Podcast: Bear Market? This is What You’ve Been Preparing for With a Hedged Equity Strategy
In a follow-up or companion piece to our recent article I joined Derek Moore for a podcast discussion around the current state of the market. Specifically, how if a client is hedged in a portfolio they are prepared for down markets. You can click on play below to listen.
Show Summary:
In this episode Derek Moore is joined by Jay Pestrichelli, Founder of ZEGA Financial and author of Buy and Hedge: The 5 Iron Rules For Investing Over the Long Term, to discuss how if a bear market materializes clients using a hedged equity strategy have already planned for it and have defined downside floors in portfolios. Jay and Derek discussed the features and benefits of limiting downside, participating in much of the upside, while having the ability to reinvest at much lower levels should the market selloff materialize.
Key Takeaways:
- How investors using a hedged equity strategy are prepared for a bear market should it materialize
- What is a hedged equity downside limiting strategy?
- What is the difference between an investment strategy that has a downside buffer versus a downside floor?
- How the risk profile is swapping equity risk and volatility for fixed income (bond) risk
- Why people with hedged equity strategies might want the market to continue down
- How a good hedged equity strategy avoids losses and has ability to reinvest those avoided losses in more shares
- How hedged equity strategies give investors piece of mind and sometimes called the “sleep at night portfolio”
- The difference between holding short duration bonds to maturity versus longer maturity dated vehicles
- Hedging not only the equity portion but hedging when it comes to high yield
- Comments around recessions and how sometimes the crowd is wrong when everyone says there is going to be a recession
- How using hedged equity strategies like “Buy and Hedge” can reduce fear about investing at the wrong time in markets.
- How the fixed income portion of the portfolio has been performing in 2018
Mentioned in this Episode:
Previous Podcast Describing the Buy and Hedge Retirement Strategy
Article by Jay Pestrichelli “This selloff is what you prepared for”
Article by Derek Moore “Buy and Hedge Fixed Income Update”
Broken Pie Chart Book by Derek Moore
Buy and Hedge Book by Jay Pestrichelli & Wayne Ferbert
Stocks for The Long Run by Jeremy Seigel