Mark Tinker, AXA Framlington

The most important thing about the short side is that the risk-return structure is very different to traditional investing. The downside risk is unlimited while the upside diminishes as the strategy unfolds. This is the reverse of the compounding effect in long-only investing, where the first 10% gain on £100 makes £10 but the next 10% makes £11. On the short side the first 10% makes £10 but the second only £9. If a stock has halved, to make the same return, the investor has to either increase t