In Part 3 of the Feynman Portfolio Study we look at the impact of rebalancing on portfolio performance.
Part 2 examined the “Passive” – Buy and Hold – Investment strategy. Part 3 moves on to examine the “Dynamic” – Buy….Don’t Hold, re-balance – strategy.
The Hoadley Portfolio Analyzer is used to determine the optimized unleveraged portfolio at each valuation/re-balance date and the portfolio is adjusted to the new asset allocations.
Performance of the “Dynamic” Feynman Portfolio is compared to the performance of the VTSMX (Part 1) and to the “Passive” Feynman Portfolio (Part 2). Based on market behavior in the 6-year Study period it would appear that there is little benefit to be gained from rebalancing an optimized portfolio.
Part 3 also expands on the concepts of optimization and examines the movement of the Efficient Frontier as market conditions change.
The analysis is comprehensive and maybe a little complex/confusing for some readers – I have tried to keep the main text as simple and easy to understand as possible and to focus on practical applications, rather than theoretical/technical issues, to the extent that this is possible considering the theoretical/technical nature of the tools/techniques being used. For those members interested in looking at the detail for a better understanding, I have made some suggestions as to what to look for in the detailed appendices.
Part 3 of the Feynman Portfolio Study can be downloaded here and the detailed supporting data that is provided in Appendix 2 is available here.
In case readers missed Lowell’s comment regarding the data downloaded into the Hoadley Portfolio Analyzer, I would like to confirm that it is, in fact, “adjusted” data i.e. it is adjusted to reflect dividend payments and splits. Thus, my statement in Part 1 that dividends are excluded, is incorrect – the performance does reflect “total returns”. The revised Part 1 Wordfile document can be downloaded here.