Strategies For Rebalancing Portfolio

When investing in equities, investors often take extreme steps: they either buy and hold the stocks too long or they keep shuffling their portfolio frequently leading to overtrading. Yogesh Supekar and Nikita Singh share various portfolio rebalancing strategies that can help investors optimise their portfolio returns.

Two of the most pertinent questions facing long-term equity investors are, one, whether to adopt a ‘buy and hold’ strategy; or two, whether one should ‘keep rebalancing the portfolio’ continuously. Majority of the investors who have created wealth in equity markets would agree the answer lies somewhere between.

While it has been a rewarding experience for several investors who bought equities over the past decade and have been holding on to the same, we find that there are very many portfolios which were constructed in 2007 and are on hold mode even today even after underperforming heavily.

Vijay Kapare, an equity investor, says “I have been lucky in the market as I bought Bajaj Finance, Bajaj Finserv and Indusind Bank in my portfolio almost 10 years back and I am still holding these stocks. I am making almost 6917.5 per cent, 885.6 per cent and 2701.6 per cent returns, respectively, in these stocks so far. Such extraordinary returns would not have been possible if I would not have adopted ‘buy and hold’ strategy”. The case of Vijay Kapare is one of the best examples that include top three performers in the past 10 years. But the question is - How many people would be as lucky as Vijay to identify and hold multi-baggers in the portfolio? Most importantly, how many will have the patience to hold on to the stocks for more than 10 years when the stocks are showing an uptrend. In theory, a simple ‘buy and hold’ strategy sounds promising. However, in reality, this strategy requires immense patience and the right temperament (often lacked by many). The buy and hold strategy also has an opportunity cost attached to it.