Misconceptions About Hedging – One would think that after many years’ worth of ‘experience’ with hedging that we would have the subject down pat; that we would no longer have any misconceptions about it. We landed on the moon in ’69, yet we still have various misunderstandings when it comes to hedging. Confusion about Global Warming I can understand, it’s new (ok, we’ve been talking about it for a long time, but to recent converts – it appears new, or even suspect). But hedging? Some very smart people have been writing about it and/or doing it for a very long time. There are at least two truisms in life that I believe: “…nothing can be said to be certain except death and taxes” (B. Franklin), and effective risk management, which may involve hedging, enhances a firm’s value. Nevertheless, the subject remains misunderstood. Or, as with any subject, there are different opinions on it. Over the next several BLOG posts I will raise a particular misconception about hedging and provide an alternative viewpoint. If you have an agreeable or a counter viewpoint, then feel free to respond either on the post or email me directly at DStowe@StrategicTreasurer.com .
This series of blog entries covers six commons misconceptions about hedging. Each BLOG post raises a particular misconception about hedging and provides an alternative viewpoint. If you have an agreeable or a counter viewpoint, then feel free to respond either on the post or email me directly at DStowe@StrategicTreasurer.com .
Hedging Misconception #1: Hedging Eliminates Cashflow Volatility
Hedging Misconception #2: Risk is Absolute
Hedging Misconception #3: Risk Management Equals Hedging
Hedging Misconception #4: It’s Important for My Hedges to Make Money
Hedging Misconception #5: Derivatives = Speculation
Hedging Misconception #6: Hedging Requires Crunching