Rebalacing or buy&hold?

[murray t turtle]

Hey folks,

I'm thinking about building a simple investment portfolio to seek alpha. There I want to invest only in high performance tech stocks like GOOG and TSLA. When doing i.e. a 50:50 allocation in GOOG & TSLA, does rebalancing makes sense or not?

I can recall a blog post somewhere, where the author examined a 60:40 portfolio (s&p:bonds) and calculated the annual return for the last ~80 years when someone does a monthly, yearly, or no rebalancing at all. It was a difference in < 1% in yearly returns but nevertheless the portfolio without any rebalancing at all performend best.

I think when doing "rebalancing" in a shorter time period (4 weeks or less), one could get additional gains from the play on some shorter swings. On the other side investing in two or more tech stocks is maybe way to correlated and in the worst case could lead to more losses when not timing the market exactly?
Thoughts about this?

%%
1] YOU could find a good plan doing that;
40% cash or money market or bonds, not likley to do anywher nears a good as SPY or a mix of top 5 ETFs or funds.
But I also like some money market funds in SCHW account , more than the [ than 0.09 % cash in SPY LOL] I do some trading but sometimes investment do better
Frankly, barchart.com has a 40% sell on TSLA [100% long term sell\200dma ];
but thats mostly technicals, so you may want to differ??
[ Roth , back door Roth pays no tax generally]
2] 1 or 2 tech stocks even with 50% cash[money market ] is super agressive ;
me, I kicked ot start postion of QQQ [ which has 2.26% position ,TSLA], small loss , because SPY doing better JAN-May , today.
Long term QQQ may do better than SPY, but bigger tech swings.
Also found out EVs do terrible in real cold weather.

 

[Mr.Richter]

It’s a bit weird to use “alpha” and “rebalancing” in the same breath. Are you looking for alpha or just trying to index-track the megacap tech sector (in which case why not just buy eg a FANG ETF)? How are you selecting tickers and initial weights?

Well, that's indeed a good point. I don't want to invest in a FANG ETF because I don't want to pay management fees (I can do it on my own) and want to omit i.e. NFLX and AMZN. Just because of fundamental data (I like to invest more in AI developing companies).
But I see - this idea isn't fully developed yet.

 

[Specterx]

Well, that's indeed a good point. I don't want to invest in a FANG ETF because I don't want to pay management fees (I can do it on my own) and want to omit i.e. NFLX and AMZN. Just because of fundamental data (I like to invest more in AI developing companies).
But I see - this idea isn't fully developed yet.

So you're building a buy n' hold portfolio of tech+AI stocks with a discretionary overlay. I'd say you have two options:

1. If you plan to do a fair bit of fiddling with the constituents and weights, then rebalance approximately every year, being sure to wait long enough between buys and sells so that any net profits are long-term CG.

2. Rebalance very rarely, or not at all. If your thesis is "AI will be big over the next 20 years" then it really doesn't make sense to be buying and selling like a maniac every year. Rather you should do your best to identity the 10-20 stocks which will profit from the anticipated trend, and let the market do the "rebalancing" for you by bidding up the winners. Your portfolio will thus automatically become more and more concentrated in the successful names. I would only mess with it based on very rare macro/fundamental events, eg if you identify a new name to buy or if the market gets into a huge tech valuation bubble like 2000/2021.