An odd choice for a VP: Wellesley

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Re: An odd choice for a VP: Wellesley

Post by Mark Leavy » Wed Sep 16, 2020 12:21 pm

Tyler wrote:
Wed Sep 16, 2020 11:59 am
Adding mutual funds to the site is outside of my goals for now, but I'm happy to hook you guys up with a few custom charts. 8)
You're a mensch, Taylor
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Re: An odd choice for a VP: Wellesley

Post by PP67 » Wed Sep 16, 2020 3:15 pm

Excellent Taylor!

It is very GB-esque!

Many Many Thanks!
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Re: An odd choice for a VP: Wellesley

Post by Tyler » Wed Sep 16, 2020 3:42 pm

I feel like my timeline crossed somewhere and I jumped into an alternate universe where everything is the same but people call me Taylor. ;)

Image
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Re: An odd choice for a VP: Wellesley

Post by pp4me » Wed Sep 16, 2020 4:04 pm

When I was researching a safer way to invest after the 2008 meltdown I came across a debate about Wellesley vs the Permanent Portfolio on a forum. I don't think it was Bogleheads but I remember that MT and Craig were on the PP side and it got pretty nasty at times.

I went with Wellesley for a while, not because MT and Craig didn't sell the PP very well but because it appealed to my lazy nature, having less moving parts to deal with. Eventually, I bought HB's book, sold all the Wellesley and distributed it 4 ways into the PP components.

Wellesley doesn't make much sense as a VP to me because it's considered a fairly conservative and safe investment which is why it matched up well with the PP. According to Harry, the VP is supposed to consist of money that you can afford to lose and "swinging for the fences" as he think he might have said it. Wellesley doesn't seem to fit that bill to me.
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Re: An odd choice for a VP: Wellesley

Post by Mark Leavy » Wed Sep 16, 2020 4:21 pm

Tyler wrote:
Wed Sep 16, 2020 3:42 pm
I feel like my timeline crossed somewhere and I jumped into an alternate universe where everything is the same but people call me Taylor. ;)
Dang! Sorry about that. You do good work, also, Tyler :)
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Re: An odd choice for a VP: Wellesley

Post by Smith1776 » Wed Sep 16, 2020 4:34 pm

Nobody DARE confuse Tyler with Taylor.

That's like confusing Coca-Cola with Walmart cola.
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Re: An odd choice for a VP: Wellesley

Post by Kevin K. » Wed Sep 16, 2020 5:11 pm

pp4me wrote:
Wed Sep 16, 2020 4:04 pm
When I was researching a safer way to invest after the 2008 meltdown I came across a debate about Wellesley vs the Permanent Portfolio on a forum. I don't think it was Bogleheads but I remember that MT and Craig were on the PP side and it got pretty nasty at times.

I went with Wellesley for a while, not because MT and Craig didn't sell the PP very well but because it appealed to my lazy nature, having less moving parts to deal with. Eventually, I bought HB's book, sold all the Wellesley and distributed it 4 ways into the PP components.

Wellesley doesn't make much sense as a VP to me because it's considered a fairly conservative and safe investment which is why it matched up well with the PP. According to Harry, the VP is supposed to consist of money that you can afford to lose and "swinging for the fences" as he think he might have said it. Wellesley doesn't seem to fit that bill to me.
You're correct of course about the original purpose of the variable portfolio but I'd argue that it's okay to repurpose it and also to tinker with the PP - not only because Browne did himself as his thinking evolved, but also because negative real returns on even 30 year Treasuries weren't even on his radar screen.

In and of itself Wellesley provides diversification vs. the PP because it is actively managed and invests in assets that aren't included in the PP. Add in Tyler's brilliant suggestion of a slice of gold and you have (on paper, admittedly) a level of sequence-of-returns and drawdown insurance that's truly impressive. One could also make some of the Wellesley allocation its global version for international exposure - something that neither the PP nor regular Wellesley provides.

I'm also looking at this through the lens of today's unprecedented Treasury yield situation and today's crystal clear statement by the Fed that they intend for it to continue for years to come. I see no point in owning even intermediate Treasuries in the PP so a "safe" version of that allocation is something like 50% T-bills and the rest gold and TSM. Wellesley's carefully-selected IT bonds and dividend-paying stocks are looking pretty good by comparison. NOT to suggest jettisoning the PP or GB altogether but I could certainly see splitting my assets 50:50 into the Wellesley/Gold and a GB. So rather than viewing the variable portfolio as being for money I can afford to lose, I'm looking at it as a way of increasing my chances of winning through broader diversification of investment styles and assets. YMMV of course.
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Re: An odd choice for a VP: Wellesley

Post by vnatale » Wed Sep 16, 2020 5:23 pm

Kevin K. wrote:
Wed Sep 16, 2020 5:11 pm
pp4me wrote:
Wed Sep 16, 2020 4:04 pm
When I was researching a safer way to invest after the 2008 meltdown I came across a debate about Wellesley vs the Permanent Portfolio on a forum. I don't think it was Bogleheads but I remember that MT and Craig were on the PP side and it got pretty nasty at times.

I went with Wellesley for a while, not because MT and Craig didn't sell the PP very well but because it appealed to my lazy nature, having less moving parts to deal with. Eventually, I bought HB's book, sold all the Wellesley and distributed it 4 ways into the PP components.

Wellesley doesn't make much sense as a VP to me because it's considered a fairly conservative and safe investment which is why it matched up well with the PP. According to Harry, the VP is supposed to consist of money that you can afford to lose and "swinging for the fences" as he think he might have said it. Wellesley doesn't seem to fit that bill to me.
You're correct of course about the original purpose of the variable portfolio but I'd argue that it's okay to repurpose it and also to tinker with the PP - not only because Browne did himself as his thinking evolved, but also because negative real returns on even 30 year Treasuries weren't even on his radar screen.

In and of itself Wellesley provides diversification vs. the PP because it is actively managed and invests in assets that aren't included in the PP. Add in Tyler's brilliant suggestion of a slice of gold and you have (on paper, admittedly) a level of sequence-of-returns and drawdown insurance that's truly impressive. One could also make some of the Wellesley allocation its global version for international exposure - something that neither the PP nor regular Wellesley provides.

I'm also looking at this through the lens of today's unprecedented Treasury yield situation and today's crystal clear statement by the Fed that they intend for it to continue for years to come. I see no point in owning even intermediate Treasuries in the PP so a "safe" version of that allocation is something like 50% T-bills and the rest gold and TSM. Wellesley's carefully-selected IT bonds and dividend-paying stocks are looking pretty good by comparison. NOT to suggest jettisoning the PP or GB altogether but I could certainly see splitting my assets 50:50 into the Wellesley/Gold and a GB. So rather than viewing the variable portfolio as being for money I can afford to lose, I'm looking at it as a way of increasing my chances of winning through broader diversification of investment styles and assets. YMMV of course.
What exactly was that statement?

I'd read in a few articles to expect the status quo for the next five to ten years.

Vinny
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Re: An odd choice for a VP: Wellesley

Post by D1984 » Wed Sep 16, 2020 5:49 pm

Kevin K. wrote:
Wed Sep 16, 2020 5:11 pm
pp4me wrote:
Wed Sep 16, 2020 4:04 pm
When I was researching a safer way to invest after the 2008 meltdown I came across a debate about Wellesley vs the Permanent Portfolio on a forum. I don't think it was Bogleheads but I remember that MT and Craig were on the PP side and it got pretty nasty at times.

I went with Wellesley for a while, not because MT and Craig didn't sell the PP very well but because it appealed to my lazy nature, having less moving parts to deal with. Eventually, I bought HB's book, sold all the Wellesley and distributed it 4 ways into the PP components.

Wellesley doesn't make much sense as a VP to me because it's considered a fairly conservative and safe investment which is why it matched up well with the PP. According to Harry, the VP is supposed to consist of money that you can afford to lose and "swinging for the fences" as he think he might have said it. Wellesley doesn't seem to fit that bill to me.
You're correct of course about the original purpose of the variable portfolio but I'd argue that it's okay to repurpose it and also to tinker with the PP - not only because Browne did himself as his thinking evolved, but also because negative real returns on even 30 year Treasuries weren't even on his radar screen.

In and of itself Wellesley provides diversification vs. the PP because it is actively managed and invests in assets that aren't included in the PP. Add in Tyler's brilliant suggestion of a slice of gold and you have (on paper, admittedly) a level of sequence-of-returns and drawdown insurance that's truly impressive. One could also make some of the Wellesley allocation its global version for international exposure - something that neither the PP nor regular Wellesley provides.

I'm also looking at this through the lens of today's unprecedented Treasury yield situation and today's crystal clear statement by the Fed that they intend for it to continue for years to come. I see no point in owning even intermediate Treasuries in the PP so a "safe" version of that allocation is something like 50% T-bills and the rest gold and TSM. Wellesley's carefully-selected IT bonds and dividend-paying stocks are looking pretty good by comparison. NOT to suggest jettisoning the PP or GB altogether but I could certainly see splitting my assets 50:50 into the Wellesley/Gold and a GB. So rather than viewing the variable portfolio as being for money I can afford to lose, I'm looking at it as a way of increasing my chances of winning through broader diversification of investment styles and assets. YMMV of course.
Just something to add concerning Wellesley as the VP in a 50/50 VP/PP blend (whether the "PP" section of that blend is the classic PP or the GB): A portfolio consisting of 50% Wellesely and 50% classic PP rebalanced annually has a lower standard deviation, higher Sharpe, higher Sortino, a less-bad worst year, and a lower MaxDD then either of the two separately while having a CAGR that is right between either of the two; see:

https://www.portfoliovisualizer.com/bac ... on8_3=12.5

A 50/50 annually rebalanced blend of Wellesley and the GB shows similar characteristics.....lower SD and a higher Sharpe and Sortino; it has a worst year and MaxDD that is between that of the GB and Wellesley (albeit much closer to the one for the GB which has a less bad maxDD than Wellesley) but returns that are pretty close to the higher-returning of the two (Wellesley); see:

https://www.portfoliovisualizer.com/bac ... tion9_3=50

What is good about either of these allocations is that Wellesley tends to balance out the PP (or GB) and vice versa; when stocks are doing well Wellesley beats the PP/GB but the gold (and bond/cash) heavier PP or GB typically shines in years stocks do poorly.

I can think of one other change that would likely improve performance even more (and that also would improve lack of market correlation in years like 1999 or 2015....one of the big "risks" with holding something like the PP or GB--or Wellesley for that matter--is having a portfolio that can have a down year when the market is going gangbusters; FOMO and regret can cause an investor to switch back to a more risky stock-heavy allocation--like 60/40 or even 100% stocks--at exactly the wrong time) but it kind of involves violating the "classic" 25/25/25/25 PP or the classic "20% of each asset" GB so it may not be of relevance here.
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Re: An odd choice for a VP: Wellesley

Post by Kevin K. » Wed Sep 16, 2020 5:51 pm

[/quote]
What exactly was that statement?
I'd read in a few articles to expect the status quo for the next five to ten years.

Vinny
[/quote]

Here's one of many articles on this. New one in today's NY Times as well saying no interest rate increases until at least 2023.

https://www.cnn.com/2020/09/16/economy ... index.html
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Re: An odd choice for a VP: Wellesley

Post by Kevin K. » Thu Sep 17, 2020 2:22 pm

D1984 wrote:
Wed Sep 16, 2020 5:49 pm
Kevin K. wrote:
Wed Sep 16, 2020 5:11 pm
pp4me wrote:
Wed Sep 16, 2020 4:04 pm
When I was researching a safer way to invest after the 2008 meltdown I came across a debate about Wellesley vs the Permanent Portfolio on a forum. I don't think it was Bogleheads but I remember that MT and Craig were on the PP side and it got pretty nasty at times.

I went with Wellesley for a while, not because MT and Craig didn't sell the PP very well but because it appealed to my lazy nature, having less moving parts to deal with. Eventually, I bought HB's book, sold all the Wellesley and distributed it 4 ways into the PP components.

Wellesley doesn't make much sense as a VP to me because it's considered a fairly conservative and safe investment which is why it matched up well with the PP. According to Harry, the VP is supposed to consist of money that you can afford to lose and "swinging for the fences" as he think he might have said it. Wellesley doesn't seem to fit that bill to me.
You're correct of course about the original purpose of the variable portfolio but I'd argue that it's okay to repurpose it and also to tinker with the PP - not only because Browne did himself as his thinking evolved, but also because negative real returns on even 30 year Treasuries weren't even on his radar screen.

In and of itself Wellesley provides diversification vs. the PP because it is actively managed and invests in assets that aren't included in the PP. Add in Tyler's brilliant suggestion of a slice of gold and you have (on paper, admittedly) a level of sequence-of-returns and drawdown insurance that's truly impressive. One could also make some of the Wellesley allocation its global version for international exposure - something that neither the PP nor regular Wellesley provides.

I'm also looking at this through the lens of today's unprecedented Treasury yield situation and today's crystal clear statement by the Fed that they intend for it to continue for years to come. I see no point in owning even intermediate Treasuries in the PP so a "safe" version of that allocation is something like 50% T-bills and the rest gold and TSM. Wellesley's carefully-selected IT bonds and dividend-paying stocks are looking pretty good by comparison. NOT to suggest jettisoning the PP or GB altogether but I could certainly see splitting my assets 50:50 into the Wellesley/Gold and a GB. So rather than viewing the variable portfolio as being for money I can afford to lose, I'm looking at it as a way of increasing my chances of winning through broader diversification of investment styles and assets. YMMV of course.
Just something to add concerning Wellesley as the VP in a 50/50 VP/PP blend (whether the "PP" section of that blend is the classic PP or the GB): A portfolio consisting of 50% Wellesely and 50% classic PP rebalanced annually has a lower standard deviation, higher Sharpe, higher Sortino, a less-bad worst year, and a lower MaxDD then either of the two separately while having a CAGR that is right between either of the two; see:

https://www.portfoliovisualizer.com/bac ... on8_3=12.5

A 50/50 annually rebalanced blend of Wellesley and the GB shows similar characteristics.....lower SD and a higher Sharpe and Sortino; it has a worst year and MaxDD that is between that of the GB and Wellesley (albeit much closer to the one for the GB which has a less bad maxDD than Wellesley) but returns that are pretty close to the higher-returning of the two (Wellesley); see:

https://www.portfoliovisualizer.com/bac ... tion9_3=50

What is good about either of these allocations is that Wellesley tends to balance out the PP (or GB) and vice versa; when stocks are doing well Wellesley beats the PP/GB but the gold (and bond/cash) heavier PP or GB typically shines in years stocks do poorly.

I can think of one other change that would likely improve performance even more (and that also would improve lack of market correlation in years like 1999 or 2015....one of the big "risks" with holding something like the PP or GB--or Wellesley for that matter--is having a portfolio that can have a down year when the market is going gangbusters; FOMO and regret can cause an investor to switch back to a more risky stock-heavy allocation--like 60/40 or even 100% stocks--at exactly the wrong time) but it kind of involves violating the "classic" 25/25/25/25 PP or the classic "20% of each asset" GB so it may not be of relevance here.
Thanks for the backtests and insightful thoughts!

A few more thoughts inspired by yours:

1. Both Wellesley and the PP and GB lack any international assets, though I do buy Tyler's argument that gold kind of obviates the need for international stocks - at least historically. With U.S. valuations sky-high thanks to the FAANG stock mania and both the dollar's status as the world's reserve currency and U.S. leadership in the political and economic realms at least somewhat in doubt I perhaps including international equities might make sense. So for example 20% TSM 20% International (VXUS) instead of the small-cap value in the GB.

2. A bigger issue in my mind is with 30 year Treasuries not worth owning anymore (IMHO) having 40-50% (GB and PP respectively) of funds in T-bills or short Treasuries earning nothing isn't exactly thrilling. What are the chances that the hand-selected IT corporate bonds that make up 60-65% of both Wellesley's are going to underperform 50% cash and/or STT's? Slim to none would be my guess. "Golden Wellesley" might rule the roost going forward.

I'm just mulling all of this over but what appeals at the moment is putting 50% of assets in the Wellesley (domestic) 80%/Gold 20% allocation and the other half in a modified Golden Butterfly with 20% each TSM, Total International and Gold and the rest Short-Term Treasuries. That way you have a substantial piece of perhaps the best actively-managed fund in history with its careful selection of corporate bonds and dividend stocks contrasted with an all-index blend that makes up for the lack of international and lack of highest-quality bonds in Wellesley without taking on LTT's that are at least as volatile as gold with little remaining upside.
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Re: An odd choice for a VP: Wellesley

Post by Kevin K. » Wed Sep 23, 2020 7:47 pm

Speaking of Wellesley, here's an interview with two of the fund's managers about how they manage risk:

https://www.morningstar.com/podcasts/the-long-view/75
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