Comments on: Severing The Link Between Price And Weight Part III http://wheredoesallmymoneygo.com/severing-the-link-between-price-and-weight-part-iii/ A personal finance blog written by Preet Banerjee Thu, 24 May 2012 10:29:13 +0000 hourly 1 http://wordpress.org/?v=3.1.2 By: Jordan http://wheredoesallmymoneygo.com/severing-the-link-between-price-and-weight-part-iii/#comment-1351 Jordan Thu, 28 Jan 2010 08:42:21 +0000 http://www.wheredoesallmymoneygo.com/?p=1613#comment-1351 Hmmm I see what you're saying, but I think it's hard to draw the conclusion without testing it, because isn't buying the inverse of the index similar to value investing without making active stock picks? Even though you lose exposure as a stock takes off, isn't that more of a factor of how frequently you are going to rebalance the portfolio? Just like how RAFI only rebalances once a year, if you put the majority of the capital into the bottom of the index it's also possible you could get highly undervalued stocks (like what happened with the US financial stocks that were bought up when the RAFI US index rebalanced in March 09) which in the subsequent year took off and grew tremendously, you'd enjoy the full upside until you sold and bought a new inverse batch of stocks. Or maybe not, I'm just thinking out loud. Next time your hanging out with Rob Arnott tell him to through this idea into his computers and see what it says :) Hmmm I see what you’re saying, but I think it’s hard to draw the conclusion without testing it, because isn’t buying the inverse of the index similar to value investing without making active stock picks?

Even though you lose exposure as a stock takes off, isn’t that more of a factor of how frequently you are going to rebalance the portfolio?

Just like how RAFI only rebalances once a year, if you put the majority of the capital into the bottom of the index it’s also possible you could get highly undervalued stocks (like what happened with the US financial stocks that were bought up when the RAFI US index rebalanced in March 09) which in the subsequent year took off and grew tremendously, you’d enjoy the full upside until you sold and bought a new inverse batch of stocks.

Or maybe not, I’m just thinking out loud. Next time your hanging out with Rob Arnott tell him to through this idea into his computers and see what it says :)

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