Speculative Rebalancing

[ochotona]

I have no idea what "2x CPI" means. And exactly how long has the CPI been around? Not as long as gold, I suspect.

CPI is Consumer Price Index. The span of the study was 1975 - Present. The exhibit I referred to plots how much the 10 year ahead real return actually was based on how much the investor paid for gold as a multiple of the CPI. It shows pretty clearly that it is very easy to pay too much for gold. Gold is great if you get it on sale, and very terrible if you get at high prices, and right now it's still too high priced.

[sophie]

Before you go and muck with your portfolios, you might want to read this book:

http://www.amazon.com/Best-Laid-Investm ... uckgo-d-20

It contains the most intelligent debunking of various market timing strategies you'll find anywhere - including the ones brought up in this thread.

To respond to the OP's original question - if you are getting antsy about the stock market and want to rebalance now, then go right ahead if it will make you more comfortable.  I've been debating the same since I'm close to a rebalance band in stocks anyway.  But any strategy that involves deliberately modifying the allocation as an attempt to time the market is essentially a PP plus some speculation.  Nothing wrong with that, but do recognize it for what it is.

It's also kind of nice that the PP has a built-in panic button (i.e. rebalancing) that lets you feel like you're doing something to protect yourself while not actually letting you dig yourself into a pile of trouble.

[Libertarian666]

I have no idea what "2x CPI" means. And exactly how long has the CPI been around? Not as long as gold, I suspect.

CPI is Consumer Price Index. The span of the study was 1975 - Present. The exhibit I referred to plots how much the 10 year ahead real return actually was based on how much the investor paid for gold as a multiple of the CPI. It shows pretty clearly that it is very easy to pay too much for gold. Gold is great if you get it on sale, and very terrible if you get at high prices, and right now it's still too high priced.

So the time span it covers is insignificant compared to the amount of time that gold has been a valuable asset class, and includes only the US, which is far from representative.

In other words, it is worthless. The study, that is, not gold.

[jsnikeris]

Anybody else feeling good about being light on stocks? 

Now, I just need to figure out how to not let this luck go to my head...

[Libertarian666]

Anybody else feeling good about being light on stocks? 

Now, I just need to figure out how to not let this luck go to my head...

Me, me, me!
However, it is unlikely to go to my head, because I almost never change my allocations, and have no intention of doing that now...

[frugal]

Hi,

rebalancing once a year is still probably the best option?


Regards!

[blackomen]

I'll admit I sometimes engage in speculative rebalancing if the asset over 30% is overbought or under 20% is oversold..  but I'll still respect the rebalancing bands and manually rebalance at 15/35.

[Xan]

I think as long as you're within the rebalancing bands, you have a PP, and there's nothing particularly wrong with rebalancing any time you feel like it.  I might even go so far as to say it's "okay" to aim for a different allocation for a while, as long as you're within the bands.  You need to be willing to admit that doing so may be just as likely to cost you money as make you money.  But you're still well within the PP framework, and still have the protection that affords.

I don't do it myself, because I have zero trust in my ability to predict what's going to happen next.  Even if I do get it right, I'll get it right until I don't, and my gains would go poof.  But I bet there are some folks who would sleep better if they played these games, and I'd be hesitant to say they were wrong to do it.

[Jack Jones]

I think as long as you're within the rebalancing bands, you have a PP, and there's nothing particularly wrong with rebalancing any time you feel like it.  I might even go so far as to say it's "okay" to aim for a different allocation for a while, as long as you're within the bands.  You need to be willing to admit that doing so may be just as likely to cost you money as make you money.  But you're still well within the PP framework, and still have the protection that affords.

Yeah this is how I feel as well. The only caveat being that "rebalancing any time you feel like it" can be costly in terms of transaction costs.