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?
GOOG You should check when the uptrend started; It started decades ago. Then decide your next step. TSLA You should draw a descending trend line. Then decide your next step.
what's your objective? there are many portfolio optimization libraries that will tell you the weights to use if you know what you want
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? The main reason to rebalance less frequently is trading costs, including tax drag, which can be quite substantial. Also, it’s questionable how much benefit there is to rebalancing across a set of symbols which are highly correlated to begin with. The point of doing so between asset classes is to take advantage of uncorrelated returns.
Rebalancing is an assumption of mean reversion at the time scale of your rebalancing frequency. To me, it is not obvious that TSLA should do worse than GOOG if has done better on a one year lookback. It is probably illuminative to backtest it, although results will depend heavily on the exact start date and thus corresponding rebalancing periods. Testing on additional symbol sets even if you don't intend to hold them could increase confidence in your assumption. My hunch is that automatic rebalancing for a concentrated portfolio of a few heavily correlated tech stocks is pointless. If we're sticking to dead simple stuff, you might as well review your portfolio manually every year or similar and adjust down the better performing stock's weight if you have no reason to suspect outperformance going forward, it's not like it's a lot of work at that frequency.
Short dated upside call options. actually short dated upside worst of call options if he has access to otc desks.