This stock market has become riddled with valuations that have crossed the threshold of what I thought was possible of late. Stocks are so expensive now, it’s hard to find sectors that show any semblance of value relative to historical levels. In this environment, it’s important to remember that old Warren Buffett mantra, to be “greedy when others are fearful, and fearful when others are greedy.”
Indeed, this saying holds up now more than ever in my view. The market is in an all-out state of euphoria as far as I’m concerned, with many objective metrics such as the fear-greed index showing extreme levels of greed in the markets today.
In this context, hedging one’s portfolio for the potential for a serious market correction seems like a prudent thing to do. Staying invested is a great long-term strategy, but having the tools necessary to be able to pick up the pieces and have the ability to take advantage of market downturns is another thing.
In that regard, I’d suggest investors look at hedging options that fit their investing timeline and are within their realm of expertise. Going with fancy options might look good, but executing on options-related strategies can be very tricky. Putting a small percentage of one’s portfolio into alternative low-beta assets such as gold, or rebalancing one’s portfolio into more defensive market segments, may be a better way of going about this. I find myself in the latter group, however, every investor is different.
Invest wisely, my friends.
