Thank God for hedges!
As of Tuesday morning's review, we had $800,000 worth of hedges in our Short-Term Portfolio and suddenly, on Friday morning – we're already wondering if that's enough, right? This is why we ALWAYS hedge – especially in a toppy market and, as Fundamental Investors – we know when a market is toppy. We also have RULES about hedging, like putting 25-33% of our unrealized gains into our hedges. That's how our hedges rise proportionally with our portfolios – so we don't let ourselves get complacent in a rally.
Our Short-Term Portfolio (STP) is paired with our Long-Term Portfolio (LTP) and acts as the primary hedge there but it also has enough to spare to cover our other portfolios against a 20% correction. Above that and we're in trouble but, of course, we simply add more hedges when 10% fails and again when 20% fails. At the moment, 10% seems ready to fail.
- Dow 36,000 to 34,200 has bounce lines of 34,560 (weak) and 34,920 (strong)
- S&P 4,700 to 4,465 has bounce lines of 4,512 (weak) and 4,559 (strong)
- Nasdaq 16,500 to 15,000 has bounce lines of 15,300 (weak) and 15,600 (strong)