Just for Fun - The Golden Middle

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Kbg
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Just for Fun - The Golden Middle

Post by Kbg » Sat Jul 25, 2020 10:27 pm

I've never really liked the Golden Butterfly because I'm a big non-believer in SCV. However, I do like the 40/20/20/20 allocation.

So without further adieu, I announce the Golden Middle...40 MCB and the rest you already know. It tops the charts if one puts it into the portfolio matrix.
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Hal
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Re: Just for Fun - The Golden Middle

Post by Hal » Sat Jul 25, 2020 10:58 pm

Great name Kbg!
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europeanwizard
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Re: Just for Fun - The Golden Middle

Post by europeanwizard » Sun Jul 26, 2020 1:00 am

SCV = Small Cap Value?
MCB = ?
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Mark Leavy
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Re: Just for Fun - The Golden Middle

Post by Mark Leavy » Sun Jul 26, 2020 6:09 am

europeanwizard wrote:
Sun Jul 26, 2020 1:00 am
SCV = Small Cap Value?
MCB = ?
Mid cap blend
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Re: Just for Fun - The Golden Middle

Post by Kevin K. » Sun Jul 26, 2020 9:44 am

Had to choose either Mid Cap Growth (which I did) or Mid Cap Value on Portfolio Visualizer since they don't offer MCB. Interesting results (constrained to 1978 onwards due to Long Term Treasury availability):

https://www.portfoliovisualizer.com/bac ... tion7_3=20

Bill Bernstein, in the interview I posted the link to the other day, addresses the recurrent question about whether small cap and small cap value alpha persist over time by saying (paraphrasing) "maybe" over long periods (multiple decades) but tilting or not should factor in your age (less or no tilt if older) and just how much you believe in such tilts (enough to put up with decades of underperformance without jumping ships?).

Tyler may chime in here but I don't see how the half SCV half TSM allocation in the GB has to be set in stone. It's a nice symmetry but going all TSM just gives you an optimist's PP and isn't that what GB is at heart anyway? Shaving 5% off each of the other assets and tilting the portfolio towards the most likely of HB's 4 scenarios is exactly what Bernstein would've recommended (his beef with the PP being that it allocates exactly equal amounts of the portfolio to addressing economic conditions that aren't equally likely to occur and aren't equally easy to defend against).

5 companies (Apple, Amazon, Alphabet, Microsoft and Facebook) are responsible for ALL of the S & P's positive performance since 2017 and their dominance has been launched into hyperspace with the pandemic, while entire categories of small business teeter on the verge of extinction. So I can see going with no SCV, or keeping the original GB allocation out of faith that things will eventually revert, or even going with all Total World Stock if you're truly a believer in avoiding home country bias. And hey, then you'd have yet another nifty new name possibility: The Global Butterfly. :D
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Re: Just for Fun - The Golden Middle

Post by Tyler » Sun Jul 26, 2020 10:21 am

Kevin K. wrote:
Sun Jul 26, 2020 9:44 am
5 companies (Apple, Amazon, Alphabet, Microsoft and Facebook) are responsible for ALL of the S & P's positive performance since 2017 and their dominance has been launched into hyperspace with the pandemic, while entire categories of small business teeter on the verge of extinction.
The way the biggest tech stocks dominate TSM these days is exactly why I think more stock diversification is important. I like SCV for the size, valuation, and industry diversification away from large growth tech companies. But you're absolutely correct that there are other good ways to address that, too. And yes, MCB is an underrated choice!

(I also think it's important to note that publicly traded small cap companies are not your typical neighborhood small business crushed by the pandemic. For example, the top company in VBR is currently Atmos Energy with revenues of almost $4 billion.)
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Re: Just for Fun - The Golden Middle

Post by Kriegsspiel » Sun Jul 26, 2020 10:48 am

Hal wrote:
Sat Jul 25, 2020 10:58 pm
Great name Kbg!
I like this.
There's this very disturbing set of studies where about half the articles printed in Science and Nature magazines, the two leading publications, involved experiments that could not be repeated by anybody.
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Re: Just for Fun - The Golden Middle

Post by pp4me » Sun Jul 26, 2020 11:48 am

I started using the Golden Butterfly last year and I have to say I haven't been liking SCV lately either. Down about 15% from the start of the year, last I checked. It's especially disappointing because I keep it mostly in Roth where I would prefer to see more growth over time as opposed to my tax-deferred IRA. Instead I'm getting the opposite result lately.

Then again, I think somebody once said that if there isn't one asset class you don't like at any particular time there is something wrong with your portfolio so I guess I should be thankful for SCV.
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Re: Just for Fun - The Golden Middle

Post by Kbg » Mon Jul 27, 2020 8:25 am

pp4me wrote:
Sun Jul 26, 2020 11:48 am
Then again, I think somebody once said that if there isn't one asset class you don't like at any particular time there is something wrong with your portfolio so I guess I should be thankful for SCV.
This isn't really the point or none of us would invest in the PP where there's always something to hate. My main objection is that pretty much since the day it was discovered/invented it has not performed according to it's prior historicals. SCV isn't the only thing this has happened to so I'm not picking on it as an asset class. Discovery often facilitates elimination of the "edge." I think that's the case here. However, historically small cap tends to due quite well when large cap tech is not doing well. I'm not anti SC, just anti-SCV, Also, stay away from the Russell SC indexes. The GB with SC vs. SCV, I'm on board with that. My personal recommendation would be QQQ with IJR for the 20/20 stock component. Owning tech is like owning the railroads in the late 1800s...its the dominant mover of the stock market now days. One day something else will come along, but for now just as well be where the mojo is.
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Re: Just for Fun - The Golden Middle

Post by Kevin K. » Mon Jul 27, 2020 9:31 am

I can see why you'd prefer using QQQ instead of TSM but it sure seems to me like TSM is already plenty lopsided in tech dominance.

Tyler went into considerable detail in the long GB thread here about his process of ultimately choosing SCV over SCB and as I recall it wasn't a big difference but ultimately the way the holdings in a SCV ETF like VBR diversify TSM's holdings won the day.

I'm not seeing SC out-perform SCV. Just for fun, I also looked at just increasing TSM in the GB to 25% instead of 20% since that happens to be the way things have drifted for me this year thanks to the outperformance of TSM and it still beats a SC/TSM allocation (obviously no way to backtest QQQ since that kind of sector bet is so new).

The arguments about whether SC and/or SCV premiums have disappeared since being identified will doubtless go on forever but from what I can tell recency bias rather than data is at the root of a lot of the dismissal of these things as well as investing in international. Not that I haven't been guilty of that myself; it's hard not to throw in the towel when something massively under-performs for a decade or two, and to justify doing so by saying it's a lasting shift in the market rather than a potential repeat of cyclical trends. Easy to forget how many years international and value outperformed (and how lofty valuations for tech stocks and TSM in general combined with money printing and debt might well have set the stage for another bull run in value and Int'l.)

https://www.portfoliovisualizer.com/bac ... tion6_3=20
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Re: Just for Fun - The Golden Middle

Post by Lonestar » Mon Jul 27, 2020 11:24 am

Kevin K. wrote:
Sun Jul 26, 2020 9:44 am
Had to choose either Mid Cap Growth (which I did) or Mid Cap Value on Portfolio Visualizer since they don't offer MCB. Interesting results (constrained to 1978 onwards due to Long Term Treasury availability):

https://www.portfoliovisualizer.com/bac ... tion7_3=20

I changed the Portfolio Visualizer to "No Re-balancing" and it made a big difference in returns. Normally I don't see this much difference in entering different portfolio variations.
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Re: Just for Fun - The Golden Middle

Post by Kevin K. » Mon Jul 27, 2020 12:16 pm

I changed the Portfolio Visualizer to "No Re-balancing" and it made a big difference in returns. Normally I don't see this much difference in entering different portfolio variations.
Interesting. I'm no expert but it seems like the results of that backtest without rebalancing speak to just how broadly-diversified the "barbell" of TSM with SCV in the original GB are.
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