.02 5.88 6.78 0.8673 9/15/2015 0.04588 m 0.00796 0.0168 Calamos Global Dynamic Income Fund (NASDAQ: CHW ) 2.95 7.42 8.86 0.8375 9/8/2015 0.07 m 0.00940 Backstone/GSO Strategic Credit Fund (NYSE: BGB ) 2.8 14.95 17.43 0.8577 9/21/2015 0.105 m 0.00664 0.0012 BlackRock Multi-Sector Income (NYSE: BIT ) 2.1 16.03 19.01 0.8432 9/11/2015 0.1167 m 0.00516 Western Asset High Income Fund II (NYSE: HIX ) 2.08 6.73 7.72 0.8718 9/16/2015 0.069 m 0.00720 0.0006 AGIC Convertible & Income Fund (NYSE: NCV ) 1.95 6.37 7.21 0.8835 9/9/2015 0.065 m 0.00672 Wells Fargo Advantage Multi-Sector Income Fund (NYSEMKT: ERC ) 1.73 11.76 14.15 0.8311 9/11/2015 0.0967 m 0.00481 0.0283 Wells Fargo Advantage Income Opportunities Fund (NYSEMKT: EAD ) 1.35 7.56 9.04 0.8363 9/11/2015 0.068 m 0.00410 Nuveen Preferred Income Opportunities Fund (NYSE: JPC ) 1.26 9.19 10.23 0.8983 9/11/2015 0.067 m 0.00310 AGIC Convertible & Income Fund II (NYSE: NCZ ) 1.19 5.67 6.42 0.8832 9/9/2015 0.0575 m 0.00408 Invesco Dynamic Credit Opportunities Fund (NYSE: VTA ) 0.97 11 12.79 0.8600 9/10/2015 0.075 m 0.00223

Notable ETF Outflow Detected – IYW, MSFT, CSCO, ORCL

Looking today at week over week shares outstanding changes among the universe of ETFs covered at ETF Channel , one standout is the iShares U.S. Technology ETF (Symbol IYW) where we have detected an approximate $25.1 million dollar outflow

Short-Selling: What Are You Optimizing?

Summary What separates investing from gambling? Positive expected value. Short-selling has a negative expected value – more negative than some casino games. What are you optimizing? In theory investing is about optimizing return, but many investors’ behavior suggests they are optimizing/minimizing something else. For some heavy short-sellers, it’s intellectual stimulation. I don’t think short selling is right for me or most investors, but this is just my still-evolving opinion. Full disclosure: I’ve never shorted a stock in my life. As such, I’m probably terribly biased and not credible. Short selling is betting that a stock or security will go down. Instead of buying low and selling high, you first sell high and then buy low. You do so by borrowing someone else’s shares when you initially sell and then replacing those shares later on by buying them. For reasons I will explain in this article, I don’t think most investors, including myself, should engage in short selling. Some should, but even for those for whom short selling (“shorting”) is appropriate, it probably should not be used as a primary strategy. This argument has been hashed out many times. I could repeat what’s been discussed many times. For example, when you engage in shorting your upside is limited and downside unlimited – the unfavorable reverse of going long. Instead, I will focus on what I see as the most important points for me and perhaps where I’ve added some original thought. When you short-sell a stock, the odds are against you What separates investing from gambling? Sure, investing isn’t done in a casino, it’s much more calculated, there’s far more money in it, etc. The biggest difference though, is that when you gamble, there is a negative expected value – the odds are against you. The casino takes a cut. When you invest, there is no golden rule saying it has to be a favorable bet, but equities in the US have been increasing rather consistently for over 150 years (see Jeremy Siegel’s excellent book Stocks for the Long Run ). Studies of “rules-based” systematic investing styles like buying the lowest 10% of the market by EV/EBIT and rebalancing annually will often include the returns of the opposite decile (the highest 10% of the market by EV/EBIT in our example). The idea is that the larger the gap in returns between the two poles, the more predictive value the metric has. So what’s the point? Well when you look at these studies, it’s surprisingly hard to find one where the worst decile is actually delivering negative returns. This is significant because it means that stocks don’t only appreciate substantially on average, it’s also hard to find some that will go down at all. For myself and presumably many other investors, this odds-against-you fact is a total deal breaker. I remember in high school, I would print out the Las Vegas odds of each weeks NFL games and offer to do straight bets with anyone on any game so long as I had the favorite. I was okay with this activity because by picking the favorite without paying for it, I had a positive expected value – even though I didn’t know that term at the time. Several months ago, I was viewing the Ultimate Fighting Championship with family and someone suggested we bet on the fights. We would pool money and bet on who would win the fight and what round (or decision) they would win in The gamble was, on the surface zero-sum. No one was taking a cut of the bets. And I did research. I immediately pulled out my smartphone and looked up the favorite in each fight. I then looked up what percentage of UFC fights end by knockout versus decision. (click to enlarge) 41% of fights go to decision. Assuming a three round fight (most fights are 3 rounds, championship fights are 5), that 41% is significantly higher than the 25% it would be if each outcome were equally likely. So in each fight, I picked the favorite by decision with some confidence that I had a positive expected value. I won three out of the four fights we bet on. My approach to these situations where the game is explicitly zero or positive sum is in stark contrast to negative expected value situations. Casinos take a cut of all bets by structuring games such that odds are slightly in their favor. The lottery usually has a very negative expected value because: the winnings are taxed at the highest federal income rate and by your state as well municipalities take a huge cut (it’s a significant source of revenue for them) the advertised prize is not a present value, it’s usually a long-term annuity – taking the cash up front means getting far less there could be multiple winners that split the winnings, and the probability of this increases when the pot is large and many tickets are sold, offsetting the EV benefit of the higher pot. I’ve never engaged in these sorts of activities and would have a lot of trouble forcing myself to. It is counter to the investor mindset. But short sellers do just this. On average, they will lose money. The expected value is negative. The idea, though, is that by doing deep enough research and being opportunistic enough, they can make the expected value positive. This is tough for me to accept. First, the odds are dramatically against them on the surface. If stocks appreciate 9.5-10% a year in nominal terms, those odds are far worse for the short seller than some casino games. For example, in blackjack, the odds of you winning versus the dealer are 48%. Roulette is something like 47.4%. If stocks are appreciating 9.5-10% that’s the equivalent of ~45%. And that’s just the direct costs. Then there’s taxes, dividends you must pay on the shares you short, borrowing costs on hard to borrow stocks (unfortunately, many of the stocks with the best short cases have the highest borrowing costs because everyone wants to short them). This is somewhat offset by the fact that you can (I believe) use some of the cash you receive from the sale upfront for other things in the interim. I believe this depends on your creditworthiness as perceived by your broker, the size of the short sale relative to your assets, etc. Some brokers may require you to keep the margin in cash, which eliminates this benefit. The bottom-line: short selling is a negative expected value activity, so why do it? What are you optimizing? Value Investors Club is a great site. The quality of research is very high and there are some smart people on it – some of the smartest people in the investment industry, in fact. That’s why it confounds me that some of these investors are so short-focused. Some of these investors have written 25 articles and like 23 of them are shorts. Some of the smartest investors with the highest profiles are also heavy shorters. David Einhorn and Bill Ackman come to mind. Ackman now describes his firm as primarily long but opportunistically short, which may be the case, but historically he’s done a lot of shorting. I have a theory that these investors are attracted to shorting precisely because the expected value is worse than going long. It’s harder. It requires deeper research. It’s intellectually stimulating. It’s exhilarating. These things probably really appeal to smart people with a chip on their shoulders for some reason. But what is investing about? Is the goal of investing to optimize return or optimize intellectual stimulation? Most investors agree verbally that it’s all about return, but most don’t behave that way – and there are other examples. Obsessions over volatility, dividends, minimizing taxes, etc. are all examples of other things I’ve found many investors trying to optimize through their behavior. Buffett has said a few insightful things on this topic: “You don’t get points for difficulty” The mono-linked chain metaphor The one-foot hurdle metaphor It is certainly understandable that for investors capable of analyzing and understanding very difficult situations, it is challenging to focus on easy ones. Conclusions I have some other thoughts like the idea of specialization – maybe an investor, for some reason like a deep skeptical streak, is much better at shorting than going long – but they will have to wait for another post. This article is just me putting my thoughts to paper. At this point, I’m comfortable recommending that most investors (including myself) focus on positive expected value situations to optimize return and that means avoiding short selling.