Rule #1: Never lose money – Warren Buffett
I know it’s been up, up up but down does exist – Phil
We’re exploring two related ideas in this section. The core idea is that of covering or hedging your positions as insurance against a move that goes against your plan. Add to that Phil’s Mattress Plays as a way of hedging a larger number of positions against big market moves all in one go. The idea that struck me as so powerful in my early learning stages was the idea that an understanding of hedging was what I had been missing to be able to protect and adjust my virtual portfolio to the whims of the market. Phil writes about mattress plays in comments all the time, as it is an essential part of his hedging approach, and practices ‘safe trading’ with covered plays in all but the most special of circumstances. Sage has a number of articles about covering and hedging as well, applying a broad range of options approaches. The combination of understanding, approach, and tactics are a powerful balancing aspect of the core strategy.
