Schlenkler’s investment principles

MK62

We are talking generally......even in a "rising" market in, say the US (the largest), it'd be unusual if all the stocks in it were rising either......and yes, there are different markets which don't rise and fall in unison either....

[Deleted User]

Deleted_User said:

ZingPowZing said:

MK62 said:

In a rising equity market, rebalancing will generally reduce returns......but the equity market doesn't always rise.......

Surprisingly (for me at least) rebalancing will generally reduce returns in a falling market too.

Momentum.  It all depends on how often you rebalance and if you monitor your short term returns.
I think not. It all depends on whether rebalancing has a positive or negative expectation. 
I can tell you the net effect of rebalancing anything with a price history; that is easy. The effect of rebalancing is measurable.

But "momentum" (or market timing) will not convert a negative expectation into a positive one. Otherwise we would probably be at the roulette table now.

Non-financial reasons for rebalancing are a different thing.

[Deleted User]

The terms “timing” and “momentum” refer to two different strategies.  

Market timers react to signals, which they presume to be “top” or “bottom”.  Momentum is trend following, usually based on trends over the last 12 month. 

Market timers are astrologists. Momentum is a proven factor which does enhance returns.  

[Deleted User]

Deleted_User said:

The terms “timing” and “momentum” refer to two different strategies.  

Market timers react to signals, which they presume to be “top” or “bottom”.  Momentum is trend following, usually based on trends over the last 12 month. 

Market timers are astrologists. Momentum is a proven factor which does enhance returns.  

Interesting. 

On the basis of trends over the last twelve months, which investments need re-evaluating + or - from current prices, Mordko (and how does that fit with Schlenkler's third maxim) ?

Or, if you prefer, what examples of rebalancing bear out this momentum strategy?
Or, have you invoked "momentum" as justification not to rebalance (which accords with my view) ?

[Deleted User]

ZingPowZing said:

Deleted_User said:

The terms “timing” and “momentum” refer to two different strategies.  

Market timers react to signals, which they presume to be “top” or “bottom”.  Momentum is trend following, usually based on trends over the last 12 month. 

Market timers are astrologists. Momentum is a proven factor which does enhance returns.  

Interesting. 

On the basis of trends over the last twelve months, which investments need re-evaluating + or - from current prices, Mordko (and how does that fit with Schlenkler's third maxim) ?

Or, if you prefer, what examples of rebalancing bear out this momentum strategy?
Or, have you invoked "momentum" as justification not to rebalance (which accords with my view) ?

I haven’t looked at the returns, but my wild guess is that faang and other tech stocks have the momentum. 

This does not contradict Schenkler’s principles. Applying the momentum factor to investments tends to enhance returns but also exposes one to higher risks. You are sacrificing diversification. To mitigate this investors can combine momentum and value tilts for different portions of their investments.  Not a bad strategy in my opinion but you are sacrificing simplicity. 

If you don’t rebalance then you allow your investments to benefit from momentum as “momentum” assets become overweight. 

All-in-one assets which automatically rebalance for you “kill” momentum. 
Personally, I use Swedroe’s 5/25 approach to rebalancing. It translates to rare rebalancing and allows your investment to somewhat benefit from momentum without having your allocations completely destroyed. 

[Deleted User]

Deleted_User said:

ZingPowZing said:

Deleted_User said:

The terms “timing” and “momentum” refer to two different strategies.  

Market timers react to signals, which they presume to be “top” or “bottom”.  Momentum is trend following, usually based on trends over the last 12 month. 

Market timers are astrologists. Momentum is a proven factor which does enhance returns.  

Interesting. 

On the basis of trends over the last twelve months, which investments need re-evaluating + or - from current prices, Mordko (and how does that fit with Schlenkler's third maxim) ?

Or, if you prefer, what examples of rebalancing bear out this momentum strategy?
Or, have you invoked "momentum" as justification not to rebalance (which accords with my view) ?

I haven’t looked at the returns, but my wild guess is that faang and other tech stocks have the momentum. 

This does not contradict Schenkler’s principles. Applying the momentum factor to investments tends to enhance returns but also exposes one to higher risks. You are sacrificing diversification. To mitigate this investors can combine momentum and value tilts for different portions of their investments.  Not a bad strategy in my opinion but you are sacrificing simplicity. 

If you don’t rebalance then you allow your investments to benefit from momentum as “momentum” assets become overweight. 

All-in-one assets which automatically rebalance for you “kill” momentum. 
Personally, I use Swedroe’s 5/25 approach to rebalancing. It translates to rare rebalancing and allows your investment to somewhat benefit from momentum without having your allocations completely destroyed. 

Ah ok, that makes sense. Cheers Mordko.