Tinker, Tailor, Soldier, Spy

I had a good week, after employing some new techniques that I haven’t tried, I’ve made big gains.

Basically, the strategy of this technique is simple, it is a technique called hedging, and is used by almost all “hedge” funds, hence the names.

What happens in hedging is that the investor invests in one stocks in hopes that it will go up or down(short), but will also invest more money in a rival stock, or even in the same stock, but usually in the opposite way, so if you shorted the first stock, you’d go long on the second stock, and vice versa. Ideal second stocks are usually stocks in the same sector, that will say if you hope your first stock will go up based on good news, not as respondent to one kind of news, so that when your first stock does go up, you won’t have to deal with that much money being lost in your second stock pick. But, alternately, the second stock pick should usually respond well to the other type of news, and quickly, and volatilely, so in the case that you lose money on your first stock pick,  this stock pick can quickly make up for or minimize your losses.

By utilizing this strategy you can minimize your risk, but the downside of this is that you probably will end up losing money on either your first or second stock, so it isn’t as efficient, as just investing in one of them, and taking the profits without any losses.

In addition to this hedging can also be used in other ways, such as fuel hedging used by airlines, which is the purchase of options(Paying money to obtain the option to buy fuel at a set date in the future for current prices), and contracts(Buying fuel for a set date in the future at current prices). This way airlines can minimize their impact by sharp increases of fuel prices, but not be effected by the sharp decrease, because they’ll just buy more fuel at the low prices, and buy more contracts, and options, to even further maximize their savings. This is due to the fact that for the last fuel years fuel has gone nowhere but up.

An update on my investing portfolios, after aggressive trading on the speculating side I am in the green after being down 30K, and am up well over 6% just this week, in addition to the 3+% increase this week of my long term investments.