Why is portfolio rebalancing unreasonable


Portfolio management is a very important part of investment strategy. As an investor, you must find time to think clearly about all strategies related to investment portfolio. Because in the long run, they will determine the overall performance of your investment, investors should not be careful. The three articles listed at the end of this article are the three basic themes of investment portfolios, and I strongly recommend that you find time to read them. Let’s discuss another important topic in this area today ─ ─ rebalancing the investment portfolio.

What kinds of portfolio rebalancing are there?

There are several main ways for portfolio rebalance:

  • Regularly rebalance the portfolio: that is, at regular intervals (for example, one year or half a year), sell the underlying stocks that perform well in your portfolio, and add more the underlying stocks that perform poorly in your portfolio.
  • Target rebalancing: At regular intervals, sell the targets in a certain area of your investment portfolio that performs well (such as technology stocks), and add more to a certain area of poor performance in your portfolio (such as medical and health insurance).
  • Periodic rebalancing of different asset types: rebalancing of stocks and bonds at regular intervals (for example, the equity ratio is set to 6:4 or the investor’s age reduces the proportion of stocks); that is, if the stocks or bonds rise during the period exceeding the pre-set ratio, by selling the risers, another category is added.

Advocate’s basis

Those who advocate rebalancing investment say the following:

  • The market will rise in turns, the under-performing targets will come back to life, and the targets that have risen too much will definitely fall: just like the advocates of band operators; neither of these two opinions have facts or scientific basis, and they are pure imaginations of the market, expectations, or guesses. The market is more complicated than you and I think, and there is no formula to follow for the fluctuation of stock prices. Bernard Baruch’s famous saying, “Don’t try to buy the lowest point, sell to the highest point. No one has a way to do this, except liars.” As Buffett said, “Guess the market, that is what God is doing.” Another recently retired investment celebrity Bill Miller, in his last letter to investors in his 40-year investment career, Bill Miller reminded investors that “We need to believe in time, not timing, this is the key to getting rich in the stock market.” He specifically stated that “Choosing the time to enter the market is stupid.”
  • Diversified investment can reduce risk distribution: stocks that rise too much will take up too much of the portfolio, which is really dangerous. This view is really plausible. Would you take the initiative to ask your boss for an automatic salary reduction because your salary is too high; or make too much money and spend money on the road; or on the contrary deliberately find a job with a much lower salary? I don’t think ordinary people are so stupid to make any of the three, right? I suggest readers take a look at my blog article “Why concentrated Investment?
  • Rebalancing of stocks and bond: The argument of this initiative is that if funds are concentrated in the stock market, there will be significant losses in the event of a crash. But this kind of initiative is a practice that typically encourages sheep behavior, short-sightedness, and human mentality weakness. This consideration will only encourage short-term entry and exit, completely forgetting the nature of the stock market that requires long-term investment to get rich.

Unreasonable place

In order to quote Peter Lynch’s famous saying “Pull flowers and water weeds” in his book “One up on wall street” to illustrate the irrationality of portfolio rebalancing. He made a special call to Peter Lynch to seeks his consent. Can investors imagine that in the esoteric world of investment, your level of shrewdness can be higher than that of Buffett plus Lynch? Will these two investment masters who have been recognized by the world add up the investment wisdom accumulated in the past two hundred years inferior than you?

The rebalancing of the investment portfolio is basically an “illogical investment behavior in which Inferior currency defeat good currency.” The market and your past remuneration have proved that your current investment judgment is correct, so why abandon your investment judgment that has been validated by the market as a success? Change the investment strategy to invest in the target that the market proves that the return on investment is poor?

Who is profiting?

You don’t need to have an extraordinary IQ, just remember, who are advocating rebalancing investment capital? The people who invented and advocated this set of narratives in the first place were the wealth management industry and related personnel.

Of course, they must weave a set of beautiful and reasonable narratives, otherwise, how could investors be persuaded — the best Of course, the method is to invent a set of seemingly reasonable theories, show investors their carefully modified or one-sided statistical data, and then seek explanations from so-called experts, and finally use the salesperson’s sales skill to conduct psychological warfare — This is the standard business promotion model of Wall Street.

In a capitalist society, any behavior has a commercial purpose. As long as you think about these things clearly, the answer will come out. Rebalancing your portfolio will only make you pay unnecessary commissions and effort. The only beneficiaries are Wall Street operators who earn your commissions and fees.

credit: jeni doshi

Don’t be a follower

In the 5-5 section of my book “The Rules of Super Growth Stocks Investing”, I once put forward a completely different view of the rebalancing of the investment portfolio from ordinary people. Don’t accept secular conventions, opinions or practices that the masses have long established, and most people agree with, take any of them for granted. The masses represent the broad market. Unless you are determined from the beginning, do not want to have excess returns, just want to seek mediocre returns (I am not referring to buying ETFs, if you buy ETFs that track the broad market, you don’t need to make any investment rebalancing at all).

I think few people think about it! Moreover, even so, the final remuneration received by the masses will not be the general remuneration of market performance, because the deduction of handling fees, commissions, taxes, and your effort will be much less than the general remuneration you imagined.

“In the investment world, things that make you comfortable rarely make a profit.”

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5 thoughts on “Why is portfolio rebalancing unreasonable”

  1. Dear Andy,

    I am from Singapore and I just read your Chinese book.

    Happy to stumble upon your English blog and learn more about your investing philosophy beyond your book. Hope to keep up my learning journey and achieve financial freedom like you in ten years’ time!

    1. David,
      Welcome to my blog and your support of my Chinese edition book. It’s my pleasure to help those who are eager
      to get rich by stock investing. What I deliver in my book and blog is my personal experience from past 27
      years US stock investing, not a novel or theory. The central idea in my mind is to
      (1). Share investors my successful investing experiece
      (2). The investing method I verified and proved they work
      (3). The roadmap to invest success

      1. Thanks Andy for your candid sharing of personal experience, which is very important to inspiring newbies like me.

        Any plan to publish an English edition of your book? I am sure there are some other people like me who are more comfortable reading in English and like to learn about your investing experience and ideas!

        1. Yes, actually I submitted my manuscript in early September. However, the book publisher was sold to another company couple weeks ago, my project was suspended. It’s a pity.

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