Warren Buffett’s investment rules are simple: “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.”
Of course, Buffett also takes paper losses along the way. “Don’t lose money” does not mean a stock should never fall. It is closer to meaning: don’t take a loss you can hardly recover from because of one bad call.
That is also why pension funds and global institutions managing huge sums are so obsessed with portfolios and rebalancing.
- A portfolio is not a collection of stocks
Portfolio investing does not end with buying several stocks. It means setting target weights for Korean stocks, overseas stocks, bonds, cash, alternative investments and so on, and designing the whole so that even if one market collapses, total assets do not take a fatal hit.
For example, in a portfolio that starts at 50% stocks, 40% bonds and 10% cash, if only stocks rise sharply, the stock weight can climb to 60–70%.
You made money, but the portfolio has become riskier than when you started.
Rebalancing is the work of selling some of the stocks that rose and adding bonds and cash to bring the weights back close to where they started. You sell not because the outlook is bad but because they rose so much that the risk grew.
- Why did pension funds sell into a rising Korean market?
The National Pension Service (NPS) does not hold only Korean stocks. It spreads its money across Korean and overseas stocks, bonds and alternative investments, and manages target weights for each asset class.
The NPS raised its 2026 target weight for Korean stocks from 14.9% to 20.8%. Even so, as the KOSPI rose quickly and the value of its Korean stock holdings swelled, the actual weight likely moved beyond the target range.
Even though the outlook for Korean companies had not worsened, its portfolio rules required it to cut stocks. In fact, pension funds net sold about KRW 4.88 trillion on the KOSPI from the last week of April through the first week of July.
Strategic asset allocation (SAA): An approach that sets long-term target weights and allowed ranges for each asset class, such as stocks, bonds and alternatives, in advance.
The NPS’s selling was less a declaration that it had given up on Korean stocks and more a matter of risk management, trimming a Korean stock weight that had grown too large after the surge.
- Foreigners didn’t sell just because they dislike Korea, either
Heavy foreign selling should be seen from the same angle.
Suppose a global fund decides to keep Korean stocks at just 5% of its total assets. If the Korean market and chip stocks rise much faster than those of other countries, Korea’s weight grows to 7% or 8% even without any new buying.
The fund may then sell some Samsung Electronics and SK hynix shares even while it thinks their outlook is good, because it needs to bring Korea’s weight back down to 5%.
Profit-taking, a weaker won and global risk aversion also played a part in the recent foreign selling. So not all foreign selling can be explained by rebalancing alone.
Still, the Bank of Korea said that during the recent outflow of foreign money, global funds and pension funds had greater incentives to adjust asset allocation and take profits. The Korean market rose so fast that it created a situation where selling became necessary.
- Rebalancing works in reverse in a falling market
Rebalancing is not a strategy of only selling.
When stock prices fall and the Korean stock weight drops back into the target range, the mechanical selling pressure from pension funds eases. If the stock weight falls below target, they may even have to buy stocks again.
After 10 straight weeks of net selling, pension funds turned to net buying in the second week of July. The amount was not large, but it showed that the direction of rebalancing can change when the market falls.
In the end, rebalancing is not a market forecast of buying in expectation of gains and selling in expectation of losses. It is a portfolio management rule: sell when a big rise makes the weight too large, and buy when a big fall makes it too small.
- Big money manages survival before returns
The word rebalancing kept coming up in the Korean market recently because selling by pension funds and foreign investors was driven by portfolio weights rather than company value.
Individual investors are no different. When one stock rises sharply, your gains grow, but at the same time you can end up in a risky position where that single stock drives your entire wealth.
Selling part of it then is not giving up on the upside. It is locking in some of the gains and securing the staying power to invest again at the next opportunity.
Investing without losing is not investing without ever taking a loss. It is managing your weights so that no market can knock you out in one blow.
The recent moves by pension funds and foreign investors point to the same conclusion.
What matters more than predicting the market is building a portfolio that lets you survive even when you are wrong.
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