Repeating your investment mistakes forever

THIS column usually tackles practical aspects of investing. But I thought I would try a more philosophical discussion on investing, which was prompted by a recent discussion with a hedge fund manager on protecting a portfolio from large (but relatively rare) crashes that can set back retirement goals by a decade - and in some cases even permanently.

Rather than another analysis on current expensive valuations of many equity markets around the world, some readers may find this article a more useful introspection on their personal investment philosophy.

The discussion with the hedge fund manager discussion started on whether it is worth paying a premium to hedge large downside risk, similar to insurance. Conventional wisdom says it's not worth paying such a premium as it reduces total returns over the long term compared to an un-hedged all-equity portfolio. It can also lead to significant blunders. The new chief investment officer of the California Public Employees' Retirement System (Calpers), after paying for the hedging costs for a number of years, decided to take it off at the beginning of 2020 - just before the Covid bear market happened, when it would have delivered the targeted payout to offset the equity losses.