UNRIVALED INVESTING INSIGHTS

A member of my investing community recently asked whether investors should hedge and spend 1% to 2% of their portfolio every year buying insurance against a stock market crash.

My short answer: Generally, no.

Portfolio insurance, including protective put options, can reduce losses during market crashes. But paying for that protection year after year can significantly reduce long-term investment returns.

Instead, I prefer to protect my portfolio by owning resilient businesses that can create substantial value over time, avoiding excessive valuations, regularly reassessing my investments, and maintaining enough liquidity to navigate difficult markets.

That doesn't mean hedging never makes sense. Successful investors like Ray Dalio and Paul Tudor Jones have emphasized the importance of managing downside risk. I agree with the objective, even if my approach is different.

Let me explain why.

What Kind of Game Do You Want to Play?

Before discussing put options, hedging strategies, or ...