Hedging Your Portfolio

Dear Reader,

Here are 3 important hedges that can help you sleep at night, protect your investments, and potentially help make you a fortune no matter what happens!

Hedge #1

When you buy an individual stock or group of stocks, especially ones as volatile as the resource sector, consider taking a small position in the ETFs that short that very market.  It doesn’t have to be a long-term holding, but on strength or at key technical levels, you could, for example, buy the JDST (3x short GDXJ) while maintaining or adding to your individual gold stocks.

This can be done with any sector, and it’s a simple way to limit your downside risk.  Own the individual stocks for maximum gains, but hedge with a short fund.

When I spoke to Rick Rule yesterday, he told me over the phone that he’s never had a single 10-bagger (1,000% gain) without first seeing it fall by at least 50%.  In fact, one of his biggest gains crashed 90% prior to seeing a once-in-a-lifetime 99,900% run higher!

This being said, hedge or no hedge, when speculating in any micro-cap company, you’ll need to have a high tolerance for pain.

Hedge #2

Selling stock, taking profits, and limiting losses.  Set trailing stops for all of your positions, even if it is just a mental one – never regret selling.

You can only look forward with investing; what’s done is done.

Taking profits is something rarely done, as it’s human nature to want to run with the crowd. But you have to force yourself to sell on large moves higher so that you’ll have the courage and capital to buy on the dips.

Warren Buffet’s #1 rule is to never lose money. Rule #2 is to never forget rule #1.

Volatility is not losing money; it’s important to separate the swings of a stock price from the business itself.  Back the right people, partner with the right teams, and the market will eventually price a great company accurately, but remember that markets are extremely messy.

Hedge #3

Real diversification. We’ve all heard about diversification, you know, from the mutual fund industry that advocates a 100% allocation into publicly-tradable assets.

When you think about retirement savings, do you think of rental properties, cash value life insurance, or the stock market? Most think of only the stock market, but that’s ridiculous and risky.

Separate your money with real asset allocation.

Diversify profits, income, and your savings. And never feel like you have to do anything. If you want to, don’t diversify, just hold all cash. Each person reading this has their own comfort level and risk tolerance, so never be pressured into doing anything with your money.

Legendary investor Jim Rogers told me once that he was out of the market for years.  Warrant Buffet, after having incredible success with his first fund, actually closed it down and gave investors back all of their money because he said there were no good bargains left.

Doing nothing sometimes may be the ultimate hedge!

Best Regards,

Daniel Ameduri

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