The Ignored Part of the Sharpe Ratio

The video discusses the concept of rebalancing in investment portfolios, emphasizing its role in maintaining consistency with risk tolerances and financial plans rather than maximizing performance. It highlights the importance of the Sharpe ratio, focusing on risk over return. The strategy involves setting parameters for when to rebalance, selling assets that have increased in value, and buying those that have decreased. The discussion also covers market timing and the importance of a consistent approach over time.

What does the speaker mean by 'hindsight bias' in the context of investment decisions?

What is the relationship between risk tolerance and rebalancing according to the text?

In what way does the speaker suggest that rebalancing can be seen as a 'free lunch'?