Using Asset Allocation to make money in a Flat Market: More on rebalancing

» Kirk - More on rebalancing

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In response to message posted by capran:

Kirks issue of rebalancing makes sense if you have a well balanced portfolio to begin with.

I didn't start out this way. I turned 41 in 1998 and that is when I believe one should start to add bonds to their portfolio as we are "getting too old" to have 100% in equities with "only" 25 years to the average retirement age. I took two years to slowly sell appreciating stocks to build up 20% in fixed income (Bonds, Cash, MM Funds & CDs) from about a 5% position in bonds & cash when I started.

I am of the belief that retired folks need two or three years of "no frills" living expenses in cash or short term bonds. That and a "balanced portfolio" make retirement much easier. Once you have critical mass, you really just want enough in stocks to keep you there with inflation. This varies from person to person but my estimate is 30 to 60 percent in equities will cover this for 95% of possible outcomes.

Had I done that every quarter in the falling market, because I was so over weighted in large cap and tech, I would have lost even more (as I would have moved my less losers into my greater losers and lost even more).

My technique explained in this article "Using Asset Allocation to make money in a Flat Market " only works well on the "simple level" if you are well diversified to begin with.

It is a different ball game if you pick stocks and over weight sectors. Here you need to pay close attention to valuation and GARP (Growth At a Reasonable Price). This can be equal mixtures of luck, skill and art.

If you are overweight to a sector such as tech, then it takes much more work to use my techniques, but they do work. My newsletter portfolio is about half in tech and yet it is about where it was in November 1999! By comparison, I think the overall market is down something like 40% since then! It took quite a bit of buying dips and taking profits when up to get those results.

If I didn't get fooled by WorldCon accounting, which had me too early in Agilent and others, then the portfolio would probably be even with its January 2000 levels! This is where the "luck" part comes into play as I was right on fundamentals for WorldCom and their suppliers but the fundamentals were "cooked" by dirty accountants and crooks. You just have to write that off as "bad luck" and continue on. This won't be the last time this will happen either.

Just hope the market doesn't do another summer time tank.

Me too, but the market will do what the market will do. I do think "the bottom" was last Fall (October 2002) but I have been wrong before and will be wrong again.

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As of 11/5/05 the Total Return for "Kirk's Newsletter Portfolio" since 12/31/98 is Up 173% while the NASDAQ is down 2%!!! (my portfolio beta is roughly equal to that of QQQQ.

For 2005, Kirk’s Newsletter is Up 5.0% YTD vs QQQQ up 0.4% YTD vs DJIA down 2.3% YTD vs S&P500 Up 2.1% YTD

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-- posted by Kirk