BelangP proves PP is the least volatile

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Hal
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BelangP proves PP is the least volatile

Post by Hal » Thu Jun 04, 2020 2:35 pm

HB was ahead of his time and it's impressive to see his allocation mathematically proven.

Watch the analysis of various ratios of stock/gold/bonds (assume 10 Yr).
The orange curve is the one to look at.

https://www.youtube.com/watch?v=LA2Yr6NoZyA

Note: Read 10yr bond = 50%/50% 20Yr/Cash
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Re: BelangP proves PP is the least volatile

Post by Mark Leavy » Thu Jun 04, 2020 9:30 pm

Thank you for that link, Hal.
I had completely forgotten about using log deviation from the trend line as a measure of risk.

I used it when I first did my analysis on the Permanent Portfolio, but have since completely forgotten about it in the years since. It's a great metric. I'm going to rework all of my models this weekend to add this into it.

Tyler, if you are looking for another risk metric to add to your (fantastic) risk/reward chart, I vote for this one.
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Re: BelangP proves PP is the least volatile

Post by Mark Leavy » Thu Jun 04, 2020 9:43 pm

Tyler, the formulas (pretty straightforward) are in the spreadsheet that you helped fix for me - so many years ago. Thank you again for that.
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Re: BelangP proves PP is the least volatile

Post by Tyler » Wed Jul 22, 2020 8:55 pm

Nice! I must have missed this thread and just happened to stumble across it today. But I'm always looking for interesting new measures, so I'll definitely take a look.
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Re: BelangP proves PP is the least volatile

Post by ahhrunforthehills » Thu Jul 23, 2020 2:41 pm

Tyler wrote:
Wed Jul 22, 2020 8:55 pm
Nice! I must have missed this thread and just happened to stumble across it today. But I'm always looking for interesting new measures, so I'll definitely take a look.
@ Tyler

Speaking of the above chart, I was really curious if you had ever researched a 35% Gold / 65% Stock allocation. I know you are a fan of PWR rates. It appears that the 65%/35% outperforms a PP in terms of Withdrawal Rates in both a US and Japan environment on your website (and was comparable to a Japan environment Golden Butterfly) while providing a surprisingly large amount of safety.

65% Stock/35% Gold:

USA SWR: 5.4%
USA PWR: 4.2%
Japan SWR: 4.3%
Japan: PWR: 2.9%

HB PP:

USA SWR: 5.3%
USA PWR: 3.7%
Japan SWR: 3.8%
Japan: PWR: 2.1%

I find this really interesting especially for those that are in a taxable account (since bonds are taxed as ordinary income, which destroys performance overall). Meanwhile stocks not only qualify for capital gains, but can also receive a step-up basis upon death.

Since you would no longer be holding all of those fixed-income treasuries, you now have less taxable income. This in turn further reduces your tax rate that you would owe on Gold sales.

The author of the above graph claimed that bonds being added reduced risk by only a very little bit: https://www.youtube.com/watch?v=LA2Yr6NoZyA (around 5:05).

Anyways, the only downside I can realistically see is a higher ulcer index (but seemingly not that much more overall risk). But that seems like a small trade-off for the huge boost in tax savings and the higher PWR in both economic environments. Even the heat graph looks better for a 35/65 allocation. The only huge problem I can even imagine is if there is somehow a huge development in seabed mining that would drive the price of gold down.

But otherwise, as long as you can deal with the extra short-term volatility (which Cash stabilizes), Gold will cover you in 3 out of 4 environments and Stocks pick up the 4th:

https://i0.wp.com/uglybudget.com/wp-con ... C759&ssl=1

I would love to hear any of your thoughts on it!

Edit Update: I originally had the percentages mixed up. Just corrected them.
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Re: BelangP proves PP is the least volatile

Post by Hal » Sat Aug 08, 2020 1:59 pm

Another post to support ahhrunforthehills observations.

https://www.youtube.com/watch?v=oR58b2RxzQY

and Tylers Golden Butterfly leads the pack ;)

Edit: And for Australia -> surprising!
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Re: BelangP proves PP is the least volatile

Post by ahhrunforthehills » Mon Aug 10, 2020 1:56 pm

Hal wrote:
Sat Aug 08, 2020 1:59 pm
Another post to support ahhrunforthehills observations.

https://www.youtube.com/watch?v=oR58b2RxzQY

and Tylers Golden Butterfly leads the pack ;)

Edit: And for Australia -> surprising!

My concern is what happens to those ratings when you change it from "USA" to "Japan". The PP and GB are less impressive:

Golden Butterfly: 2.1% PWR
Permanent Profolio: 2.1% PWR
65/35: 2.9% PWR

A 65% Stock/35% Gold, although heavier in stocks than a Golden Butterfly, has a larger counter-balance.

I guess it just boils down to whether or not you think we are headed towards a repeat of the last 50 years or headed towards a Japan environment.

Betting wrong on a Golden Butterfly takes you from a 6.4% PWR to a 2.1% PWR. A 65/35 mix would take it from a 5.4% to a 2.9%. A PP would take it from a 5.3% to a 2.1%.

It really seems like a 65/35 is more weatherproof than a PP or GB. Of course, if they discover a mountain made of gold, that would change things.
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Re: BelangP proves PP is the least volatile

Post by Hal » Mon Aug 10, 2020 2:11 pm

ahhrunforthehills wrote:
Mon Aug 10, 2020 1:56 pm
Hal wrote:
Sat Aug 08, 2020 1:59 pm
Another post to support ahhrunforthehills observations.

https://www.youtube.com/watch?v=oR58b2RxzQY

and Tylers Golden Butterfly leads the pack ;)

Edit: And for Australia -> surprising!

My concern is what happens to those ratings when you change it from "USA" to "Japan". The PP and GB are less impressive:

Golden Butterfly: 2.1% PWR
Permanent Profolio: 2.1% PWR
65/35: 2.9% PWR

A 65% Stock/35% Gold, although heavier in stocks than a Golden Butterfly, has a larger counter-balance.

I guess it just boils down to whether or not you think we are headed towards a repeat of the last 50 years or headed towards a Japan environment.

Betting wrong on a Golden Butterfly takes you from a 6.4% PWR to a 2.1% PWR. A 65/35 mix would take it from a 5.4% to a 2.9%. A PP would take it from a 5.3% to a 2.1%.

It really seems like a 65/35 is more weatherproof than a PP or GB. Of course, if they discover a mountain made of gold, that would change things.
Personally, I think the 65/35 is more weatherproof OUTSIDE the USA. That said, explore the GoldSmith PP and have a listen to Anthony Deden at 1Hr 39min
https://www.youtube.com/watch?v=a4_U6bS-cU4
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Re: BelangP proves PP is the least volatile

Post by ahhrunforthehills » Mon Aug 10, 2020 3:21 pm

Hal wrote:
Mon Aug 10, 2020 2:11 pm
ahhrunforthehills wrote:
Mon Aug 10, 2020 1:56 pm
Hal wrote:
Sat Aug 08, 2020 1:59 pm
Another post to support ahhrunforthehills observations.

https://www.youtube.com/watch?v=oR58b2RxzQY

and Tylers Golden Butterfly leads the pack ;)

Edit: And for Australia -> surprising!

My concern is what happens to those ratings when you change it from "USA" to "Japan". The PP and GB are less impressive:

Golden Butterfly: 2.1% PWR
Permanent Profolio: 2.1% PWR
65/35: 2.9% PWR

A 65% Stock/35% Gold, although heavier in stocks than a Golden Butterfly, has a larger counter-balance.

I guess it just boils down to whether or not you think we are headed towards a repeat of the last 50 years or headed towards a Japan environment.

Betting wrong on a Golden Butterfly takes you from a 6.4% PWR to a 2.1% PWR. A 65/35 mix would take it from a 5.4% to a 2.9%. A PP would take it from a 5.3% to a 2.1%.

It really seems like a 65/35 is more weatherproof than a PP or GB. Of course, if they discover a mountain made of gold, that would change things.
Personally, I think the 65/35 is more weatherproof OUTSIDE the USA. That said, explore the GoldSmith PP and have a listen to Anthony Deden at 1Hr 39min
https://www.youtube.com/watch?v=a4_U6bS-cU4
Yeah, I remember that interview. It was pretty good.

Goldsmith PP for me would be much worse. All those bonds make it pretty tax inefficient if you are investing in taxable accounts. I suspect it would drag the performance down too much in the real world.

It seems like a 65/35 would be insanely tax efficient (especially if you had big fat rebalancing bands).
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Re: BelangP proves PP is the least volatile

Post by Tyler » Mon Aug 10, 2020 8:16 pm

ahhrunforthehills wrote:
Thu Jul 23, 2020 2:41 pm
Speaking of the above chart, I was really curious if you had ever researched a 35% Gold / 65% Stock allocation. I know you are a fan of PWR rates. It appears that the 65%/35% outperforms a PP in terms of Withdrawal Rates in both a US and Japan environment on your website (and was comparable to a Japan environment Golden Butterfly) while providing a surprisingly large amount of safety.
Interesting. I haven't studied that specific idea in depth, but I've definitely noticed that gold is a particularly good complement to US stocks in the right percentages. And I hear you on the tax efficiency of ditching the bonds, but I'm not 100% convinced that the increased tax impact of rebalancing out of gold more often will necessarily work out in your favor as much as you think. Sometimes having more asset options helps for things like tax loss harvesting.

Interesting idea though.
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