My grandfather used to say that we judge ourselves by our intent but everyone else judges us by our actions. We can't know for sure, but it is highly unlikely that a sale of any small number of Microsoft shares by Mr. Gates would be intended to "beat the market."
A rebalancer sells A to buy B because the portfolio goal is to maintain an even split between A and B on a long-term basis. The trigger is not a specific forecast of market behavior.
The two most common rebalancing triggers are the calendar (the portfolio is rebalanced at specified intervals, often quarterly or annually) and investor thresholds, when an exposure to a holding exceeds or drops below a target percentage. Take a holding with a 20% target in a portfolio and apply a 30% "tolerance band." Rebalancing would dictate a buy when the position drops to 14% and a sell when it represents 26% of the portfolio. A 20% band triggers trading at 16% and 24%.
Sometimes it is easier to see the differences in intent when one takes a view from a much higher vantage point than the transaction level. For instance, if we go all the way up to the practice level rather than just the portfolio level, we get clues about the portfolio manager's intent.
A practice that times the market will make wholesale changes across the board regardless of differences in client goals or how long clients have been with the firm. A timing operation will often pull everybody out or put everybody in based on the portfolio manager's forecast. If his or her forecast changes shortly after a new client's portfolio has been implemented, the transactions are likely executed based on that forecast.
But if he's simply rebalancing, a portfolio manager only changes the portfolios whose allocations are out of balance or whose trigger has come on the calendar. It is conceivable that while selling some securities to rebalance in one client's portfolios, a manager could also be buying those same securities in order to take up a position for a new client or to take up a new position after a cash inflow.
Client portfolios can find themselves out of balance because of cash flows in or out of various accounts. Those transactions don't strike me as market timing.
When we look at the extreme ends of the spectrum-the frequency of the trades and the motivation-we are more likely to get a consensus about what is and what isn't market timing. Or what is active versus passive or strategic versus tactical, for that matter. In between the extremes, however, there is plenty of room for debate.
I sometimes chuckle when I see people get wound up passionately advocating for a more active or less active approach. Empirically, there is little to debate. The data supports the simple math. In the aggregate, the result of all the activity is negative because of costs. Some who are active will outperform. But over time, fewer and fewer outperform by less and less.
On a very important level, none of that matters.
You can try to identify tomorrow's winners or you can play both sides of the fence. You can call your approach passive, active, strategic, tactical or whatever you like. Regardless of the approach or what label you put on it, you will sometimes look particularly smart and other times rather dumb. Either way, managing clients' expectations and their reactions to personal, family, market, economic and political events will probably be a bigger influence than trading activity on the net result.