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How to Hedge Your Business

Note: I’m holding a cover design contest for my new book out next week, feel free to enter!

This is normally something I would send to The Idea Farm, but since we started the conversation here I wanted to follow up.  One of the best parts of writing is getting feedback.  I posted an article the other week on hedging the biggest risk in the BUSINESS of asset management.

Sure enough, a thoughtful reader emailed in a fun paper from SSgA titled, “A Comparison of Tail Risk Protection Strategies in the U.S. Market“.  Lots of the strategies are somewhat costly, but you know what isn’t?  Two of my favorites – managed futures and a simple long/short trend strategy.  A chart and a quote:

Screen Shot 2015-02-03 at 8.35.16 AM

“As a reminder, our tactical equity strategy uses a simple trading rule and is long the S&P 500 index when above its 10 month moving average and short the index when below. Remarkably, of the 24 months with greater than 5% loss in the S&P 500 between March 1990 and March 2011, 17 of them (or 71%) occurred with the S&P 500 below its 10-month moving average.”

 

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