This post was just published on ZYX Buy Change Alert.
Our models continue to show that any correction will be a buying opportunity. Our models do not expect 2008 style crash. Please note that the portfolio is 40% hedged. Those who have not hedged their portfolio may consider learning how to hedge as the benefits are considerable. Those not inclined to hedge may simply want to make sure that they are holding enough cash to take advantage of opportunities at lower prices as they occur.
With the stock market still near all time highs, the worst mistake an investor can make is to be 100% invested. The reason that investors who are 100% invested tend to act out of emotion during the market correction — this leads to selling low and buying high. Investors who are not fully invested tend not to become emotional and usually end up taking advantage of lower prices.
For your convenience, reproduced below is a post from January 4, 2013
ANSWERS TO QUESTIONS ON HEDGING
I do not want to hedge, what else can I do?
The simplest way is to raise some cash. It is as simple as understanding that unrealized profits can quickly disappear.
The simple practice of slowly taking some money off the table when the market is high and reinvesting it back when the market is low can make a dramatic difference in your profits over a period of time.
What is the best time to hedge?
The best time to hedge is when the hedges are cheap and there are significant risks ahead; this is the case now.
What are the best instruments to use for hedging?
It varies widely based on market conditions and the pricing of hedges. There are instruments that may be appropriate for hedging at one time and may be the wrong instruments at another time.
Right now the best way to hedge is to use a combination of a very, very small quantity of VXX, a very small quantity of VXZ, a ladder of debit put spreads on S&P 500, a ladder of credit call spreads on S&P 500, and some covered call writing on existing positions.
How can I learn more about hedging?
Those who want to learn themselves may consider attending the Hedge The Risk online coaching seminar. Subscribers receive a 70% discount.
Should hedging be customized?
Definitely, yes. No one size fits all. A hedging program should be customized based on the portfolio and the objectives.
Do I need to hedge very long-term positions?
If you are comfortable with the fundamental thesis behind your very long-term positions and also have enough cash to take advantage of any market dips, very long-term positions need not be hedged.
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