According to Goddard, the contrarian approach also outperformed the traditional approach over 20 years (from December 31, 1988) and over 70 years (from December 31, 1938). Bone and Goddard admit there are practical difficulties in maintaining a contrarian target rebalancing approach, which “flies in the face of normal human behaviour”, which is to increase risk when ahead and reduce risk when behind.

“For this reason, any real world application of this kind of contrarian approach is most likely to succeed if it is ‘automated’, following a pre-agreed set of rules which do not envisage external review or override,” the paper noted. “It will also almost certainly be necessary to limit the extent to which the automatic implementation is permitted to diverge from the ‘base case’ strategic asset allocation.”