I've been reading up on universal portfolios, but I haven't been able to find an intuitive explanation as to why they have the theoretical guarantees that they do, especially that they track the best constant rebalanced portfolio in hindsight regardless of the distribution of returns. This seems incredible to me and I have not been able to gain any intuition for it from reading around. Anybody have any insight?

  • $\begingroup$ Do you have a source for that claim? $\endgroup$ – Bob Jansen May 8 '18 at 6:56
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    $\begingroup$ Perhaps the way I stated it isn't perfectly accurate, but I think that's the jist of Cover's original paper: chrome-mit.edu/~6.454/www_fall_2001/shaas/universal_portfolios.pdf $\endgroup$ – tobakudan May 8 '18 at 13:06
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    $\begingroup$ when I remember correctly they work fine in theory but having had a look at real track records was underwhelming. $\endgroup$ – vonjd May 8 '18 at 19:39
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    $\begingroup$ Yeah whatever benefits they have seem to be nullified by the transaction costs that they incur. $\endgroup$ – tobakudan May 9 '18 at 2:56

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