“Trade small, trade often” is the tastylive mantra. We want to trade often so our number of occurrences will be large enough that our actual results will be close to our expected results. We want to trade small so no one trade can hurt our overall returns too much. Many traders have core positions in their accounts. Not only do markets move up and down but different sectors (eg. tech, financials, healthcare) may be going in different directions. Some individual stocks can see large gains while others experience losses. This can result, in a short period of time, of portfolios becoming unbalanced and of one or more positions becoming a large enough percentage of the portfolio to expose it to additional risk. Theoretically the answer would be to rebalance the portfolio. It seems to make sense but what would a study show?
Our study was conducted using data from January 2010 to the present. We examined the Bond market and the S&P 500 Futures and performed a weekly rebalancing. We also examined 2 volatile stocks, AAPL & TSLA, and we performed daily rebalancing for those two equities. We then adjusted the portfolio to constant weighting and compared a buy-and-hold with the same assets.
A 6 year P/L graph of the comparing a buy-and-hold approach to a weekly rebalanced approach in the /ES (S&P 500 Future) and the /ZB (Bond Future) was displayed. The graph showed that rebalancing weekly for size outperformed the buy-and-hold approach. Over time, rebalancing leads to better performance. A second results chart compared the same strategies in AAPL and TSLA and showed once again that rebalancing beat the passive buy-and-hold . “The incremental differences end up being humongus.”
Watch this segment of Market Measures with Tom Sosnoff and Tony Battista for the valuable takeaways and the results of our study on rebalancing versus the passive buy-and-hold approach.
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.