More Portfolio Defense Implemented

As the market feels some relief I added a little more defense.

Earlier today I bought the Cambria Risk Tail ETF (TAIL) for clients to increase the size of their hedge/decrease their net long exposure. The intense declines into Christmas Eve made a snap back of some amount inevitable. While I do not know if the snap back will continue past today I decided last night that I would fade a strong open by buying TAIL.

The way this (what I think is a) bear market has unfolded I've taken defensive action by buying several inverse-type products, gold which I always keep has also been generally doing what it usually does (that is it tends to go higher when equities struggle) and we've done very little selling.

If the market keeps going down then I would expect our hedges (TAIL, SH, BTAL, GLD, also PTLC switched to cash a couple of months ago) to go up in value thus growing to hedge more of the portfolio. If the bottom was put in then those hedges would shrink relative to the portfolio, being less of a drag as the market works higher (assuming I don't sell them). Obviously I would hope that the bottom is in but this looks like how previous bears have started. In that environment I want the portfolio to be less volatile than the market in hopes it goes down much less than the market.

Depending on how things shake out I can always still do some selling but for now I like the idea of having the opportunity for better upcapture in case the market does rocket higher from here.

If you've been reading my blog long enough then this is your second go around with me during a bear market (again, I believe a bear market started in May). A huge part of my process is that I do not know what will happen, no one does. My trigger point is an objective indicator that at times can give false positives and how I proceed from there is based on personal experience/observation with a priority placed on mitigating the consequence of being wrong. Ten years ago there were fewer tools to hedge portfolio than there are today and I did more selling back then. For now, I think the above mentioned funds are getting the job done but there may be a need to do more selling, we'll see how things develop.

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