The Shannon Method of rapid rebalancing has some potential to capture some of the random fluctuations in stock prices. I have pursued combining a small number of relatively uncorrelated stocks in a portfolio and rebalancing them as they move 3% from the prior rebalance point. See my August 2008 post for a more detailed explanation of the Shannon method.
The plot above shows the results for a portfolio starting with four stocks (GG, MSFT, O, VLO) weighted 20% each and a 20% cash position. (See prior post.) The rebalancing lagged as the market surged up, but held up better during the crash. The rebalancing has been successfully capitalizing on the market's recent choppy action since late 2008. The rebalanced portfolio is currently holding about $15,000 cash versus $5,000 cash for the buy and hold portfolio.
1 comment:
I plotted a chart of Shannon's method for spy EFT. Shannon's method clearly under performs buy and hold.
Post a Comment