New PPer needs guidance.

[MachineGhost]

Pretty weak argument if these are truly PP principles. Perhaps these investors are selling US equities to purchase INT equities. It's a fallacy to believe money can only flow to one of the 4 asset classes a PP investor holds.

+1.  Don't be a PPhead.  Think outside the box.

[dualstow]

This is meant to be an all-weather portfolio in the long-term if not on a daily basis. Either you buy that or you don't.
If you don't, good luck guessing what you're supposed to be buying this month / quarter / year.

[Tyler]

My numbers are using daily data - downloaded from yahoo - dividends going to cash.

Nice spreadsheet, Mark.  I think I found the bug.

You appear to have (rightly) used the adjusted closing price data from Yahoo for the daily asset values.  I believe the adjusted price calculation includes reinvested dividends, so applying the dividends to cash in your spreadsheet basically double-counts them.  Setting all TLT and VTI dividends to zero in your spreadsheet gives you a CAGR of 7.70% Nominal and 5.48% Real, which jives better with the PeaktoTrough data. 

[Reub]

This might have been more true 20 years ago.

[Pet Hog]

So... here's what I have in my spreadsheet.  From March 26, 2004 to June 5 2015:

The black line is nominal returns (9.58% CAGR over this period)
The blue/purple line, just below it is the inflation adjusted return.  (7.32% over this period)
The vertical lines are rebalance points (15/35)

Mark, I trust your data and number-crunching, but peaktotrough over the same period of time gives a nominal CAGR of 7.50% (dividends not reinvested) or 7.57% (dividends reinvested), and that difference of over 2% from your value seems too big to ignore.  The rebalance dates are different, too.  Are you using monthly or weekly data and, therefore, missing some temporary rebalance band breaches?  Even so, I wouldn't have guessed that checking the account daily, weekly, or monthly would make such a big difference in returns.  Any ideas about the discrepancy?

Thanks for the heads up Pet Hog.  I hadn't thought to check against Peak to Trough.

My numbers are using daily data - downloaded from yahoo - dividends going to cash.

You're right - the difference sounds too big to ignore.
I don't have a lot of time to investigate right now.  Let me think about it...
I tried a quick upload of my excel spreadsheet to google docs and it choked.  When I have more time, I'll figure out how to share the data so that more eyes than just mine can figure out the discrepancy.

Much appreciated.
Mark

Updated -
Here's a dropbox link to my spreadsheet (excel):

https://www.dropbox.com/s/dcfywsgle95g7 ... .xlsx?dl=0
I'm not sure if this allows you to change my personal spreadsheet or not - so please be kind and copy to your own hard drive and play with a local copy.

If you want to play with the allocations or bands - see the light green boxes near the top.  All of the rest of it should be just standard data and formulas.

Cheers,
Mark

Thanks for the link, Mark.  That's an impressive spreadsheet!  Unfortunately, I think I've spotted an error: you have used adjusted-close prices (which assumes reinvested dividends) for VTI and TLT, yet also added all their dividends to SHY.  If so, you've counted the dividends twice, and that would add maybe 1.5% to your CAGR (assuming average yields for VTI and TLT of, say, 2 and 4%, respectively, over the last 11 years).  Is that possible?

EDIT: Just saw Tyler's response! 

[Mark Leavy]

My numbers are using daily data - downloaded from yahoo - dividends going to cash.

Nice spreadsheet, Mark.  I think I found the bug.

You appear to have (rightly) used the adjusted closing price data from Yahoo for the daily asset values.  I believe the adjusted price calculation includes reinvested dividends, so applying the dividends to cash in your spreadsheet basically double-counts them.  Setting all TLT and VTI dividends to zero in your spreadsheet gives you a CAGR of 7.70% Nominal and 5.48% Real, which jives better with the PeaktoTrough data.

Outstanding!  Thank you very much for that.
Mark

[MachineGhost]

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[MediumTex]

Pretty weak argument if these are truly PP principles. Perhaps these investors are selling US equities to purchase INT equities. It's a fallacy to believe money can only flow to one of the 4 asset classes a PP investor holds.

+1.  Don't be a PPhead.  Think outside the box.

I don't think that money can only flow to one of the PP assets.  I think that money tends to flow in directions that correspond to economic conditions, and if you can locate assets that are good proxies for all conceivable economic conditions, then you should be protected no matter what happens.

When the economy is expanding people tend to buy stocks.

When the economy is contracting, people tend to buy treasuries.

When inflation is rising, people tend to buy gold.

When inflation is falling, it could be for several reasons, and each of those reasons has a PP asset associated with it.

The PP isn't perfect (nothing is), but it's pretty good.

[Reub]

It has been pretty good. But was that because of the colossal run up in treasuries and gold in the past 30 or 40 years? Is that over now? Past performance is no..............

[MediumTex]

It has been pretty good. But was that because of the colossal run up in treasuries and gold in the past 30 or 40 years? Is that over now? Past performance is no..............

The stock market has trounced both gold and treasuries over the last 30 or 40 years.  Does that mean that we should be even more afraid of stocks today than of gold or treasuries?

[Mark Leavy]

My last off topic post on this thread...

A very hearty thanks to all who helped spot and identify the error(s) in my modeling spreadsheet.
Barrent, Pet Hog, Tyler, MG...

I think I've come to a better understanding of what "adjusted returns" means.  I used to think it was just "split adjusted" but now know that on Yahoo it also means dividend adjusted.

PLEASE DON'T USE THE SPREADSHEET I POSTED!

Tyler's fix will cover most of the corrections, but I'm still worried now that the last few months of data are a mix of "Split Adjusted" and "Yahoo adjusted" data.

Give me a few days to do an update.  I really want the daily returns to reflect the split adjusted closing prices - and the dividends to go to cash.  That is more in line with how my personal finances work.

I'll repost once I get it fixed - as I truly appreciate the scrutiny, honesty and wealth of experience on this board.

Mark

[Reub]

It has been pretty good. But was that because of the colossal run up in treasuries and gold in the past 30 or 40 years? Is that over now? Past performance is no..............

The stock market has trounced both gold and treasuries over the last 30 or 40 years.  Does that mean that we should be even more afraid of stocks today than of gold or treasuries?

Yes. It is possible I think for the 3 assets to fall at the same time in a post QE world.  They have been artificially propped up by central banks and could all decline together. Even if only 2 of these fell at the same time it would probably not be very good for the portfolio. Are you certain that these scenarios are impossible?

[dutchtraffic]

It has been pretty good. But was that because of the colossal run up in treasuries and gold in the past 30 or 40 years? Is that over now? Past performance is no..............

The stock market has trounced both gold and treasuries over the last 30 or 40 years.  Does that mean that we should be even more afraid of stocks today than of gold or treasuries?

Yes. It is possible I think for the 3 assets to fall at the same time in a post QE world.  They have been artificially propped up by central banks and could all decline together. Even if only 2 of these fell at the same time it would probably not be very good for the portfolio. Are you certain that these scenarios are impossible?

Gold propped up by central banks? This better be a joke 

[MediumTex]

I think that we should be skeptical of the whole "Fed propped up the price" narrative.

The basic effect of the Fed's actions in the 2008-present period was to blunt the effects of a dramatic period of deleveraging in the private sector.  It has been a pretty successful policy in that in its wake we have seen neither dramatic inflation nor dramatic deflation.

Since 2008, LT treasury yields have been pretty stable, as has been the price of gold (they have both been trading in a range for several years now).  The stock market bounced hard off of its 2009 lows, but the bounce has only taken us a little bit north of all time highs that were hit over a decade ago.  In other words, a stock market that is just now poking through highs first reached many years ago can hardly be called a wildly overvalued market.

When you look at the three volatile assets in the PP, none of them looks obviously overvalued, and none of them appears to have been dramatically affected by any Fed actions, other than escaping the effects of  deflationary spiral that might have occurred had the Fed taken no action in the face of the wave of private sector deleveraging.

For the person who wants to worry, there is always something to worry about.  I just don't see anything worth worrying about with the PP right now. 

[barrett]

I think that we should be skeptical of the whole "Fed propped up the price" narrative.

The basic effect of the Fed's actions in the 2008-present period was to blunt the effects of a dramatic period of deleveraging in the private sector.  It has been a pretty successful policy in that in its wake we have seen neither dramatic inflation nor dramatic deflation.

Since 2008, LT treasury yields have been pretty stable, as has been the price of gold (they have both been trading in a range for several years now).  The stock market bounced hard off of its 2009 lows, but the bounce has only taken us a little bit north of all time highs that were hit over a decade ago.  In other words, a stock market that is just now poking through highs first reached many years ago can hardly be called a wildly overvalued market.

When you look at the three volatile assets in the PP, none of them looks obviously overvalued, and none of them appears to have been dramatically affected by any Fed actions, other than escaping the effects of  deflationary spiral that might have occurred had the Fed taken no action in the face of the wave of private sector deleveraging.

Thanks for posting that, MT. I think it's just monetary policy which is a very delicate balancing act. The actions of The Fed, while they may have unintended consequences, are for the most part taken to try to keep the ship from sinking. Yes, some assets like stocks and real estate are probably higher than they would be absent any action by The Fed, but that is just the result of deflation being blunted by their money pump going full throttle.

[Reub]

The stock market has trounced both gold and treasuries over the last 30 or 40 years.  Does that mean that we should be even more afraid of stocks today than of gold or treasuries?

Yes. It is possible I think for the 3 assets to fall at the same time in a post QE world.  They have been artificially propped up by central banks and could all decline together. Even if only 2 of these fell at the same time it would probably not be very good for the portfolio. Are you certain that these scenarios are impossible?

Gold propped up by central banks? This better be a joke 

So you don't think that the Fed's money printing helped to raise the price of gold? Was it a coincidence?

[dutchtraffic]

Yes. It is possible I think for the 3 assets to fall at the same time in a post QE world.  They have been artificially propped up by central banks and could all decline together. Even if only 2 of these fell at the same time it would probably not be very good for the portfolio. Are you certain that these scenarios are impossible?

Gold propped up by central banks? This better be a joke 

So you don't think that the Fed's money printing helped to raise the price of gold? Was it a coincidence?

Come on are you serious? The L A S T thing the fed wants to go up in price is gold.

Stocks and bonds? Obviously, whoever denies that is insane.

[barrett]

So you don't think that the Fed's money printing helped to raise the price of gold? Was it a coincidence?

I know you weren't talking to me Reub, but... I absolutely think printing helped to raise the price of gold, but I would argue that gold going up was an unintended consequence of easy money policies. The Fed had to prime the pump because the private sector was not doing it.

[MediumTex]

So you don't think that the Fed's money printing helped to raise the price of gold? Was it a coincidence?

I know you weren't talking to me Reub, but... I absolutely think printing helped to raise the price of gold, but I would argue that gold going up was an unintended consequence of easy money policies. The Fed had to prime the pump because the private sector was not doing it.

The market thought the Fed's actions were going to be more inflationary than they turned out to be, so gold went way up and then way back down.

[barrett]

So you don't think that the Fed's money printing helped to raise the price of gold? Was it a coincidence?

I know you weren't talking to me Reub, but... I absolutely think printing helped to raise the price of gold, but I would argue that gold going up was an unintended consequence of easy money policies. The Fed had to prime the pump because the private sector was not doing it.

The market thought the Fed's actions were going to be more inflationary than they turned out to be, so gold went way up and then way back down.

This explanation makes sense to me. Does anyone disagree with MT on this? I have often thought that understanding gold's performance from 2000 to the present is really important for a PP investor. It saved the PP for a decade. It's kind of important to know if that is a potentially repeatable event, no?

[dutchtraffic]

When you can shortsell 'gold' (papergold) that DOES NOT EXIST, how do you ever determine the real price of gold?

Hint: you don't.

[Reub]

I would say that gold would tend to rise when the Fed is printing money. And that's what happened. Nowhere did I say that the Fed was interested in raising the price of gold. They were interested in raising the price of stocks and bonds though. The rise that followed in gold was a natural unintended consequence of the money printing.

It could also be said that when the end of QE was anticipated was when gold plummeted.

And I would caution anyone looking to start a PP at this time to proceed with caution. It is possible that all 3 of the volatile assets could fall at the same time. What artificially goes up can go down. I certainly don't have a crystal ball but I do think that it is a possibility.

[iwealth]

I would say that gold would tend to rise when the Fed is printing money. And that's what happened. Nowhere did I say that the Fed was interested in raising the price of gold. They were interested in raising the price of stocks and bonds though. The rise that followed in gold was a natural unintended consequence of the money printing.

It could also be said that when the end of QE was anticipated was when gold plummeted.

And I would caution anyone looking to start a PP at this time to proceed with caution. It is possible that all 3 of the volatile assets could fall at the same time. What artificially goes up can go down. I certainly don't have a crystal ball but I do think that it is a possibility.

Say someone heeds your caution and doesn't start a PP. Instead they stay 100% cash.

What would you need to see before declaring it's all-clear to get back into the PP?

[Reub]

The rise in stocks and bonds and, as an incidental participant , gold, were due to Fed manipulation. Sooner or later the piper must be paid.
Even if 2 of these assets fall it could lead to poor performance in the PP. Where is it written in stone that this can't happen?

[dutchtraffic]

Where is it written in stone that this can't happen?

Nowhere.
Why? Does anyone think they CAN'T drop alltogether....?