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Rebalancing and ensuing mayhem?
Old 01-17-2016, 04:03 PM   #1
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Rebalancing and ensuing mayhem?

Long time lurker here, registered as a forum member last year, and today I thought of something to ask. Please, ignore the title of this post - it was only aimed to catch attention...

A thread here about protfolio rebalancing
making asset allocation changes

prompted a few thoughts, but I don't seem to be able to arrive at a conclusion. It is mostly because my mind is quite occupied with other things today, so I'd rather ask for opinions from the forum.

Imagine we all somehow decide that January is the best time of the year to rebalance our portfolios, and by chance this coincides with the market tanking.
Meaning that the recent - and ongoing - drop in stocks requires that we buy more stocks.
Let's assume that it is not only us, but the folks over at boggleheads.org have the same routine, as do a bunch of others around the globe aiming for financial independence just like us... Let's say the action is carried out by a few millions of investors at the same time - let's assume during the same week.
Is the market going to notice? How is this going to affect it? Is anyone going to profit from this? Who? How?

Many moons ago and in a different part of the world, my family moved into a condo, and said condos were not built overly soundproof. Some evenings I'd hear a muted banging noise from the floor below, so I investigated and went to ask my neighbors what is happening - it turned out they were just tenderizing some thick porkchops. From that day on, when I heard this noise, I knew what caused it - the neighbors were having at their porkchops... Cause and effect.

So, to reiterate my question: is the market going to notice this noise that we cause with our widely deployed rebalancing, and would it react to it? If so - how?
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Old 01-17-2016, 04:08 PM   #2
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The market impact of shares exchanged by individual investors rebalancing their portfolio in January is minuscule and completely insignificant. It's the equivalent of an ant floating on a stick in the Mississippi River wondering if they will need to raise the drawbridge for him.
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Old 01-17-2016, 04:10 PM   #3
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Quote:
Originally Posted by joylesshusband View Post
Long time lurker here, registered as a forum member last year, and today I thought of something to ask. Please, ignore the title of this post - it was only aimed to catch attention...

A thread here about protfolio rebalancing
making asset allocation changes

prompted a few thoughts, but I don't seem to be able to arrive at a conclusion. It is mostly because my mind is quite occupied with other things today, so I'd rather ask for opinions from the forum.

Imagine we all somehow decide that January is the best time of the year to rebalance our portfolios, and by chance this coincides with the market tanking.
Meaning that the recent - and ongoing - drop in stocks requires that we buy more stocks.
Let's assume that it is not only us, but the folks over at boggleheads.org have the same routine, as do a bunch of others around the globe aiming for financial independence just like us... Let's say the action is carried out by a few millions of investors at the same time - let's assume during the same week.
Is the market going to notice? How is this going to affect it? Is anyone going to profit from this? Who? How?

Many moons ago and in a different part of the world, my family moved into a condo, and said condos were not built overly soundproof. Some evenings I'd hear a muted banging noise from the floor below, so I investigated and went to ask my neighbors what is happening - it turned out they were just tenderizing some thick porkchops. From that day on, when I heard this noise, I knew what caused it - the neighbors were having at their porkchops... Cause and effect.

So, to reiterate my question: is the market going to notice this noise that we cause with our widely deployed rebalancing, and would it react to it? If so - how?
Far more money is coming into pension funds etc. on the first trading day of the year. Usually Jan 2 or whatever is an up day for equities.

In fact, I suspect the market would not have had that recovery during the last couple of hours of Jan 5 if it hadn't been for the anticipation of new pension money coming in.
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Old 01-17-2016, 05:14 PM   #4
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Yeah I think the more % representative comparison would be ants walking across your neighbours carpet

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Old 01-17-2016, 11:28 PM   #5
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Sorry, it's my fault I rebalanced all at once.
I now normally spread it out, ever since that time in 87 on a Monday just before I went on a trip.
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