Backtesting for the Optimum HBPP Allocations

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Re: Backtesting for the Optimum HBPP Allocations

Post by stone » Fri Mar 29, 2013 2:34 pm

KevinW wrote:
melveyr wrote: The reason they get conflated is because financial institutions benefit from you thinking that you have a higher risk tolerance.
Do you understand why the financial industry has an interest in selling higher-risk investment products? They clearly do since practically every firm and advisor, even consumer-friendly ones like Vanguard and TIAA-CREF, push everyone to very risky portfolios. I've never understood this since the ERs on bond funds are generally comparable or higher than those on stock funds.
I guessed that the push for retail sales of risky assets came from quite high up the financial food chain. Someone needs to be buying high and selling low in order to feed the gains of those who are buying low and selling high. I guess much of the buying high is done as stock buy backs by corporations but they also want retail customers who are likely to panic and sell low to create bargain buying opportunities. There is a big hunger for dumb money. The dumber the better I guess ???
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Re: Backtesting for the Optimum HBPP Allocations

Post by melveyr » Fri Mar 29, 2013 3:02 pm

KevinW wrote:
Do you understand why the financial industry has an interest in selling higher-risk investment products? They clearly do since practically every firm and advisor, even consumer-friendly ones like Vanguard and TIAA-CREF, push everyone to very risky portfolios. I've never understood this since the ERs on bond funds are generally comparable or higher than those on stock funds.
They cannot compete on the lower end of the risk spectrum because of products like T-Bills, TIPS, or I-bonds. So the best course of action is to convince people that those products are innapropriate for their situation.

Additionally, they are in the business of selling dreams. You can't build dreams out of low risk investments.
Last edited by melveyr on Fri Mar 29, 2013 3:04 pm, edited 1 time in total.
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Re: Backtesting for the Optimum HBPP Allocations

Post by stone » Fri Mar 29, 2013 4:27 pm

To some extent it might be partly that the people actually doing the retail selling actually believe the hype themselves. I think the way compounding works is really quite counter-intuitive. People all too easily fail to grasp that a 50% loss needs a subsequent 100% gain to get even. That effect creates the illusion that it genuinely is a good idea to be taking goofy risks.
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Re: Backtesting for the Optimum HBPP Allocations

Post by MachineGhost » Fri Mar 29, 2013 6:20 pm

Slotine wrote: To be fair, medicine does have laws against direct-fees tied to the sales.  Gifts, speaking presentations, research payments, advisory fees all borderline legitimate uses, which makes it so hard to combat.
There is kickbacks in referring patients to diagnostic centers owned by the docs doing the referring.  This is especially egregarious in Medicare.  I trust no doctor's referral.  I'll price shop myself, thanks!
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Re: Backtesting for the Optimum HBPP Allocations

Post by MachineGhost » Sat Mar 30, 2013 1:45 pm

I stand corrected, sir!
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Re: Backtesting for the Optimum HBPP Allocations

Post by hedgehog » Sat Jun 15, 2013 4:11 am

Best is multivariate testing where you not only change one parameter (the 25-25-25-25 allocation) but more than one parameter at the same time including the distribution of the stocks, bonds, cash and metals portfolio and the rebalancing bands or timings as well. All at the same time. This is how it is professionally done.

http://en.wikipedia.org/wiki/Multivariate_testing

We need a little more advanced programmer to do that, though.
Last edited by hedgehog on Sat Jun 15, 2013 4:26 am, edited 1 time in total.
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Re: Backtesting for the Optimum HBPP Allocations

Post by Peak2Trough » Sat Jun 15, 2013 11:52 am

hedgehog wrote:We need a little more advanced programmer to do that, though.
Ummmm.... k.  Thanks for your feedback.
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Re: Backtesting for the Optimum HBPP Allocations

Post by bronsuchecki » Thu Aug 22, 2013 3:39 am

Peak2Trough - I note for gold you only have monthly data 1968-1972. You can go to http://www.perthmint.com.au/investment_ ... rices.aspx to download daily London fix data from jan 1968
Disclosure: I work for the Perth Mint. What I say is done in a personal capacity and is not endorsed by the Mint.
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Re: Backtesting for the Optimum HBPP Allocations

Post by hedgehog » Sat Dec 07, 2013 6:27 pm

Peak2Trough:

Possibly could you or would you make your calculator able to calculate some gearing with the PP? Like 1.5x, 2x. Out if pure academic interest to see where it hits a margin call.

- http://gyroscopicinvesting.com/forum/va ... /#msg84425
- http://gyroscopicinvesting.com/forum/pe ... ting-a-pp/

I truly appreciate your tool.
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Re: Backtesting for the Optimum HBPP Allocations

Post by hedgehog » Sun Dec 08, 2013 9:50 am

If I remember correctly Sharpe ratio was featured here: https://web.archive.org/web/20160324133 ... l-returns/
Is it removed with the new design? What's the aggregate Sharpe value?
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Re: Backtesting for the Optimum HBPP Allocations

Post by frugal » Fri Dec 12, 2014 7:39 am

Hello,

who is using different allocation than 25-25-25-25% ? And why?

Thank you and great 2015!
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Re: Backtesting for the Optimum HBPP Allocations

Post by robtkatz » Wed Jan 07, 2015 10:06 am

  • frugal wrote: Hello,

    who is using different allocation than 25-25-25-25% ? And why?

    Thank you and great 2015!
    Frugal, one might use a different allocation in order to cut down volatility.  As an old timer, the most important thing for me is to do the best I can while keeping the draw-downs low.
    Here's a model of what I think can match the PP return but with lower draw-downs.
    • 44% IEF:  iShares 7-10 Year Treasury Bond
    • 18% TLT:  iShares 20+ Year Treasury Bond
    • 13% IAU:  iShares Gold Trust
    • 25% IJH:  iShares Core S&P Mid-Cap
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Re: Backtesting for the Optimum HBPP Allocations

Post by frugal » Wed Jan 07, 2015 11:05 am

robtkatz wrote:
  • frugal wrote: Hello,

    who is using different allocation than 25-25-25-25% ? And why?

    Thank you and great 2015!
    Frugal, one might use a different allocation in order to cut down volatility.  As an old timer, the most important thing for me is to do the best I can while keeping the draw-downs low.
    Here's a model of what I think can match the PP return but with lower draw-downs.
    • 44% IEF:  iShares 7-10 Year Treasury Bond
    • 18% TLT:  iShares 20+ Year Treasury Bond
    • 13% IAU:  iShares Gold Trust
    • 25% IJH:  iShares Core S&P Mid-Cap
Hello !

CAn you please post the backtest chart :-)
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Re: Backtesting for the Optimum HBPP Allocations

Post by ozzy » Wed Jan 07, 2015 11:58 am

Hi Frugal, here's the 10-year chart:

Image

The backtesting software is called EzBackTest, and its free and easy to use!  Google it and you'll be able to backtest for yourself.

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Re: Backtesting for the Optimum HBPP Allocations

Post by frugal » Wed Jan 07, 2015 1:41 pm

ozzy wrote: Hi Frugal, here's the 10-year chart:

Image

The backtesting software is called EzBackTest, and its free and easy to use!  Google it and you'll be able to backtest for yourself.

Ozzy
Hello,

thank you ozzy. The annualized returns are not so different from the standard allocation.

Unfortunately I already tested the software but it doesn't work with EUROPEAN ETFs  :(
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Re: Backtesting for the Optimum HBPP Allocations

Post by MachineGhost » Wed Jan 07, 2015 11:10 pm

frugal wrote: Unfortunately I already tested the software but it doesn't work with EUROPEAN ETFs  :(
As long as Yahoo has the data, you might be able to get this to work:  https://code.google.com/p/mypersonalindex/
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

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Re: Backtesting for the Optimum HBPP Allocations

Post by frugal » Thu Jan 08, 2015 2:36 am

MachineGhost wrote:
frugal wrote: Unfortunately I already tested the software but it doesn't work with EUROPEAN ETFs  :(
As long as Yahoo has the data, you might be able to get this to work:  https://code.google.com/p/mypersonalindex/
MachineGhost,

EzBackTest didn't work with me for European ETF's

Now I will test this new software. First test was also impossible...

Happy 2015 MG!
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Re: Backtesting for the Optimum HBPP Allocations

Post by MachineGhost » Thu Jan 08, 2015 2:40 am

frugal wrote: Happy 2015 MG!
Happy 2015 to you too, frugal!

And BTW, I'm currently about 54.5% average cash between my two PP portfolios.  I think you would be shocked at how much cash it actually takes to reduce the PP's -25% MaxDD to a more tolerable number.  I don't believe you can reach your retirement goals and also have a low drawdown portfolio by increasing cash.  It hurts the return too much, so it is one or the other.  One thing that could work is to increase the cash to just enough so there is never a negative year historically.
Last edited by MachineGhost on Thu Jan 08, 2015 2:47 am, edited 1 time in total.
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Re: Backtesting for the Optimum HBPP Allocations

Post by frugal » Thu Jan 08, 2015 3:47 am

MachineGhost wrote:
frugal wrote: Happy 2015 MG!
Happy 2015 to you too, frugal!

And BTW, I'm currently about 54.5% average cash between my two PP portfolios.  I think you would be shocked at how much cash it actually takes to reduce the PP's -25% MaxDD to a more tolerable number.  I don't believe you can reach your retirement goals and also have a low drawdown portfolio by increasing cash.  It hurts the return too much, so it is one or the other.  One thing that could work is to increase the cash to just enough so there is never a negative year historically.
MachineG,

Howdy?

a) That I didn't know... you have 2 different PPs?

b) I've been doing rebalancements only by adding new cash to the assets and put it at 25% ? Why it is not good for retirement goals? Or you are saying that I am only adding to the asset CASH ?

c) Is that possible to increase the CASH part to the point of 0 negative years?


Harry Browne Permanent Portfolio
Start Date
End Date
Starting Capital
S&P 500 %
Gold %
T-Bonds %
Cash %
Cash Option
Long Bond Option
Rebalance
Reinvest Div/Int
Result View
Show Rebalancing
Show Component Returns
DD Count Threshold %



Date S&P500 Tbond Tbill Gold Total
1969 200 500 9,100 200 10,000 (+2.15%)
1970 204 511 9,295 204 10,215 (+8.57%)
1971 222 554 10,092 222 11,090 (+5.82%)
1972 235 587 10,679 235 11,735 (+5.54%)
1973 248 619 11,270 248 12,385 (+6.08%)
1974 263 657 11,955 263 13,137 (+7.66%)
1975 283 707 12,871 283 14,143 (+7.38%)
1976 304 759 13,820 304 15,187 (+6.91%)
1977 325 812 14,775 325 16,236 (+4.69%)
1978 340 850 15,467 340 16,997 (+7.24%)
1979 365 911 16,586 365 18,227 (+12.66%)
1980 411 1,027 18,686 411 20,534 (+11.63%)
1981 458 1,146 20,859 458 22,922 (+12.30%)
1982 515 1,287 23,425 515 25,742 (+15.40%)
1983 594 1,485 27,032 594 29,706 (+7.87%)
1984 641 1,602 29,159 641 32,042 (+9.52%)
1985 702 1,755 31,935 702 35,094 (+10.47%)
1986 775 1,938 35,279 775 38,768 (+9.14%)
1987 846 2,116 38,504 846 42,312 (+5.63%)
1988 894 2,235 40,674 894 44,697 (+6.41%)
1989 951 2,378 43,281 951 47,562 (+9.63%)
1990 1,043 2,607 47,452 1,043 52,145 (+7.45%)
1991 1,121 2,801 50,985 1,121 56,028 (+7.53%)
1992 1,205 3,012 54,825 1,205 60,247 (+4.08%)
1993 1,254 3,135 57,059 1,254 62,703 (+4.70%)
1994 1,313 3,283 59,742 1,313 65,650 (+2.45%)
1995 1,345 3,363 61,204 1,345 67,257 (+8.48%)
1996 1,459 3,648 66,396 1,459 72,963 (+4.98%)
1997 1,532 3,830 69,701 1,532 76,594 (+5.97%)
1998 1,623 4,058 73,859 1,623 81,163 (+6.50%)
1999 1,729 4,322 78,659 1,729 86,438 (+3.98%)
2000 1,797 4,494 81,786 1,797 89,875 (+6.05%)
2001 1,906 4,766 86,738 1,906 95,316 (+5.31%)
2002 2,008 5,019 91,344 2,008 100,378 (+2.36%)
2003 2,055 5,137 93,499 2,055 102,747 (+2.19%)
2004 2,100 5,250 95,544 2,100 104,994 (+1.64%)
2005 2,134 5,336 97,108 2,134 106,712 (+3.21%)
2006 2,203 5,507 100,223 2,203 110,135 (+4.86%)
2007 2,310 5,774 105,094 2,310 115,487 (+5.95%)
2008 2,447 6,118 111,351 2,447 122,364 (+4.53%)
2009 2,558 6,395 116,391 2,558 127,902 (-0.12%)
2010 2,555 6,387 116,250 2,555 127,747 (+1.51%)
2011 2,593 6,484 118,000 2,593 129,670 (+2.03%)
2012 2,646 6,615 120,398 2,646 132,305 (+0.60%)
2013 2,662 6,655 121,126 2,662 133,105 (-0.50%)
2014 2,649 6,622 120,514 2,649 132,433 (+1.73%)
2015 2,695 6,737 122,605 2,695 134,730 (+0.45%)
2015-01-08 2,651 7,060 122,863 2,761 135,335

Years 46.05
CAGR 5.82%
Starting Capital 10,000
Ending Capital 135,335
Total Return 1253.35%
Max Drawdown 2.14% (1980-01-21 - 1980-03-27)
DD > 10% Count 0
Annualized Std. Dev 3.67%
Sharpe Ratio 0.10
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Re: Backtesting for the Optimum HBPP Allocations

Post by MachineGhost » Thu Jan 08, 2015 9:35 am

frugal wrote: b) I've been doing rebalancements only by adding new cash to the assets and put it at 25% ? Why it is not good for retirement goals? Or you are saying that I am only adding to the asset CASH ?
I meant that if you did more than 25% cash to reduce the portfolio risk, it will will reduce the return and increase retirement shortfall risk.  I can't remember, but I think even at 50% cash the PP still had a moderate MaxDD, maybe -15% or so.  In other words, raising the cash level isn't quite as efficient as using trendfollowing.
c) Is that possible to increase the CASH part to the point of 0 negative years?
It certainly is.  I did it before a few years ago using Simba's spreadsheet and Excel Solver.  I actually did it so the net return after inflation was at least 0% each and every year.
Years  46.05
CAGR  5.82%
Starting Capital  10,000
Ending Capital  135,335
Total Return  1253.35%
Max Drawdown  2.14% (1980-01-21 - 1980-03-27)
DD > 10% Count  0
Annualized Std. Dev  3.67%
Sharpe Ratio  0.10
It didnt put 2009 and 2013 to 0%+ but whos being nitpicky?  What was the cash % for this?  And BTW you should start from 4/1/1968.
Last edited by MachineGhost on Thu Jan 08, 2015 9:38 am, edited 1 time in total.
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Re: Backtesting for the Optimum HBPP Allocations

Post by frugal » Thu Jan 08, 2015 3:14 pm

MG,

as I remember the Cash was 90% :)

Maybe I'm going to add some INTERNATiONAL STOCK INDEX and increase a bit the STOCKS... later in a downleg...

Hug.
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Re: Backtesting for the Optimum HBPP Allocations

Post by robtkatz » Fri Jan 09, 2015 6:50 am

MachineGhost wrote: I meant that if you did more than 25% cash to reduce the portfolio risk, it will will reduce the return and increase retirement shortfall risk.  I can't remember, but I think even at 50% cash the PP still had a moderate MaxDD, maybe -15% or so.  In other words, raising the cash level isn't quite as efficient as using trendfollowing.
[ ... ]
What is the method for trend-following?
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Re: Backtesting for the Optimum HBPP Allocations

Post by MachineGhost » Fri Jan 09, 2015 8:19 am

robtkatz wrote: What is the method for trend-following?
Simple MA, etc..
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

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Re: Backtesting for the Optimum HBPP Allocations

Post by robtkatz » Fri Jan 09, 2015 10:34 am

MachineGhost wrote:
robtkatz wrote: What is the method for trend-following?
Simple MA, etc..
Is there a reference that explains this in detail?  I don't know much about it.
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Re: Backtesting for the Optimum HBPP Allocations

Post by MachineGhost » Fri Jan 09, 2015 10:50 am

robtkatz wrote: Is there a reference that explains this in detail?  I don't know much about it.
I would not recommend doing it since you're a neophyte, but heres a white paper about it:

http://papers.ssrn.com/sol3/papers.cfm? ... _id=962461
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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