Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Portfolio Protection + Money Management for the Long Term -- Ignore unavailable to you. Want to Upgrade?

To: BDR who wrote (2)	4/8/2000 1:51:00 PM
From: BDR	Read Replies (1) \| Respond to of 57

How might you hedge? Here are some approaches I am aware of and my reactions to each. 1)Sell some or all of a position and sit on cash. Implies an ability to time the market getting out and getting back in that has escaped me. Costs: opportunity cost, pay taxes now instead of later. 2)Selling covered calls. Generates income, but one is giving up significant appreciation and control in return for downside protection that is only equal to the premium. Due to "American style" exercise, one may get called out anytime the option is in-the-money. 3)Shorting against the box. Again the timing required escapes me. Margin intensive. 4)Buying a strong stock in a sector and shorting a weak one in the same sector. Interesting concept that I haven't seen explored much. 5)Buying puts on each holding. Avoids the limit on upside potential of calls. Downside protection is good. Can be expensive. High maintenance to keep track of multiple positions. 6)Using futures to hedge. I am largely ignorant of this tactic but I am reading Chap. 32 of McMillan and I am beginning to get a glimmer of understanding. 7)Buy puts on an index that behaves in a manner approximating one's portfolio. Can be difficult to match? Liquidity? Simpler than managing puts on each stock. 8)Diversify. In my case that would mean moving out of technology for a mix of cash, bonds, "old economy" stocks, etc. I would love to hear other people's experience and understanding of the above approaches or others that I have not mentioned. The costs of the different approaches may be more clear if we work through examples of different methods.

To: BDR who wrote (2)	4/8/2000 4:19:00 PM
From: John Stichnoth	Read Replies (1) \| Respond to of 57

How about these as rules: 7. A company with a proven track record is safer than a stock with a great "story". 8. An industry leader is safer than a company in second place. A company in second place is safer than a company in 3rd place. btw--I disagree with #2. It depends how the company got there. Think of all the quarters QCOM "disappointed", while it was going about the business of establishing CDMA. Also, I don't quite "get" #5--how long in the future are we allowed to "project" earnings? I wonder, as this thread develops, whether it would be worthwhile constructing a portfolio of companies that satisfy any investment rules that are decided on? A sort of G&K portfolio that isn't necessarily composed on G&K's, or even tech stocks. Best, John Dale--This is an interesting idea for a thread. Good luck with it. I will bookmark it.