Thought a useful discussion for all of us would be how you hedge your portfolios, especially in this bullrun which may continue but of course sooner or later pullbacks and crashes happen.
By hedging I really mean is how you diversify, protect, balance or contrast investments with other investments assets. Common but not exhaustive list of classes nowadays are stocks, property, bonds, cash, crypto, shorts/calls/puts (this side of things I understand less and avoid myself) and also things like physical gold.
Personally, as I am a long way from retirement I am avoiding bonds and am essentially stocks and cash. But within my stocks I hedge using clear types, some fairly stable dvidend stocks are my ‘bonds’ and then my other stocks are split between value plays, growth and dividend growth.
Would love to hear everyones thoughts on how you do it and hopefully we learn, for example if someone wants to tell me why I should care about bonds/T-notes etc when 30+ years to retirement i’m all ears.
Interesting topic, I have had bonds in the past but never really made a great amount with them so don’t tend to hold them much currently but plan to in future.
The way I split (roughly) my investments is:
I have generally found that my split as per above works for me quite well. This was something I looked into a lot after reading a Ray Dalio book whereby he apparently is one of the masters of weathering any storm so to say and often talks about his “All Weather Portfolio” which gave me foundations to how I then diversified mine.
Property, is this a buy to let, rather than stocks in property right?
Businesses, You mean you own shares in private business?
As you hold gold, what is in the 5% commodities, or just things non gold like silver. Are these (and gold) held physically or through a ‘stock’.
I have listened to some of Ray Dalios stuff, yes his portfolio is very interesting, recently-ish in fact suggesting against bond and even cash, althogh I see that as dont hold LOADs of cash, your 10% is very sensible.
Other people already commented on the diversification so I’m just gonna drop by and give some quick thoughts on hedges.
Liquidity providers like Flow Traders or Virtu Financial, in general, are really direct hedges. To the contrary to having gold miners as a hedge, these companies directly profit of volatility (or more specific volumes and spreads which tend to increase when volatility increases). IMO this is one of the most direct hedges without using other products than simple stocks. Remember that gold initially also dropped during the March crash.
I use both of them in that role also. As they are a bit uncorrelated with the markets and benefit from market volatility (and also from the growing of investments). I also invest in stock exchanges (Nasdaq, ICE, Euronext) and waiting for T212 to invest on brokers (flatexDEGIRO). (@David; @Martin; @PeterA; @Tony.V; @Team212 don’t forget this request. )
I’m also investing in Intellectual Property, as it is financial markets-uncorrelated. The vehicle I use is an Investment Trust (SONG).
Both investments are residual, because I’m long in market risk (equity risk), and we need to expose to risk for profiting.
I’m also looking to other areas of financial markets-uncorrelated investments, such as exposure to legal risk (litigation finance) and climate risk/catastrophe risk/insurance-related risks (insurance linked instruments).
I’m a bit of long thinking in investing in Scotch Whisky directly (not by buying stocks or other financial instruments):
An employee moves a wooden cask of Chivas Regal blended Scotch whisky at the company’s Strathisla distillery in Keith, U.K.
In Bloomberg newsletter (16/01/2021)
There is a British Fintech launched in 2015, WhiskyInvestDirect, a Scotch whisky marketplace/trading platform that allows investing in raw Scotch whisky (grain and malt) from distilleries that ages in casks, and after that the investors could sell it to the major whiskey brands or to other investors:
Why now: Spurred by rising demand from Asian investors, the value of rare whisky has soared 564% in the last decade, and the asset has outperformed not only fine wine but every other luxury asset, according to the Knight Frank 2020 Wealth Report. Knight Frank’s data shows rare whisky soaring despite the volatility in markets in recent years.
Risks: Casks, which are stored in warehouses, can leak and break down, degrading their contents so much that the liquid no longer qualifies as Scotch. You can insure casks, but that won’t make the whisky you’ve waited for taste any better.
Note: Scotch Whisky and other real assets are alternative investments that share in common, the fact they are iliquid investments.
Yes, I own my own Payroll business which is what I mainly do for a living and also own/invested in 2 other businesses.
Gold is held through a stock although I have looked at changing this to physical though didn’t to begin with as my investment was so small. Yes the commodities is mainly crude oil, silver, copper and natural gas.
My cash mainly consists of an emergency fund held in an ISA.
Personally don’t like IPOs, mainly because they tend to underperform for the first two years (even when common risk factors like size, relative performance and momentum are accounted for). They behave like high beta stocks with a negative value premium. This underperformance tends to decline after longer time periods and statistically insignificant after two years. It’s only proven that getting in on the initial allocation (although this is nearly impossible for retail like us) tends to give outperformance. If we can get in on the initial allocation of a T212 ipo I would be in. But I’m getting off topic so I’ll stop now