3 Crash Protection Strategies

3 Crash Protection Strategies

by Chris DeMuth Jr.

Summary

  • Equity markets are expensive and risky.
  • Consider preserving some of your capital.
  • 3 ways for you to win regardless of market direction.

Chris DeMuth Jr. posted this article on the Seeking Alpha site and provides some sage advice for investors. He says, “It has been a great year for domestic equity markets generally as measured by the S&P 500 (SPY) and a number of event-driven strategies in particular. Many investors entered the second half of the year having already hit performance targets for the year. So what now?
The CAPE ratio (a far better market valuation measure than the P/E) sits at over 30 – well above the historical mean of 17. For over a century, it reached higher levels only briefly before the Great Depression and again briefly before the tech bubble popped.”

DeMuth’s analysis is sobering but his three suggestions for a defensive portfolio include the following.

1.) Merger Arbitrage
Open some positions which provide exposure to merger arbitrage.

2.) SPACs
Be sure to have low-volatility exposure to the category Special Purpose Acquisition Companies.

3.) Cash
Keep 30% of your assets in cash. This will give you the flexibility to go bargain hunting in the event of a market correction such we saw at the end of last year.

Conclusion
DeMuth’s encouraging advice is that “There are still plenty of bargains if you are willing to take equity market risk, especially if you are looking abroad and if you’re looking at small market caps.”

Please contact Chris DeMuth Jr. and read the complete article at Sifting the World.

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