tag:blogger.com,1999:blog-5465015914589377788.post777263149516123692..comments2022-11-24T11:36:59.920-05:00Comments on Michael James on Money: The Hidden Cost of Active InvestingMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-5465015914589377788.post-86895516169390111292013-05-01T09:41:33.117-04:002013-05-01T09:41:33.117-04:00Makes sense. thank youMakes sense. thank youAnatoliNhttps://www.blogger.com/profile/07937984526970646627noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-87365013199830074312013-04-27T17:04:41.176-04:002013-04-27T17:04:41.176-04:00@Value Indexer: Volatility has a precise mathemat...@Value Indexer: Volatility has a precise mathematical definition. It's true that sometimes a rebalancing strategy can benefit from volatility. However, on average, higher volatility hurts returns.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-90341821619630615912013-04-27T13:13:33.549-04:002013-04-27T13:13:33.549-04:00If by volatility you mean a certain percentage los...If by volatility you mean a certain percentage loss followed by the exact same percentage gain, then yes you're losing... But if an ETF has a unit price of $100 today and the same unit price next month, but it drops to $50 in between before going back up, that can be profitable volatility. As long as the rest of your portfolio doesn't go down as much, you have the opportunity to buy more at cheap prices and profit.Value Indexerhttp://valueindexer.wordpress.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-77070962399496246982013-04-27T11:30:22.114-04:002013-04-27T11:30:22.114-04:00Very interesting study. Thanks for the important i...Very interesting study. Thanks for the important insights here.Steven J Frommhttp://www.sjfpc.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-22294908931328960752013-04-26T10:33:17.914-04:002013-04-26T10:33:17.914-04:00@AnatoliN: I've tried various ways of explain...@AnatoliN: I've tried various ways of explaining this effect in posts over the years. At its core, this is a volatility effect. When you portfolio goes down 10% and then up 10%, the net effect is a loss of 1% (100 to 90 to 99). Try the same thing with down 20% and then up 20% and the loss is 4%. The greater the volatility, the greater the loss. This comes from the fact that the portfolio is smaller for the upswings than it is for the downswings, on average. Switching back and forth between two stocks has higher volatility than diversifying across the two stocks. Therefore, the more active approach has higher volatility losses.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-60073436213187688062013-04-26T08:08:12.504-04:002013-04-26T08:08:12.504-04:00Michael, I do not understand mathematically where ...Michael, I do not understand mathematically where does the $28K difference come from. (I suppose your model assumes that all funds are invested 100% of the time.) Could you elaborate a bit beyond "that's what the result is based on the model"?AnatoliNhttps://www.blogger.com/profile/07937984526970646627noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-82633723182290023802013-04-25T13:38:17.706-04:002013-04-25T13:38:17.706-04:00@Value Indexer: It depends what you are comparing....@Value Indexer: It depends what you are comparing. If you are comparing a rebalanced portfolio in the face of low volatility vs. a rebalanced portfolio in the face of high volatility, then the answer is no, you'll get higher returns in the low volatility case.<br /><br />If you compare not rebalancing to rebalancing, then rebalancing has a bigger advantage in the high volatility case. Essentially, as volatility rises, rebalanced portfolios are hurt slightly less than portfolios that don't get rebalanced.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-8272952110513548562013-04-25T11:36:49.358-04:002013-04-25T11:36:49.358-04:00If you have a portfolio with several components th...If you have a portfolio with several components that are not correlated and you rebalance among them regularly, doesn't increased volatility give you better returns? The model here might be followed by many unwitting investors but it's not exactly what I would do.Value Indexerhttp://valueindexer.wordpress.comnoreply@blogger.com