So we have already another thread about “selling before the bubble bursts”. I am thinking currently about something similar, but I am looking for a bit more concrete advice. I have, among others, three positions in my portfolio that I particularly like and where I wonder what a more experienced investor would do.
I have ABBN where I am in the green 68%. This could be related a bit to the AI hype, since they are delivering electrical infrastructure also for data centres.
I have SDZ, where I am in the green 40%. This could be affected in both ways, up and down, if a tariff deal with US will be made. I doubt it could skyrocket, but it could tank.
I have GOOGL, where I am up 80%. This is for sure AI hype related and I am a bit fearful it could be already bubble territory.
I wonder, what an expert would do in such a situation. I actually do not NEED to sell any of these positions, but on the other hand, if they tank, it would be nice to collect some of the gains. As I made already some good option trades in the past, I wonder if it would make sense to hedge these positions with some Puts, in case they tank I could sell the puts and collect the gains while still holding the stocks. I actually don’t plan to sell the stocks, as I believe they could rise more in the future.
However, I am not sure how I could identify when is the right time to start hedging a bit. I could now waste some money and buy puts, just to find out that GOOGL and ABBN rise even more and all my puts are worthless. Or tomorrow, a new tariff or something else political could be announced, which makes all of this stuff tank like a stone.
It will not hurt me too much as I can hold very long term, but still it would be a pity to lose all these nice gains. However as I am not yet investing for a super long time, I cannot judge if +68% or +40% or +80% is “a lot”, but to me it looks like it is a lot. For sure if I would realise the gains I could purchase some very nice long holidays on the Maledives, but I won’t do that as I will keep everything invested.
Any advices? What are you doing in this situation now?
If you have 1M on each stocks and they are 95% of your net worth, I’d take action.
If the sum of your stocks equals a month salary and you’re just stressed out by the unrealized gains, think if you would buy at this price now in relation with data you have, conviction, confidence in the future. If no, sell. You may be wrong. Or right.
Of course I don’t have 1M in each stocks, but several month’s salaries, yes. So the sum of all these is a couple month salaries. Also these 3 positions are grown so much they are almost 50% of my portfolio. I know I should rebalance it, and I am trying to achieve this, but my strategy for rebalancing is by just buying more of the stocks where I have a small position. So far, I never sold any single stock. I am not stressed by the unrealised gains, I just think, for example, if USA will announce new tariffs, or if the AI bubble bursts, everything will tank and the unrealised gains may even convert into unrealised loss. So I thought it would be advisable to hedge, but I have no idea if this is something that normal people do. As I said I would try to do it with puts, but I also read that most retail investors only lose money with buying options, so I don’t know if this is a wise strategy.
Hm, those savings are not yet very significant. It won’t enable immediate retirement and you could save it up again in the short to medium term. This is not critical money and likely dwarfed by your human capital.
Still, I don’t see how you are an expert stockpicker. Did you compare your portfolio return to holding an equivalent in index funds? Is the difference in return due to your superior knowledge or was it just chance?
If it was chance (what it looks like), I would scale down your stock picking operations.
There are tools in investing that do compensate additional risk with more returns. Layman stock picking does not, it has much higher risk without increasing expected returns.
Hedging single stocks is even worse since your counterparty wants to be compensated for this high risk (and low demand). It is cheaper (but still not very useful) to hedge an index instead of all constituents seperately.
The easiest and cheapest “hedge” is selling a part of this position for a diversified index fund.
Compared to your investment lifetime and human capital (your ability/amount of future income), that‘s not much money.
At this stage it‘s more about learning than anything. It‘s not gonna be that consequential on what you do. More what you learn and how you approach investing going forward.
In general: on average hedging in any way will cost you. Insurance is never free. Only diversifying is gonna be a free lunch here. It‘s the only free lunch in investing, as the saying goes.
I would hedge by securing my source of income and if possible diversifying it so as to be sure that I have money to invest when there’s blood in the streets, even if some of it is mine.
Agree, until the portfolio is worth multiple years worth of salary, it doesn’t make sense to overthink it. Just invest and learn and concentrate on growing income instead.
You‘d have to be right about both market direction and timing to gain on those options.
Alternatively, you could sell OTM calls against your stock to collect a premium which would provide income if the stock stayed steady, and moderate the loss if it were to tank. If the price were to rise significantly, your stock would be called away though - for a higher than the current price.
Or you could buy your insurance puts using the premium you receive from the calls.
Perhaps best to simply sell though😉
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