If you’ve heard about Shannon’s Demon, you might knew the magical experiment that turns a seemingly breakeven game into a profitable one by “rebalancing” after each game. This shows the power of rebalancing – it allows us to approach arithmetic return from geometric return over the long run (since arithmetic returns is always higher than or equal to geometric returns). It has significant implication for investing, since what we care ultimately is the geometric growth rate of the wealth.
There’re a great series of articles studying on this topic: