A wise man once said that you’re not levered up enough if you don’t occasionally wake up to your own scream at night.
Discuss, tanks!
Funny. One of the questions I ask portfolio managers during quarterly run-throughs of their risks is:
When you wake up in the middle of the night, which investment do you think of the most?
it’s has worked out pretty well, they open up and we get more insight in their risks. Forget “what is your risk appetite, how do you see the market”.
If you are waking up at night, it’s because you didn’t hedge your risk properly. Most don’t think of the 2% black swan risk. I’m paraphrasing Richard Bernstein. Not the late William Bernstein
Anyways the key here. Most don’t worry enough about stds when there are many stds. Std i think about all the time personally. As you get married, it’s even more important. Safety is the best thing especially for the people you love.
Most people base their bond position on some retarded reasoning like 120 - age = stock position. Which is good enough. Or some rational economic man theory where you are focused on optimal growth but will be displease in the worst case.
When you are in this type of all time high coupled with very high valuations, You should really be basing it on your worst case scenario of expenses and be sub optimal or be geared towards it. And to make it better, you need to be able to modify and be ok with living less if the worst case happens.
Hedging is for the weak. As is diversification.
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I am playing loose with the term hedging. IMO everyone hedges risk by allocating to bonds or cash. You can lower std or even blow up risk simply by reducing equity exposure.
As for diversification. With bessembinde’s study everyone has finally accepted that we need more positions and even ETFs. I am unconvinced though, since his study focused on the entire market which is vastly different and lower quality from an s&p 500 stock. Aka he includes microstocks.
I believe they’re called STIs now. Either way, be careful.
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Thats what we were told in high school. Protection and hedging was also discussed.
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If you are not waking up at night, you can take on more leverage. facts are facts.
I use options for leverage. It’s kinda funny watching the change in premiums depending if there is an election. A rate discussion. Or data to be released.