We ran an interesting study on MWM smallcase to understand the frequency of rebalance and power of timing.

We pulled out data from our archives to see what our portfolio was as on 4th Jan /2021. Then we ran the assumption that we did not take any rebalance for the remaining period.

What do you think would be the end result and how would it fare Vs the current returns of #MWM

Lets have a look.

Current #MWM portfolio with all rebalances taken on stipulated time resulted in a return of 62% whereas buy and hold since January fetched us 55%

All that effort, the churn, etc is worth 7% only!!!!

But before you draw any conclusions, remember that same exercise done with Jan 2020 as the anchor would result in a totally different result. Result would be not so good. It is a middle path that makes money. (Not buy and hold lunacy and neither punching orders incessantly) It is a delicate mix in between.

The point of my writing this blog is to bring home the point of automation. Even with all decisions left onto computer, we have seen that we ended up OVER trading. Just imagine how discretionary trader would fare.

Surely 01 in a 100 would be this smart ass as depicted in this video clip below.


Base Rate:

But whenever you draw a conclusion, you are well advised to keep the base rate in mind. And the base rate suggests that when you trade with Discretion, you OVER TRADE.  And Over trading is 01 of the BIGGEST reasons of blow ups, next only to Leverage (under capitalization).

The trigger gets pulled on external stimuli. News, TV anchors, Twitter, neighbor, some XYZ guru, some quant suggesting 80% probability trades, some screenshot guy etc etc.

I am not picking on anyone. This is a natural evolution of every trader. As you grow and learn, you soon realize (after a couple of blow-ups) that key to success is Automation. Shutting off ALL external noise and letting the system do its job.

Remember, I am not implying that automation won’t have emotions. After all, system has to be followed by a human.

However, I am implying, its much easier to handle emotions (comparatively) with an automated system rather than plain vanilla discretion where you are at mercy of outside stimuli and in constant battle with your sub-conscious.