A.I.M. Users Bulletin Board

[jaiml]

Hi Clive,

Thanks.

I actually did some back-testing using Ocroft's at some point and I did find it adds value, roughly around 1% / year.

I suppose with midway re-balancing you would want not buy/sell too soon, esp. in a trending market, right? Hence the reason it worked better since 2007 (down big then up big). I am not sure it adds value in a side-way market though, or does it?

But back to my question on how to re-balance a SHY/GLD/SPXL/XIV portfolio, which you linked to in your previous post.

On what components or combination of components would you apply this rebalancing mechanism (e.g. 10% bands + midway + Ocroft's) on? It obviously does not apply to SHY and I am thinking that it does not apply to gold either.

If I read what you wrote correctly, and if I were to apply it on the equity portion, not including gold: using a 10% band means the SPXL+XIV combined weight (target ~20%) would have to drop below 10% or rise above 30%, which is easily achievable given the ~3.63X leverage. I suppose a better band would 12%, i.e. their weight falling to 8% or rising above 32%. That happened in 2011 and I am sure in 2008-2009 that combination would have easily lost 90% or more.

It is all about a good re-balancing system in the end esp. when using such leveraged products.