ARMED WITH fancy, Nobel Prize–winning equations and Greek terminology such as beta, portable alpha, neutered theta and sigma-squared delta (okay, I made up the last two), an army of consultants evaluates mutual fund and hedge fund manager performance on a monthly and quarterly basis, ignoring the fact that in the short run stock movements are random and require no skill to capture. As investors zero in on the short term, they dump stocks that are expected to do little or have declined. But if you can bear short-term underperformance, long-term opportunity is created — I call it short-term pain arbitrage.
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