Rebalancing

In the Berkshire Hathaway Annual Letters, rebalancing is tagged against Warren Buffett’s argument against the conventional practice of trimming winners. Buffett observes that buying excellent businesses at sensible prices “will often result in its practitioner owning a few securities that will come to represent a very large portion of his portfolio.” His verdict on selling them down to restore balance: “To suggest that this investor should sell off portions of his most successful investments simply because they have come to dominate his portfolio is akin to suggesting that the Bulls trade Michael Jordan because he has become so important to the team.”

The passage frames concentration in one’s best ideas as a feature, not a risk to be diversified away — a deliberate counterpoint to portfolio rebalancing as a discipline.

Context: Rebalancing is the standard portfolio practice of periodically selling appreciated holdings and buying laggards to maintain target weights. Buffett’s letters are a well-known dissent from this convention in favor of letting great businesses run.

Where this appears

• Berkshire Hathaway Annual Letters — Buffett’s case against trimming winners, comparing it to the Bulls trading Michael Jordan