Backtesting the PP in Other Countries (Economies)

General Discussion on the Permanent Portfolio Strategy

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Kike Moreno
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Re: Backtesting the PP in Other Countries (Economies)

Post by Kike Moreno » Tue Apr 25, 2017 6:55 am

Hi Tyler, I join the congratulations, your work is really really useful for us.

As I suggestion, if you could consider adding these assets/indexes I think they would be very useful to evaluate a Euro Permanent Portfolio and Euro Golden Butterfly:

- MSCI EMU index (EUR)
- 30 year German bond
- MSCI Small Cap World (EUR), for the Euro Golden Butterfly

For the MSCI indexes the source of data is https://www.msci.com/end-of-day-data-search

I could not find the MSCI Small Cap World values for 1999 and 2000 but, since MSCI World SC is very similar to MSCI ACWI SC, this index could be used for these 2 years.

Thanks again!
Last edited by Kike Moreno on Wed Apr 26, 2017 2:39 am, edited 1 time in total.
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Re: Backtesting the PP in Other Countries (Economies)

Post by fi50@fi2023 » Tue Apr 25, 2017 9:38 pm

I almost never post here, but I have to jump in here on the Tyler praise bandwagon. I have been a long-time fan and love the mathematical approach to investing that his site promotes. The data is very helpful. I have a blog -- www.bk2fi.com -- and constantly send my readers to Tyler. I follow what I call the Golden Merriman - with 60% of my portfolio in Paul Merriman's Ultimate Buy and Hold portfolio and the balance equally divided between LTT, Gold, and STT. I could not have arrived at this portfolio without Tyler's excellent analytical tools. Thanks Tyler!
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Re: Backtesting the PP in Other Countries (Economies)

Post by frugal » Thu Apr 27, 2017 1:22 pm

Kike Moreno wrote:Hi Tyler, I join the congratulations, your work is really really useful for us.

As I suggestion, if you could consider adding these assets/indexes I think they would be very useful to evaluate a Euro Permanent Portfolio and Euro Golden Butterfly:

- MSCI EMU index (EUR)
- 30 year German bond
- MSCI Small Cap World (EUR), for the Euro Golden Butterfly

For the MSCI indexes the source of data is https://www.msci.com/end-of-day-data-search

I could not find the MSCI Small Cap World values for 1999 and 2000 but, since MSCI World SC is very similar to MSCI ACWI SC, this index could be used for these 2 years.

Thanks again!
+1

^-^
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Re: Backtesting the PP in Other Countries (Economies)

Post by Kike Moreno » Fri Apr 28, 2017 1:40 pm

This is a possible source of data for the German bonds:

https://index.db.com/dbiqweb2/index/ibo ... ny_15_year

It is in fact a index, and not exactly the 30-year bund, but could be used a reasonable substitute.

Another option is to use the value that Brownehead has calculated in his amazing blog (the second column, "Bonos"):

http://www.carterapermanente.es/evoluci ... ermanente/

He has derived the values using the rates evolution plus the yearly coupon:

http://www.bundesbank.de/Navigation/EN/ ... skms_it03b

Source: http://www.carterapermanente.es/evoluci ... ment-42220
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Re: Backtesting the PP in Other Countries (Economies)

Post by Tyler » Fri Apr 28, 2017 2:35 pm

Thanks for the info.

I have a pretty good handle on bonds from many countries (including Germany), as I've figured out how to replicate real-world bond index funds from yield curves (similar to what Brownehead is doing, but accounting for the maturity ranges as well).

Still working on it, but I'm getting close.
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Re: Backtesting the PP in Other Countries (Economies)

Post by Kike Moreno » Fri Apr 28, 2017 2:47 pm

That sounds great, thanks!

Will you add support for other currencies like the euro?

Just having the end of the year conversion from the USD to the EUR (or any other currency) should be enough to generate all the assets values in EUR and evaluate the portfolios using assets in EUR.
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Re: Backtesting the PP in Other Countries (Economies)

Post by Tyler » Fri Apr 28, 2017 3:00 pm

That's the plan. :)
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Re: Backtesting the PP in Other Countries (Economies)

Post by Tyler » Sat Apr 29, 2017 5:43 pm

Alright -- this should keep everyone busy for a while. O0

https://portfoliocharts.com/2017/04/29/ ... ng-global/

Let me know if you spot any issues or have any questions.
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Re: Backtesting the PP in Other Countries (Economies)

Post by grapesofwrath » Sat Apr 29, 2017 8:13 pm

wow !
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Re: Backtesting the PP in Other Countries (Economies)

Post by frugal » Sun Apr 30, 2017 12:54 am

Tyler wrote:Alright -- this should keep everyone busy for a while. O0

https://portfoliocharts.com/2017/04/29/ ... ng-global/

Let me know if you spot any issues or have any questions.

OK BOSS!

Thank you.

I will read it now!
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Re: Backtesting the PP in Other Countries (Economies)

Post by Kike Moreno » Tue May 02, 2017 4:12 am

Hi Tyler, thanks a lot for the multi-country support. This is really great for us living outside the US.

I have 2 suggestions for you:

1) Instead of splitting the analysis by "countries", I think it would be more useful if splitted by "currencies". I understand that the generalization of Harry Browne Permanent Portfolio beyond the US and the USD should be done at the currency level, not a the country level, in this way:
- Stocks: index of all the stocks trading under the currency area (example: MSCI EMU). Why limit stocks to our own country if we can have a broader index without the currency risk?
- Bonds: safest long term bond (example: German 30 year bund). Why use our own country bond if we can use the safest bond (which behaves better in deflations) without any currency risk?

Then the only thing that is more useful at the country level than the currency level is the inflation. So having 2 selectors, one for the currency which will select all the applicable assets, and another for the country which will select only the inflation to calculate real returns, would be for me the optimum solution. Another option would be to use currency zone inflation (for example the eurozone inflation).

2) Could you add "World Small Caps" to the assets list?

Thanks again!
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Re: Backtesting the PP in Other Countries (Economies)

Post by Tyler » Tue May 02, 2017 11:57 am

Kike Moreno wrote: I understand that the generalization of Harry Browne Permanent Portfolio beyond the US and the USD should be done at the currency level, not a the country level, in this way:
- Stocks: index of all the stocks trading under the currency area (example: MSCI EMU). Why limit stocks to our own country if we can have a broader index without the currency risk?
- Bonds: safest long term bond (example: German 30 year bund). Why use our own country bond if we can use the safest bond (which behaves better in deflations) without any currency risk?
Yeah, I understand how investing only in home country stocks doesn't always make sense for smaller economies. The calculators account for that by offering 6 diversified international options, and I think building a PP with a heavy dose of a more global stock fund is a fine idea.

I don't like focusing so much on the EMU as an independent entity because the data is irrelevant prior to 1999. Also, from what I've seen in the data just because countries share a common currency does not mean they share the same inflation. IMHO, having a separate inflation setting just gets... messy. But I see where you're coming from.

The reason I've kept bonds purely to domestic markets for now is that the majority of international bond index funds tend to be hedged. That may be trivial across the European Union today, but when you think about outside countries and older timeframes before the euro existed it gets really complicated. So it's something I'll have to tackle later.

World small caps are on my short list for things I'd like to add. The issue is that data is really hard to come by. As you already pointed out, even MSCI only has ACWI SC data back to 1994. I'm exploring different sources and models for backtesting options, but it will take time to get right.
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