Hedging

Hedging deliberately gives up some upside to limit a defined downside. Used with discipline it protects a concentrated position or a known liability; used loosely it quietly erodes return.

A hedge is insurance, with a cost that compounds if bought indiscriminately. Used deliberately, to protect a known liability or a concentrated position, it earns its premium; used as a permanent comfort blanket, it erodes returns. The discipline is knowing exactly what risk is being offset, and why.