How do you hedge your portfolio?

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:
25% Socks
25% Property
20% Businesses
10% Cash
10% Gold
5% Commodities
5% Crypto

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.

4 Likes

:socks: heavy on socks

11 Likes

I never have enough socks, just when you think you have enough and that they will go the mile, you find a hole and money is lost in vain :rofl: same holds true with some stocks I have held :stuck_out_tongue:

5 Likes

Great list, couple of questions.

  1. Property, is this a buy to let, rather than stocks in property right?
  2. Businesses, You mean you own shares in private business?
  3. 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.

2 Likes

Are you long or short on socks?

5 Likes

I’m long on socks, knee high.

5 Likes

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.

2 Likes

They are some good socks!! Winter was coming :joy:

2 Likes

just above the ankle is about right so I would say a mix of long and short

1 Like

those kinds cause my legs to swell :frowning: guess I am best with short socks that cut on or below the ankle :wink:

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. :wink:)

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):

Whisky, music and the great outdoors are among hot alternative assets in 2021. To invest in your health, consider the $1,495 LiteBoxer, the “Peloton of Boxing.”

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:

https://www.whiskyinvestdirect.com/

From the Bloomberg article:

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.

3 Likes

And currency hedging? Market risk isn’t only equity risk. :wink:

FX risk is also very relevant in investing.

USD lost a lot of value against several other currencies in 2020.
Perhaps on your local currency also lost against other currencies.

  1. Correct, it is buy to let… not REIT’s etc.
  2. Yes, I own my own Payroll business which is what I mainly do for a living and also own/invested in 2 other businesses.
  3. 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.

Great thanks for detailed reply. What platforms or stocks do you use for Gold/Oil/Silver/Copper/Gas? Want to investigate these more.

I have 20% in Crypto (BTC/ETH), on BlockFI with 6% APY
Around 10% in cash on Nexo, with 9% APY
On T212 it’s kind of split 60% Stonks, 30% ETFs and 10% Commodities (that I might get rid of)

Okay coincidentally I also made a post a couple of days ago requesting flatexDegiro among fractional requests for some other in the capital markets and stock exchange services subindustry :joy:

It seems you’re an intelligent investor. Bright minds think alike. :wink:

(I also invest in other financial services companies, because I don’t like banks and insurance companies.)

Waiting for Robinhood and peharps eToro do an IPO to invest on them. Trading 212, could be also an interesting investing if they do an IPO.

2 Likes

Indeed we do :rofl:

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 :sweat_smile:

Source:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2929733

2 Likes

Is BlockFI safe? I use Crypto. com and get only 4.5% APY, maybe will consider switching if the platform is good. Would you recommend?