Beachman's 2025 hedging plan - Part 1
Portfolio: Beachman's portfolio tactics based on his read of the markets
For the past few weeks, I have been writing about the upcoming potholes in the markets landscape. We have been warning and preparing for these craters. We have not gone unscathed…no one wins in a correction…no one. But we were prepared and were able to navigate through these times with minimal damage.
But now what about the future? What could happen to markets over the next 3 months? …over the next 6-12 months?
Last week, I was having a conversation with my daughter who is about to graduate from college with an Economics and English degree. She told me that her class of 2025 is quite nervous about the job market…lots of doubt and uncertainty amongst these seniors. Of course, the dad in me started thinking about how I could help her understand what could happen in the US economy and focus on something positive. I walked her through my market roadmap and while I acknowledged that job hunting in 2025, especially for new graduates, will be challenging…the US economy is likely to recover quite sharply by the Summer of 2026. We will have undergone some deeper macroeconomic pain and will come out stronger…just in time for the US govt to stimulate the economy before the mid-term elections. Politicians love to hang onto their jobs.
So today, let’s shift our mindset towards a more positive tone…how can we proactively plan for and handle the upcoming potholes?
Let’s do our best to handle this upcoming turbulence before we get to the 2026 clearer skies.
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Table of contents
Beachman’s portfolio framework
Actions for sleeping well at night
Beachman’s multi-faceted hedging approach
Next steps
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Beachman’s portfolio framework
As mentioned before…my portfolio management framework is rather simple and flexible:
Themes → Picks → Risks → Hedges → Speculation
Since the beginning of the year, we have been fleshing out portions of this framework.
Themes - In early Jan, we discussed my preferred 2025 themes here. Every year has a certain investing character and a handful of dominant themes that are aligned with that particular year’s personality.
Picks - Then, I shared my stock picks for the year in the portfolio file pinned here. For each theme, I identified my best picks…based on the information we have today. My picks change throughout the year based on new company and sector developments, earnings reports and macroeconomic shifts. I recently eliminated three of them and added two new picks.
Risks - Following this, we laid out some of the biggest risks for 2025.
Roadmap - Last time, we mapped out how markets could perform over the next 12 months. I continue to keep this market roadmap updated as per the most recent macroeconomic developments and market signals.
Hedges - Today, let’s dig into the complicated topic of hedging. I will share my approach because it could be useful for you to perhaps figure out how to hedge your portfolio.
Speculation - Finally, we will dive in to smart speculation i.e. how I plan to use portions of my portfolio to place short term trades and earn options based income.
Actions for sleeping well at night
Every investor is a unique human being. Our risk tolerances and life goals are diverse. No two portfolios are the same. Therefore, everyone reacts to market volatility differently.
Some sell quickly and prefer to stay in cash. They would rather wait for the dust to settle…wait for a clear, green signal before they get back in the market.
Others use technical signals to decide what and when to do it. e.g. They may sell when the index is below the 200dma and buy back when it reclaims that level.
Then there are some investors who act based on macro indicators like GDP growth, unemployment rate, interest rates or inflation.
Most investors just ride the market up, down and then up again. They take a longer term horizon and accept the volatility because over the long run they believe the markets keep going up and to the right.
Many get paralyzed by fear of doing something that might worsen the situation. They prefer to ignore their brokerage statements and skip over market news.
I consider all these to be valid responses and actions as long as they align with our risk tolerances and life goals. There is no right or wrong response here…the action needs to be what’s best for our individual situation.
Wall Street will try to convince you to stay invested. They will show you historical charts, tables, investor stories and even quote Warren Buffet.
Each of us needs to do what allows us to sleep well at night (SWAT).
I have read countless anecdotes from many of you who rode it out in 2022 and are still recovering from that mess.
One can stay invested, but hedging based on the macro roadmap is critical to longer term success.
Beachman’s multi-faceted hedging approach
Every year has a unique investing character and therefore my hedging approach changes based on how the year is likely to shape up.
Usually, I prefer a simple barbell hedging strategy…like I used in 2022. Then, I was able to balance the downside volatility in my tech portfolio with a barbell hedge of value stocks. It did not work perfectly, but it severely limited my downside, until I was ready to start buying back into the market in Oct/Nov 2022.
For 2025, the market and macro dynamics are a bit more complex and fluid. Therefore, a multi-dimensional hedging strategy makes sense for my portfolio.
Here’s how…
Timeline
First, I need to map out how the market is likely to perform over the next 12-15 months. This market roadmap guides me for when I need to deploy cash, when to raise cash, when to start establishing hedges and when to buy back into the market.
Low beta stocks
Then, I review my current low beta holdings to figure out how they might perform based on the expected macro developments documented in the market roadmap mentioned above. These are my risk-off holdings that performed relatively better in past bear markets. Most of them will likely serve as part of the overall hedge. Some might need to be trimmed a bit to bring them to my SWAT risk level.
High beta stocks
Next, I consider my current high beta holdings to figure out how they might perform against the timeline and macro trends. These are my risk-on holdings. Few of them could serve as part of the overall hedge. Most will need to be fully hedged. Irrespective of the role they might play, some might need to be trimmed to bring them to my SWAT risk level.
Target cash and cohort %s
Based on the analysis above, I now have a list of the specific stocks that I need to trim and by how much %wise.
I am able to calculate the following three cohorts in my portfolio:
Low beta stocks - Individual % allocation targets (after trims), the total value and % of the portfolio.
High beta stocks - Individual % allocation targets (after trims if any), the total value and % of the portfolio.
Cash - Target % of cash that I will build up in the portfolio. A part of this will be used to fund the hedges.
I use these calculations to start my SWAT trimming and to raise cash. The earlier I complete these calculations the better because it gives me more time to prepare and execute my plan.
On a daily basis, depending on market conditions, I can decide whether to trim a particular stock or not. e.g. this past week I trimmed one of my holdings because it was hitting upside resistance and I added to a low beta stock to shore up the hedge side.
Use time to your advantage
I cannot underscore the importance of time. Use it to prepare, plan and execute.
I keep referring to my market roadmap linked above. Not saying that it is 100% accurate…I am not a fortune teller. But I find that a 12-month forward looking timeline gives me clear milestones for when…
…to trim, to deploy cash, to raise cash, to start establishing hedges and to buy back into the market.
I don’t have to rush into these actions all at once.
I can space out each step to maximize its effectiveness. e.g. Trim on a day when markets are in the green. Start hedging when hedges are cheaper.
Next steps
So I now have my numbers at the ready. While I am working towards my target % allocations for each of my holdings, I can start identifying specific hedges for my high beta cohort. Remember, I don’t feel the need to hedge everything in my portfolio.
To find effective hedges for my specific portfolio I have to do some homework. I have to do some charting, analysis, back-testing and more calculations.
We will cover this in more detail in the next post.
We are long term investors, but this is not the time for heroics and rampant speculation.
We don’t want to get scared away from the market because there is money to be made if one takes a prudent portfolio management and hedging approach.
But the proverbial “shit” is going to hit the fan soon.
So, let’s make sure that we don’t get any of it on our faces.
Cheers and good luck out there!