No. of Recommendations: 1
The problem my approach causes in the end is exactly what ultimatespinach described beautifully with these words:
the tension between a value sensibility and the historical benefits of letting your winners run.
Up to now the big winner of those 10 stocks by a wide margin is META --- and I couldn't resist selling the calls I bought when they were up 150% or so, keeping only the shares I also bought. META's run was so huge that even after selling all those META calls it's still overweight and this strategy says "Sell a good part of the META stock and buy Verizon instead".
That huge run brought me to think like you what would happen if in extremis rebalancing is done daily, whether it wouldn't have ruined those profits completely. You may be right with:
Of course you have better things to do than rebalance by a tiny amount each day..... But if you DID do that, it wouldn't matter - yes, you would be selling tiny slivers of your holdings in something that had gone up one day.....
Right because it really is about, yes, "tiny slivers" only, and next day or week again a tiny sliver only, then with a little more profit.
Still not sure, though. Especially not because in this current case it would have been since months now about constantly selling each day those tiny slivers of META for Verizon - and up to now that clearly would have been wrong compared to the "sitting on my ass" I did instead.
Maybe only time will tell, looking in hindsight in 1-2 years how META and Verizon did and what the outcome of constant rebalancing would have been. Unfortunately even then it's not an absolute verdict of what's better, rebalancing regularly or letting the winners run, as it's all based on something highly subjective, on perceived/assumed relative "cheapness".
But definitely the whole theme is about what ultimatespinach described, constant rebalancing according to perceived(!) valuation or "letting your winners" run. Surely there must be numerous studies --- with a definite answer to this question?
