April 15th….I hate you!
Everyone from financial analysts to members of the media had claimed to predict the impending decline of the market as a whole. April 15th, certainly was the beginning of the end for profiteers and would somehow be the catalyst for further volatility which may last until the first quarter of 2014.
I would be a liar to tell you that our clients including my own personal positions weren’t impacted by the market dropping several hundred points within a three day period. Ouch is an understatement.
In aggressive strategy portfolios like my own, I saw months of profits wither and die in an instant. Friday’s close enabled us to avoid what I presumed was eminent disaster by the skin of our teeth. Thank God for naked puts and covered calls!!!
The positions we were forced to hold were dividend paying stocks we wanted to own anyway which brings me to the subject topic...Hedging your strategy.
Everyone may have predicted that the end was near for profits in the market but no one had a specific date in mind. Everyone followed market sentiment and pulled capital out of the market in record droves. Techs, utilities, precious metals all took a big hit. Even the building sector which was being touted as resurging was harshly affected. What did investors think was going to happen with such a rapid departure of capital despite the Fed still pumping $85 billion monthly into the market? Yes, monthly. Very few if any saw April 15th coming at least not to the degree that it hit us.
Hedging our investment strategy helped us weather the storm. We are down but far from out and if it weren’t for the diversification of mixed sectors and the fact that they are all dividend payers we would not have made it through the tunnel yet alone seen light at the end of it.
There is always an exception to the rule but for the most part, I prefer to hold only stocks that pay a dividend. Even when we buy or sell an option on a stock, I usually take those positions on securities that pay a dividend and that I am interested in owning anyway. When the dividend is paid, it improves the bottom-line on the securities you took a loss on and have to hold. You can always create another option to reduce your capital exposure.
Now a lot of you out there are probably saying to yourselves, “this Don Mahoney guy is nuts if he thinks I should be trading in options”. Most people don’t understand options including a lot of individuals who have already invested in them. Options like buying securities outright are to be executed wisely with as much information as possible. Some investors use options to hedge against the securities in their portfolio such as Coke, Walmart, Microsoft, etc. I refer to these as equity investments; meaning you have invested your capital into these securities and like most equity investments needs to be sold or borrowed against in order to convert back to cash.
For the most part I do not like owning securities unless they are dividend payers and are blue chip global dominating companies like Hershey Foods. Not all blue chips and global dominators meet my criteria for equity ownership. I like companies that have undervalued share prices and have little R&D overhead.
Intel is a great blue chip and world dominator company but I hate their continued R&D overhead that they are forced to perpetually spend because of the nature of their business. FAB plants are not cheap to build or to continually modernize. I just don’t understand the logic that some investors use to quantify owning Intel stock unless it is for the long term. Even then, there are other companies that pay way better dividends.
I tend to use options to hedge against the equities in the portfolio. You want a diverse portfolio made up of different sectors. I don’t like many ETFs but there are a few ETF sectors that I do like. Don’t just think NYSE, OTC, etc. Open your mind up and buy foreign securities. For the most part a lot of them are significantly undervalued and are outperforming American companies by a factor of three. Several Indian and Japanese companies are making great gains despite global market climates.
Understand options to further hedge your equity positions. Don’t be greedy and always go after the big premiums. Stop and think about the best way to reduce your exposure and minimize your risks in any given situation. Remember there are not only brokerage fees but contract fees and margin maintenance you have to pay especially if things don’t exactly go your way. When you execute an option take all of that in consideration and maybe cover the position with another “just in case” option chain.
Happy Investing!
~D~
Everyone from financial analysts to members of the media had claimed to predict the impending decline of the market as a whole. April 15th, certainly was the beginning of the end for profiteers and would somehow be the catalyst for further volatility which may last until the first quarter of 2014.
I would be a liar to tell you that our clients including my own personal positions weren’t impacted by the market dropping several hundred points within a three day period. Ouch is an understatement.
In aggressive strategy portfolios like my own, I saw months of profits wither and die in an instant. Friday’s close enabled us to avoid what I presumed was eminent disaster by the skin of our teeth. Thank God for naked puts and covered calls!!!
The positions we were forced to hold were dividend paying stocks we wanted to own anyway which brings me to the subject topic...Hedging your strategy.
Everyone may have predicted that the end was near for profits in the market but no one had a specific date in mind. Everyone followed market sentiment and pulled capital out of the market in record droves. Techs, utilities, precious metals all took a big hit. Even the building sector which was being touted as resurging was harshly affected. What did investors think was going to happen with such a rapid departure of capital despite the Fed still pumping $85 billion monthly into the market? Yes, monthly. Very few if any saw April 15th coming at least not to the degree that it hit us.
Hedging our investment strategy helped us weather the storm. We are down but far from out and if it weren’t for the diversification of mixed sectors and the fact that they are all dividend payers we would not have made it through the tunnel yet alone seen light at the end of it.
There is always an exception to the rule but for the most part, I prefer to hold only stocks that pay a dividend. Even when we buy or sell an option on a stock, I usually take those positions on securities that pay a dividend and that I am interested in owning anyway. When the dividend is paid, it improves the bottom-line on the securities you took a loss on and have to hold. You can always create another option to reduce your capital exposure.
Now a lot of you out there are probably saying to yourselves, “this Don Mahoney guy is nuts if he thinks I should be trading in options”. Most people don’t understand options including a lot of individuals who have already invested in them. Options like buying securities outright are to be executed wisely with as much information as possible. Some investors use options to hedge against the securities in their portfolio such as Coke, Walmart, Microsoft, etc. I refer to these as equity investments; meaning you have invested your capital into these securities and like most equity investments needs to be sold or borrowed against in order to convert back to cash.
For the most part I do not like owning securities unless they are dividend payers and are blue chip global dominating companies like Hershey Foods. Not all blue chips and global dominators meet my criteria for equity ownership. I like companies that have undervalued share prices and have little R&D overhead.
Intel is a great blue chip and world dominator company but I hate their continued R&D overhead that they are forced to perpetually spend because of the nature of their business. FAB plants are not cheap to build or to continually modernize. I just don’t understand the logic that some investors use to quantify owning Intel stock unless it is for the long term. Even then, there are other companies that pay way better dividends.
I tend to use options to hedge against the equities in the portfolio. You want a diverse portfolio made up of different sectors. I don’t like many ETFs but there are a few ETF sectors that I do like. Don’t just think NYSE, OTC, etc. Open your mind up and buy foreign securities. For the most part a lot of them are significantly undervalued and are outperforming American companies by a factor of three. Several Indian and Japanese companies are making great gains despite global market climates.
Understand options to further hedge your equity positions. Don’t be greedy and always go after the big premiums. Stop and think about the best way to reduce your exposure and minimize your risks in any given situation. Remember there are not only brokerage fees but contract fees and margin maintenance you have to pay especially if things don’t exactly go your way. When you execute an option take all of that in consideration and maybe cover the position with another “just in case” option chain.
Happy Investing!
~D~