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You Must Hedge Your Portfolio

16 August 2010 No Comment

If you currently have a long-only portfolio, you seriously need to consider hedging your long positions.  This doesn’t mean you need to get crazy shorting stocks, but the macro environment is such that hedging your positions to some extent is very important.

With the Federal Reserve’s recent move to re-start quantitative easing, it signals a massive failure of the last couple years to kickstart the economy back to a “growing” economy.  Couple that with other recent statements like “unusual uncertainty” and it’s definitely evident that the powers that be are struggling to get this economy on track.

Volatility is likely to be a mainstay in the markets for the foreseeable future as we balance ugly economic data and speculation on the random government-sparked rallies in the equities.  Ignore the idiots on CNBC who are nothing more than traders focuse on a quick buck.  Stay focused on your long-term investing objectives but protect your portfolio by having some hedged positions in place.

Here are some ideas to consider:

  • If you have a great deal of tech exposure, consider shorting a company such as Advanced Micro Devices, Inc. (AMD) which continues to struggle behind market leader Intel Corp (INTC).
  • If you have exposure to consumer stocks, consider adding a short position in a luxury consumer product company like Brunswick Corp (BC) which manufactures boats.
  • Consider a small position in the Ultra Short S&P ETF (SDS) or even consider buying some VIX Calls

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