Over-Hedging

Hedges cost money. They are basically a form of life (or at least health) insurance for your investment porftolio.

Some of those insurance premiums cost a lot of money. Like...if you could spend, for a year, $1 million to fully hedge a portfolio of $100 million, such that the $1 million you spent covered all losses below a down-8-percent-scenario, you'd spend that life insurance fast. It'd likely be a bargain. In fact, hedge fund managers regularly spend more like 5-10-20 percent of their total portfolios hedging life. If the hedges don't execute, or go in-the-money, then they expire, worthless.

So...you kind of think of them like term life insurance. You only spend on them if you have to. And if they do execute, then something else with your thinking (or life) went terribly wrong.

See: Hedge Ratio.