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Understanding Asset Allocation, more

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SimonPB
Valued Contributor
Understanding Asset Allocation - 2 .. http://ow.ly/2Wqje
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11 REPLIES 11
Not applicable
Out of interest, doesn't this policy advocate a bit of sell the winners and stock up on the losers?
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richardw
Super Contributor
That was my thought also but it seems rational. You're buying when things are cheap, which is great for investing...not trading. Or not?
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Not applicable
not when you are selling your growth stocks to rebalance your portfolio - it seems that asset allocation does not necessarily provide for letting the winners run
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richardw
Super Contributor
Ok, I default to thinking in terms of income, so buying the income at the lowest price is good.
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louisg
Super Contributor
Asset allocation is often referred to as "a free lunch". Why? If one only uses stocks and bonds as asset class examples, where is this "free lunch"? Stocks have significantly outperformed bonds in the long term(>20 years). Even more so in REAL terms. Any allocation of capital to bonds will therefore reduce returns. Adding bonds may certainly reduce VOLATILITY, but surely reduces ones REWARD in the long term. Risk/reward to me means the loss/gain of capital from Point A to Point B, while volatility is what happens in between A and B. The former is surely more important to the long term investor. Am I missing something? (I do not have access to the above article, just wanted to discuss asset allocation in general).
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SimonPB
Valued Contributor
an more ..
Understanding Asset allocation - 3 .. http://ow.ly/2Xx6W
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Galuc
Super Contributor
Have I lost the plot here or is Stuart advocating against every course and book I have ever read! Even with a buy and hold strategy, why in the world would you want to sell your performing shares to buy a non-performing share??? In his own course he drums it into us not to catch falling knives!!!
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warhippo
Super Contributor
Take him to task on tickertalk with your point that you make here. He would definately respond and give you his take, which always are very interesting.
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Shard
Super Contributor
Asset Allocation refers more to Asset Classes, than individual shares. In essence you are taking a a structure that has x variance in return, in order to maintain x you need to maintain the same weights. Trading winners and losers comes into TAA not SAA. Think of it this way, I want 50% equity, 20% Property and 30% Bonds because the historical standard deviation in monthly return on this mix is 3% which is where I foresee my risk. In order to maintain that 3% avg, I need to keep my weights at 50/20/30.
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Galuc
Super Contributor
OK the penny dropped, thanks boet!
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SimonPB
Valued Contributor
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