Sunday, May 15, 2022

Winners vs Losers

 Peter Lynch is famous for the quote “Selling your winners and holding your losers is like cutting the flowers and watering the weeds.” This captures the problem with rebalancing into stocks that have fallen to maintain stocks with a certain percentage of a portfolio. However the S&P 500 is market cap weighted so it doesn’t need to rebalance based on price changes; it only needs to rebalance based on adding (winners) and removing (losers) stocks and changes in share count. The success of the S&P 500 is a great example of the value of that quote.

Winning bet on stocks

 The S&P 500 index ETF is one of the safest bets in stock investing, and over time has an increasing likelihood of making money. However...