Defense Wins

by Jay Pestrichelli on January 17th, 2012

At Buy and Hedge, we’re constantly talking about protecting your assets and reducing losses with hedges. We talk a lot about knowing your risk and having a well conceived long-term plan that incorporates diversification, and taking some calculated shots.

After watching the Divisional round of the NFL playoffs, I was reminded that these concepts apply to more than just investing. The winners this week weren’t the record-setting offensive powerhouses of New Orleans and Green Bay. Or the Flav-o-the-month(s) Tim Tebow that has been driving up viewership (by the way, this doesn’t mean I don’t respect what he’s accomplished as a rookie-but he’s not the second coming).

Defense won this week. No doubt about it. Ravens, Giants, and 49’ers all owned their opposing offenses. Tough to say that about the Pats because Brady was just so overwhelming, but their defense did end the rein of Tebow’s 2011 season with what felt like a “face meet wall” reception at Foxboro.

As the authors of Buy and Hedge are Giants and Ravens season ticket holders, we both had a good weekend.

A good defense allows your offense to do its job. The same works for investing. We want to score points because we’re in control, not because we’re playing catch-up all the time. Knowing that assets are hedged means investment strategies can play out and timing becomes less of a factor. It also means that there’s time to make adjustments due to changing environments in the face of the unforeseen.

We’ve all heard the old proverb, “Hope for the best, but prepare for the worst”. This is exactly one of the key reasons why we hedge…and why we hedge every investment. Mathematically speaking a long position by itself can go to 0. It happens all the time, and from time to time, it happens with big companies.

I’ll leave you with a quote from a recent Oscar winning performance. I’m sure you can guess the movie and the actress. It seemed fitting considering the overlap of award and football seasons.

“Now, y'all would guess that more often than not, the highest paid player on an NFL team is the quarterback. And you'd be right. But what you probably don't know is that more often than not, the second highest paid player is, thanks to Lawrence Taylor, a left tackle. Because, as every housewife knows, the first check you write is for the mortgage, but the second is for the insurance. The left tackle's job is to protect the quarterback from what he can't see coming. To protect his blind side.”

Here’s a little dig, Wayne. Lawrence Taylor, not Ray Lewis, made the quote. I’m just sayin’ ;)

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