MachineGhost's Research Resort

General Discussion on the Permanent Portfolio Strategy

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MachineGhost
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MachineGhost's Research Resort

Post by MachineGhost » Fri Jul 10, 2015 5:46 pm

[align=center]Image[/align]

Yes, it's a bit tongue in cheek, but this thread will be to centralize all of the fixes to the various flaws I've identified in the Browne PP over the years.  I will be posting in this thread and editing this first post whenever inspiration and a resulting solution strikes.  To that end, here is the latest patch (which I think is the fourth in the series?):

[align=center]Image[/align]

The stocks should be self-obvious.  Now you can deal with the problematic T-Bonds in two ways.  You can either reduce the weight as proscribed above or you can keep the weight the same and buy a lower duration Treasury.  Depending on what you want to target (6.6 to 10.75 years portfolio duration is the historical "safe zone") that would be 10-year Treasury Note / IEF or a 20-year Treasury Bond.  I would suggest the more conservative target as interest rates did peak at 200% in the late 1800's. ;)  I need to update this with the proper stock duration as well as when the Fed reasserted its monetary policy independence.

Here's the Correlated Risk Parity thread which I believe was the third patch of the series:

http://gyroscopicinvesting.com/forum/pe ... msg122844/

And the fifth patch is the Equal Weight Style Box Portfolio (formerly known as the Equal Weight MarketCap Portfolio):

http://gyroscopicinvesting.com/forum/pe ... #msg146497
Last edited by MachineGhost on Thu Apr 07, 2016 9:36 pm, edited 1 time in total.
"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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Desert
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Re: The MachineGhost Fortress Portfolio

Post by Desert » Sat Jul 11, 2015 8:27 am

MG, this is interesting.  I think I understand the tables, but what is your resultant portfolio allocation, specifically, stated in % equity, IEF, etc. 
Our greatest fear should not be of failure, but of succeeding at something that doesn't really matter. 
- D.L. Moody

Diversification means always having to say you're sorry.
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lordmetroid
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Re: The MachineGhost Fortress Portfolio

Post by lordmetroid » Sat Jul 11, 2015 8:32 am

I definitely do not understand the table. Could you please explain it?
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Re: The MachineGhost Fortress Portfolio

Post by Reub » Sat Jul 11, 2015 8:56 am

It looks to me that the data is showing that both stocks and bonds are tremendously overvalued right now by historical standards. Am I correct?
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Re: The MachineGhost Fortress Portfolio

Post by mathjak107 » Sat Jul 11, 2015 8:59 am

not only are you correct but they have  both never been this over valued at the same time with rates so low.  bonds are considered to be far more over valued than stocks . stocks are just a tad more than fully valued.
Last edited by mathjak107 on Sat Jul 11, 2015 9:19 am, edited 1 time in total.
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Re: The MachineGhost Fortress Portfolio

Post by iwealth » Sat Jul 11, 2015 10:09 am

Can't say I understand that table either. And I don't see any gold data. Also, still unsure how you calculate duration for anything but bonds. Hope you are willing to explain, I'm sure it's all quite interesting.
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Re: The MachineGhost Fortress Portfolio

Post by bedraggled » Sat Jul 11, 2015 11:00 am

MG,

If you can explain this post as well as you showed and explained other info, we will all benefit.

Thanks.
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Re: The MachineGhost Fortress Portfolio

Post by Cortopassi » Sat Jul 11, 2015 11:47 am

Glad to see I was not the only one who did not understand the chart!
But what do I know?
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Re: The MachineGhost Fortress Portfolio

Post by Reub » Sat Jul 11, 2015 12:59 pm

Wouldn't a stock duration of 51 years indicate a vastly overpriced equity market?
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Re: The MachineGhost Fortress Portfolio

Post by Desert » Sat Jul 11, 2015 1:08 pm

I assume MG's using duration to mean the inverse of the dividend yield. 

Low dividend yield may or may not mean the equity market is overvalued.  Companies could be reinvesting cash, doing share buybacks, etc. 
Our greatest fear should not be of failure, but of succeeding at something that doesn't really matter. 
- D.L. Moody

Diversification means always having to say you're sorry.
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Re: The MachineGhost Fortress Portfolio

Post by MachineGhost » Tue Sep 29, 2015 5:59 pm

Whoops, I forgot all about this thread!

The numbers in the chart are the asset class durations.  It was another attempt to manage a PP portfolio to a duration target.  I've since abandoned that for the PP Jr and the Multi-Fortress Portfolio, mostly because I don't know what the heck to do about gold and I'm a long way from official retirement anyway.

So you can see the current PP portfolio duration was 17 years at the time at 25%x4.  If you were more than 17 years to retirement that is okay from that perspective.  But if not, the PP is too risky for you and you should up your cash to get it down.

But to survive a period of rising interest rates, the portfolio should never go past 11 years.
Last edited by MachineGhost on Tue Sep 29, 2015 6:06 pm, edited 1 time in total.
"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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Re: MachineGhost's Resort

Post by MachineGhost » Mon Apr 04, 2016 7:33 pm

Thanks to the genius Tyler for the inspiration!  I've upgraded the Equal Weight MarketCap Portfolio to the Equal Weight Style Box Portfolio.  Unlike just the size factor before, now risk is equalized (as best as possible) among size, value and growth!

Image

The above exposures are by using these free Schwab ETF's:

SCHB 47.16%
SCHA 29.19%
RSP 13.06%
WMCR 10.59%
Last edited by MachineGhost on Mon Apr 04, 2016 8:44 pm, edited 1 time in total.
"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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