Bulls and Bears
Feb 08, 2025
One aspect of investing that is difficult for many to grasp is the idea that buying and selling stocks can lead to higher returns over the long term.
But the trick is to place yourself always in the future and not the present. This means understanding that prices change and we can take advantage of the price changes to generate higher returns.
Most of the finance sector know the benefits of rebalancing, but they don't trumpet it for some reason. Maybe they truly believe that volatility doesn't matter?
But you must distinguish between bull markets where you can rebalance less and bear markets where you need to rebalance more often to capture those returns which turn out to be temporary thanks to the increased volatility in bear markets.
So as you can see in the attached diagram, the benefits of rebalancing in bear markets is obvious. You don't even need to pay that much attention. Just rebalance annually and you will outperform the average buy and holder.
In bull markets, you can sail through the rough times because valuations are usually lowers and we know that means better returns. But this is valid only while the bull markets lasts.
Thats why we urge you to rebalance regularly because with a CAPE at 39 and a 15 year bull market, investors may awake to a surprise when markets start falling and the previous capital gains disappear.
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