Dec 21, 2018
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 planed for it and have defined downside floors in portfolios. While not predicting themselves what markets will do, Jay and Derek discuss the features and benefits of limiting downside, participating in the majority 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 the hedges 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:
Article by Jay Pestrichelli “This selloff is what you prepared for” http://zegafinancial.com/2018/12/18/this-sell-off-is-what-you-prepared-for/
Article by Derek Moore “Buy and Hedge Fixed Income Update” http://zegafinancial.com/2018/12/14/buy-and-hedge-retirement-fixed-income-update/
Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk