One Reader’s Hedge Experience

Several readers have shared their experience in setting up a SimpleHedge as per my free e-book. The latest comment came from Foster, who wrote the following a few days ago:

I bought SH @75.68 on the Monday (March 23) following your signal. Then JSVAX following day (March 24) @8.25 and ARGFX also on March 24 @19.78. Total investment (about 10% of portfolio) split 50% SH and 25% each the long funds.

Results April 13:

SH -5.02%
ARGFX +18.5
JSVAX +13.09

I’m now going to rebalance per your guidelines.

To better understand what he has done, I have applied my matrix to demonstrate his hedge:

[Click on chart to enlarge]

Foster was very aggressive with his fund selection ARGFX, which has a Beta of 1.32. While this fund will do well when the markets advance, it may decline faster as the markets retreat. At least that what theory tells us. Nevertheless, he has done extremely well during this short period of time and actually outperformed the S&P; 500, although he was well hedged against any adverse market moves.

Foster was kind enough to allow me to publish his experience, and I will track it in the future to observe the effect of different market conditions as time goes on. It is important for Foster to track his unrealized gains (right now at +4.99%) in order to apply his sell stop down the line.

If this current +4.99% was the highest unrealized gain so far, then his trailing stop loss would be 7% below that point, or at around -2%. If his high so far had been +6%, for example, his sell stop would be triggered if the hedge moves down to -1%.

This means that Foster’s aggressive move with his fund selections has put him in a position where he has very little downside risk. Nice job and thanks for sharing.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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