Why I don’t rebalance my portfolio

As a value investor, I buy when price < intrinsic value and sell when price > intrinsic value. I have a portfolio of about 30 stocks as studies have shown that the benefit of diversification is marginal when you exceed this number.

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So I never had any periodic rebalancing plan as the portfolio is “updated” whenever I have the sell signal. I just replace what I sold with a new stock whose price < intrinsic value.

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And I don’t rebalance within the stocks in the portfolio as they are held for the long term - 5 to 8 years- and I can’t think of any basis for rebalancing them over the short term.

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The reality is that my portfolio is the “by-product” of my investment process ie I did not start off by saying that I wanted my portfolio to consists of a certain % of each sector, or market cap, etc. It was built from bottom-up.

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On the other hand, if your portfolio was constructed based on some top-down concept, you would probably need to rebalance it to maintain the concept

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For example, if your investment plan is to have 50% large-cap and 50% small-cap (for whatever reason), then you will probably re-balance this to keep the same ratio.

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So having said that, you have to go back to the original goal or basis of your portfolio.

• if there was some top-down logic to your portfolio, you need to re-balance use the original basis
• if the portfolio is like mine with is the end-result of some investment plan, I fail to see the need for some periodic re-balancing.

Having said that I do try when buying to ensure that I am not concentrated in one particular sector, market cap, or investment type (growth, net-net, turnaround, quality value). But I don’t re-balance periodically to maintain this diversity.

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For more insights go to https://www.i4value.asia/2023/07/how-to-grow-st...