Re: An odd choice for a VP: Wellesley
Posted: Wed Sep 16, 2020 3:15 pm
Excellent Taylor!
It is very GB-esque!
Many Many Thanks!
It is very GB-esque!
Many Many Thanks!
Permanent Portfolio Forum
https://www.gyroscopicinvesting.com/forum/
https://www.gyroscopicinvesting.com/forum/viewtopic.php?t=11196
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.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.
What exactly was that statement?Kevin K. wrote: ↑Wed Sep 16, 2020 5:11 pmYou'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.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.
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:Kevin K. wrote: ↑Wed Sep 16, 2020 5:11 pmYou'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.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.
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.
Thanks for the backtests and insightful thoughts!D1984 wrote: ↑Wed Sep 16, 2020 5:49 pmJust 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:Kevin K. wrote: ↑Wed Sep 16, 2020 5:11 pmYou'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.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.
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.
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 posting. I don't see how you can go too wrong with an allocation like that, and as I mentioned over on the Ray Dalio bond thread I've gone down a somewhat parallel path myself, with around 40% of my total portfolio in Wellesley and the rest in a PP-inspired mixture of equities, gold and (mostly) Treasuries.drumminj wrote: ↑Tue Sep 29, 2020 9:33 am Appreciate all the insights offered in this thread. I don't have anything of substance to contribute to the discussion here other than to share that over the course of the past few years I've invested in Wellesley in addition to the PP, mainly for a bit more diversification (strategy and institution).
I'm about 20% VWIAX and 80% PP with my assets at this point.