Verdad Advisors examines countercyclical asset allocation, arguing that disciplined rebalancing into underperforming assets can enhance long-term returns despite short-term discomfort. The paper highlights how investor behavior often leads to procyclical decisions, while data shows that buying into drawdowns has historically produced stronger outcomes. It suggests that systematic rebalancing can materially improve portfolio performance over time.
Countercyclical Investing – Foundations of a Cycle-Driven Approach to Asset Allocation
Verdad
Daniel Rasmussen
Research
50 Pages
Key Takeaways
Rebalancing Premium Evident: Portfolios rebalanced annually have historically outperformed static allocations by ~1–2% annually over multi-decade periods.
Behavioral Timing Costs: Investors who chase performance can underperform by 2–3% annually due to buying high and selling low across cycles.
Drawdown Opportunity Window: Buying assets after 20–30% declines has historically led to above-average forward returns over the following 3–5 years.
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