The run in the market over the last few weeks – perfectly captures why I don’t short the Market or hedge my holdings. I don’t buy expensive vehicles such as SPX puts, VIX calls, or Bear Market Funds to insure the risky parts of my portfolio – and I guarantee you the folks that do – are banging their heads against a wall right now as the market continues to rise (even if it is rising for all the wrong reasons).
It is far more efficient to simply substitute riskless assets for some of your risky ones when the market presents the most risk (i.e. when it is the most expensive). This is selling high!
This is also why I am never less than 25% invested in stock or more than 60% invested in stock at any time – I want to benefit when stocks rise, and have dry powder when stocks fall.
Sometimes expensive Markets just keep getting more expensive – I want to be in the position to sell some of my winnings into this greed, and then buy back in later when fear takes hold. Some trends last several months and others several years, but eventually they all end. This is not an opinion. It is a fact.
Buy low, sell high.
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