Rebalancing is not just a thing broker's try to sell you on. It's a thing that happens to the indices, and not just the S&P500 but the larger and smaller indices as well.
How can you use this to your advantage? It causes enormous volatility when it happens, and that volatility sometimes makes no rational sense.
Why is the volatility happening? Lots of fund managers are nothing more than closet indexers. They buy or sell an index for their clients, and make a couple tweaks so they can say “Look! I'm doing something! You need me.. for some reason!”
Look at the winners and losers. It's pretty stark. The ones that got promoted to a bigger index or added to an index are up on the day, some quite a lot. The losers are mostly down, some in the double digits. Some are down 25% !
How does this help you as an investor?
Well, it might or might not. Do you know any of these companies? Have you researched them? Do you own any? I do. I own one. I know it well enough to know this daily volatility means nothing to the business. There's nothing wrong with the business.
But it does mean something to me. It means I get a fat discount on buying more of the business because managers are engaged in forced selling and buying to rebalance portfolios, ETF's, and funds that track these various indices.
Volatility is the investor's best friend. I fucking love volatility. Hope this helps you in your investing journey.
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