Starting the Year Hedged: What We Look for Every January

Every January, Wall Street firms issue glossy 80-page year-ahead outlooks forecasting where the S&P 500 will close in twelve months. Most of these predictions turn out to be completely inaccurate.

We don't try to guess the calendar year. Instead, our investment committee runs a rigorous 3-point balance sheet defense audit on the first week of January:

1. Eliminate All Floating-Rate Debt: Any floating interest rate exposure is either converted to fixed terms or capped with interest rate collars. Never let a bank rate hike dictate your cash flow.
2. Audit 90-Day Cash Buffers: Ensure each property and operating vehicle holds at least six to twelve months of operating expenses in short Treasury bills.
3. Restructure Annual Tail Puts: When market optimism is high in early January, volatility pricing is typically low. That is the ideal window to purchase deep out-of-the-money protective puts.

When unexpected market shocks hit, the investors who survive are rarely the ones who had the most clever economic theories. They are the ones who could not be forced to sell assets at a loss.

Enter the year with strong defenses, and the compounding takes care of itself.