Proper diversification in your portfolio means you don't have everything in
high risk where you could loose it all.
That makes sense to me. That
decreases the high risk with lower risk investments. Low risk investments that
are detached from the high risk so you don't just have the illusion of
safety.
But buying a given stock - like SCOG.x while short-selling it?
The broker that handled the transaction for you is thrilled you wanted to pay
him for - effectively - nothing.
I should add: my opinion on the aspect
of how hedging is handled is due to a number of brokers wanting to sell the
technique but none of them wanting to actually clarify how it worked. When
presented with actual scenarios, they would rather choose to no longer discuss
the technique. Perhaps some day I'll find someone willing to discuss it to show
it would properly function in a fairly simple scenario. And by that I mean:
actually work the numbers out on paper.
When I go to get a bank loan and
we're discussing different payment options, and I have questions, the banker is
willing to actually work the numbers out on paper to show how they work. I
don't think it's too much to ask for someone trying to sell you on the idea of
hedging to do the same.
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