If you missed my last live broadcast, be sure to check it out here… and as always, be sure to read my disclosures/disclosures below. Cheers!
For those interested in seeing the impact of hedging in action, see below. It’s the current positioning in one of my actual investment accounts.
Keep in mind, I have many accounts (multiple brokers, retirement accounts, etc), so this intentionally doesn’t give you insight into everything I own. For example, I have Smith Micro (SMSI) in at least three different accounts. Also, several of my largest holdings (GAIA, MRIN, TPCS, etc) are all in different accounts. In other words, showing you what I own (and how much is not the purpose of this exercise)!
It’s a retirement account for positions I intend to buy-and-hold. I started putting it to work when SMSI dropped to $1.50, back in March. In total, I bought 100,000 shares in this account at an average of $1.63 per share. Along the way, I also added some USATP and a long/short fund.
Now, here’s the key…
Near the market top, I took my own advice and added RWM (which shorts the Russell 2000) to the account as a hedge against my long positions. It was a big position, but that was necessary to cover ALL of my long positions.
Check out how things have played out:
As you can see, SMSI is up, but not a lot. Meanwhile, USATP and the fund are both down. Adding it up, I have an overall LOSS of about $27,000 in my long positions here, which is about -3% in this account. Coincidentally, the S&P is also down 3% this year.
However, my short against the Russell (RWM) has built up a profit of $74,000. This gives the account an overall gain of roughly $47,000. That’s more than +5% (which is +7% annualized — remember, I launched this account in March).
Now, +7% doesn’t sound like much (indeed, my other accounts have done better in 2018). However, that’s 10 percentage points better than the S&P’s -3%. To illustrate how big a difference this is, consider the following:
Over time, the markets deliver about 7% annual returns. From age 25 through retirement, 7% annual returns will turn $20,000 into $300,000. Not bad… until you consider that those extra 10 percentage points (17% annually) will turn that same $50,000 into $10.7 MILLION.
It may sound crazy, but check the math for yourself. #facts
The Bottom Line: You now have ten million reasons to learn more about hedging and other investment strategies as we head into 2019.
Happy Holidays & Best Wishes For A Prosperous New Year,
If you missed my last live broadcast, be sure to check it out here. Cheers!
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Disclosures / Disclaimers: I am long GAIA, MRIN, TPCS, SMSI, USATP, and RWM. However, this is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.
I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.
I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter. Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.
I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article. The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
The primary purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.