What got me excited about rebalancing is this chart from UBS which I was given this week. They've color coded the various asset classes -- bonds and equities. The results are truly fascinating. What did great one year did awful the next and vice versa.

Here are the chart's footnotes:

* Estimated.
Table source: Russell Mellon Analytical Services. Data as of 9/30/09. The indexes used are the following: Large Cap Growth – Russell 1000 Growth Index; Large Cap Value– Russell 1000 Value Index; Mid Cap Growth – Russell Mid Cap Growth Index; Mid Cap Value – Russell Mid Cap Value Index; Small Cap Growth – Russell 2000 Growth Index; Small Cap Value – Russell 2000 Value Index; International Equity – Morgan Stanley Capital International Europe, Australasia, Far East Index (EAFE) Net; US Bonds – Barclays Capital Aggregate Bond Index; S&P 500 – Standard & Poor's 500 Index; HFRI - HFRI Equity Hedge Index.

The past performance of an index is not a guarantee of how your portfolio will perform. Indexes are not available for direct investment and reflect an unmanaged universe of securities, which does not take into account advisory or transaction fees, all of which will reduce the overall return. Prepared by UBS Financial Services Inc. Manager Research Group. All rights reserved. Used with permission. Asset allocation does not assure profits or prevent against losses in declining markets.

The back of the chart contains an explanation of the various indexes UBS used to measure the growth (or otherwise) of particular market segments:

Barclays Capital Aggregate Bond Index-Composed of securities from Barclays Capital government/corporate bond index, mortgage- backed securities index, and the asset-backed securities index. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. Indexes are rebalanced monthly by market capitalization.

MSCI EAFE (EAFE) Net-An arithmetic, market value-weighted average of the performance of over 900 securities listed on the stock exchanges of the following countries in Europe, Australia and the Far East: Australia, Hong Kong, Norway, Austria, Ireland, Singapore, Belgium, Italy, Spain, Denmark, Japan, Sweden, Finland, Malaysia, Switzerland, France, Netherlands, United Kingdom, Germany, New Zealand.

S&P 500-Covers 500 industrial, utility, transportation, and financial companies of the US markets (mostly NYSE issues). The index represents about 75% of NYSE market capitalization and 30% of NYSE issues. It is a capitalization-weighted index calculated on a total return basis with dividends reinvested.

Russell 1000 Growth-Contains those Russell 1000 securities with a greater-than-average growth orientation. Securities in this index tend to exhibit higher price-to-book and price-earnings ratios, lower dividend yields and higher forecasted growth values than the value universe.

Russell 1000 Value-Contains those Russell 1000 securities with a less-than-average growth orientation. It represents the universe of stocks from which value managers typically select. Securities in this index tend to exhibit low price-to-book and price-earnings ratios, higher dividend yields and lower forecasted growth values than the growth universe.

Russell 2000 Growth-Contains those Russell 2000 securities with a greater-than-average growth orientation. Securities in this index tend to exhibit higher price-to-book and price-earnings ratios, lower dividend yields and higher forecasted growth values than the value universe.

Russell 2000 Value-Contains those Russell 2000 securities with a less-than-average growth orientation. Securities in this index tend to exhibit lower price-to-book and price-earnings ratios, higher dividend yields and lower forecasted growth values than the growth universe.

Russell Midcap Growth-Contains those Russell Midcap securities with a greater-than-average growth orientation. Securities in this index tend to exhibit higher price-to-book and price-earnings ratios, lower dividend yields and higher forecasted growth values than the value universe. The stocks are also members of the Russell 1000 Growth Index.

Russell Midcap Value-Contains those Russell Midcap securities with a less-than-average growth orientation. Securities in this index tend to exhibit low price-to-book and price-earnings ratios, higher dividend yields and lower forecasted growth values than the growth universe. The stocks are also members of the Russell 1000 Value Index.

Hedge Fund Research Index-Equity Hedge Index (HFRI)-The HFRI Equity Hedge Index represents performance of a universe of hedge funds that employ core holding strategies of long equities hedged at all times with short sales of stocks and/or stock index options. The hedge funds in this index commonly employ a variety of strategies and some employ leverage. Relatively conservative funds mitigate market risk by maintaining market exposure from zero to 100 percent. Relatively aggressive funds may magnify market risk by exceeding 100 percent exposure and, in some instances, maintain a short exposure. In addition to equities, some funds in this index may have limited assets invested in other types of securities.

Vanguard's paper is actually quite academic. It's written by a Ph.D. called Yesim Tokat. Yesim concludes:

To ensure that a portfolio's risk and return characteristics remain consistent over time, a portfolio must be rebalanced. The appropriate rebalancing strategy depends on a number of factors such as the market environment and asset-class characteristics. Rebalancing achieves the goal of risk control relative to the target asset allocation in all market environments. Although market return patterns may create opportunities for tactical rebalancing, this active strategy is challenging.

Based on reasonable expectations about return patterns, average returns, risk, and correlations, we conclude that for most broadly diversified stock and bond fund portfolios, annual or semiannual monitoring, with rebalancing at 5% thresholds, produces an acceptable balance between risk control and cost minimization. To the extent possible, this rebalancing strategy should be carried out by appropriately redirecting interest income, dividends, new contributions, and withdrawals.

Rebalancing has obvious pluses. It has obvious costs -- taxes, time and transaction expenses. Rebalancing is not a panacea. In 2008, the only class that went up was bonds. My inviolate 15% stop loss worked well in 2008. My 15% Up and Get Back In Rule worked well in 2009.

My conclusion: a combination of rebalancing and 15% Rules works the best. I'd include at least one extra category -- Your Personal Picks. For example, there has to be a space for those stocks you really like (irrespective of what category they fit into) -- e.g. Apple, BYDDF, Google, GLD, EWA and EWZ (despite the Brazilian government's recent creative tax ideas).

Lying or not? I don't care if China is lying about its spectacular 8.9% growth in the third quarter from the same period a year earlier, accelerating from the second quarter's 7.9% growth rate. It makes me feel good. They buy Caterpillar tractors, Boeing jets, Intel chips, Microsoft Windows 7 (introduced today) and other things we still manufacture here in the good old US of A.

Mary Meeker on the Internet. She's always been the biggest bull on Internet stocks. Here's her latest slide presentation on what's happening in the world economy in general and with Internet stocks (and the mobile Internet boom) in particular. Skip to the last few slides for her conclusions. Click here.

The website KaChing lets you track others' portfolios: KaChing lets anyone create and manage a portfolio on the site, and any user can see these portfolios and track their returns. Unlike other fantasy stock-trading sites, though, with KaChing you can actually commit money to mirroring another user's portfolio. For an article on KaChing, click here. For the actual site, click here. Thanks for reader Steve Sparrow for this.

100 overseas hotels under $150 a night. Click here.

Latest on Barnes & Noble's new Nook eReader: Looks better than Amazon's Kindle. But costs the same. Click here. Personally, I prefer using the BN Reader and reading books on my ThinkPad X200 laptop.

Our civilization is under threat. Here is an an old, but interesting speech by Geert Wilders -- a European politician worried about threats to our Western society. Click here.

Gamble on Iraqi dinars. Cramer apparently likes them. I don't. When it comes time to cash out, you have to sell them to some larger fool. Here's where to buy them -- at the Iraqi Dinars Trading Company. Bruce Tupholme, who runs the operation tells me Iraqi dinars "have risen about 10% in the last 6 months." He says, "There are plenty of buyers around in recent months, also."

More stupid Little Johnny jokes:
+ Little Johnny watched, fascinated, as his mother smoothed cold cream on her face. 'Why do you do that, mommy?' he asked. 'To make myself beautiful,' said his mother, who then began removing the cream with a tissue.

'What's the matter?' asked Little Johnny. 'Giving up?'

+ The math teacher saw that little Johnny wasn't paying attention in class. She called on him and said, 'Johnny! What are 2 and 4 and 28 and 44?'

Little Johnny quickly replied, 'NBC, FOX, ESPN and the Cartoon Network!'

+ Little Johnny's kindergarten class was on a field trip to their local police station where they saw pictures tacked to a bulletin board of the 10 most wanted criminals. One of the youngsters pointed to a picture and asked if it really was the photo of a wanted person. 'Yes,' said the policeman. 'The detectives want very badly to capture him.

Little Johnny asked, " Why didn't you keep him when you took his picture ? "

+ Little Johnny attended a horse auction with his father. He watched as his father moved from horse to horse, running his hands up and down the horse's legs and rump, and chest. After a few minutes, Johnny asked, 'Dad, why are you doing that?' His father replied, 'Because when I'm buying horses, I have to make sure that they are healthy and in good shape before I buy.

Johnny, looking worried, said, 'Dad, I think the UPS guy wants to buy Mom ..'

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.