Thread by @breakingthemark

Is Geometric Balancing actually a value strategy?

Here’s the logic
When prices pop up, all other things being equal, Geo-balancing says the asset is now overvalued in the portfolio and sells it.

When prices fall it says the asset is now undervalued in the portfolio and buys it.

The decision to buy or sell is entirely based around the value that asset provides to the portfolio at its current price.

There are two key difference here to traditional value investing

1-The math to determine “value” is based around Claude Shannon’s “demon” and the Kelly criteria.

breakingthemarket.com/the-great-age-…

2-Value is calculated from the perspective of value to MY portfolio, not how others will value something later.

Traditional value investing finds undervalued assets today, expecting the market to realize their true value in the future. It’s dependent on others recognizing value.

Geometric balancing flips the concept of value around and evaluates whether an asset is over priced or under priced TO ME and my needs today.

It’s uses the same concept of “value” that Daniel Bernoulli talked about 300 years ago.

https://twitter.com/breakingthemark/status/1339570230662717441?s=20

If I’m buying assets which are undervalued to me today, and selling assets which are overvalued to me today, I don’t have to wait and hope for the market to find the value in something later.

I get the “value” in it right now.

Geometric Balancing may be the only value strategy in the world that doesn’t require someone else to come along and agree with your view of “value” to provide a return.