Golden Butterfly Portfolio

A place to talk about speculative investing ideas for the optional Variable Portfolio

Moderator: Global Moderator

User avatar
vnatale
Executive Member
Executive Member
Posts: 9423
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: Golden Butterfly Portfolio

Post by vnatale » Mon Dec 23, 2019 10:01 pm

Kevin K. wrote:
Mon Jul 25, 2016 4:13 pm
Not sure if this is a dead thread since I see the last post was in April.

NOT by a long-shot. It's still going strong three and half years after Kevin K's post above!

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
Don
Executive Member
Executive Member
Posts: 286
Joined: Fri Apr 21, 2017 6:21 pm

Re: Golden Butterfly Portfolio

Post by Don » Mon Dec 23, 2019 11:44 pm

vnatale wrote:
Mon Dec 23, 2019 9:17 pm
Desert wrote:
Sun Dec 06, 2015 9:06 pm


I think the combination of small real return + small inflation = tiny nominal returns is going to continue driving a lot of investors crazy.  I think we see it a lot on this forum already.  Real returns are what matter, but nominal returns are what produce numbers that make people feel good about their choices.  We're not going to have many feel-good returns in the next decade, I believe.  I hope I'm wrong. 
Desert WAS WRONG!

Vinny
He was usually WRONG!
User avatar
Smith1776
Executive Member
Executive Member
Posts: 3506
Joined: Fri Apr 21, 2017 6:01 pm

Re: Golden Butterfly Portfolio

Post by Smith1776 » Tue Dec 24, 2019 2:34 am

ochotona wrote:
Mon Dec 23, 2019 8:53 pm
Sometimes I wonder if the 20% SCV wedge of GB wouldn't be profitably position in EM Value, due to this.
I agree it would make perfect sense to put at least part of the GB equity into emerging market value stocks.

The logic dovetails perfectly with Swedroe's work in Reducing the Risk of Black Swans.

For what it's worth, I access EM SCV+quality via this ETF: https://funds.manulife.ca/en-us/etfs/MEME.B
🛞 The All-Terrain Portfolio 🛞
User avatar
Tyler
Executive Member
Executive Member
Posts: 2066
Joined: Sat Nov 12, 2011 3:23 pm
Contact:

Re: Golden Butterfly Portfolio

Post by Tyler » Tue Dec 24, 2019 11:06 am

vnatale wrote:
Mon Dec 23, 2019 9:56 pm
DID you feel any differently during last year's (2018) stock misery?
Nope! If anything, watching my GB continue to do its thing while stocks struggled reinforced the appeal of a balanced portfolio.
User avatar
vnatale
Executive Member
Executive Member
Posts: 9423
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: Golden Butterfly Portfolio

Post by vnatale » Tue Dec 24, 2019 6:10 pm

Kbg wrote:
Sun Aug 28, 2016 8:46 am
barrett wrote:Also - and this question is for anyone who wants to answer - I haven't really hovered up everything written on the GB, but isn't much of its attractiveness due to the amazing performance of stocks in general (forget about SCV, LCB, etc. for a moment) from 1982 to 2000?
I've written about this before, but with regard to SCV it is somewhat like gold in the very early 1970s. Once something becomes exploitable its ability to generate returns decreases, sometimes significantly. I'm a fan of rolling 10 year average returns as a way to analyze a portfolio. If a port's 10 year rolling returns stay stable then you probably have something that continues to work. If they do nothing but decrease then there is cause for concern. I did an analysis of a standard HBPP through 2015 and interestingly it's rolling 10 year is increasing after bottoming out in 2001. That's an extremely good sign and somewhat rare.


According to my calcs the latest 10 year rolling return for the PP is 6.98 with a low in 2001 of 6.47. The max occurred in 1982 at 13.29%. On the downside last year was the worst 3 year rolling average ever at 1.39%. If we come in close to where we are now then the rolling 3 year will go back to normal in the 6ish range.

Update/Edit

The latest 3/5/10 year rolling returns are (through 2015):

GB: 3.97/5.74/7.36%
PP: 1.39/4.29/6.98%

Comparing 100% SCV to Large Cap Blend and Total Market on the PV website has SCV with lowest 5 year rolling return by a little under 2% points.

Is it Tyler who builds that website? If so, could you add a 10 year rolling to the 3 and 5?

My personal opinion is the big kicker is 40% stocks more than anything vs. a PP. But I digress.

The main point of this analysis was the value added of SCV. If you analyze the rolling returns of SCV they fall off the proverbial cliff in 1988 as compared to their previous history going back to 1972. Anyone want to guess what happened at the end of June 1987? The advent of the Russell 2000 indexes. Accordingly, a more accurate use/estimate of returns using historical data for SCV should probably start in 1988. Checking average returns since then as well as a 20 and 10 year look back we find:

SCV: 13.06/11.45/9.17
LCB: 11.68/9.83/9.01
TMkt: 11.78/9.97/9.30

And that's what the data has to say on the issue...
I continue to make my way through all the posts on this topic. I've made it to page 21 (of 36) in my careful reading of each post.

Kbg

Is there anywhere in this forum where you have provide updated 3/5/10 year rolling returns for the any of the ones you have provided above? Or, has Tyler provided the requested 10 year rolling? I first need to get through this topic and one other before I delve into Tyler's web site.

Thanks

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
User avatar
vnatale
Executive Member
Executive Member
Posts: 9423
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: Golden Butterfly Portfolio

Post by vnatale » Tue Dec 24, 2019 6:54 pm

stuper1 wrote:
Wed May 31, 2017 11:44 am
Exactly, so if there is a solar flare or electromagnetic weapon in the next war that knocks out the power for months, or some kind of financial shenanigans or hacker that erases everybody's brokerage accounts, you still have your physical gold. The calculations above show that you can hold as much as 20% physical gold and still get almost the same CAGR as somebody who holds no gold, plus it lowers the volatility of returns. I sure feel better holding physical gold and having insurance against the possible black swan events.
However, if your scenario above DID occur if you were not holding that physical gold somewhere on your own property would you be able to get at it if being held in a bank safety security box? I realized you painted extreme examples but a serious question regarding the value of holding physical gold outside of somewhere on your own property.

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
User avatar
vnatale
Executive Member
Executive Member
Posts: 9423
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: Golden Butterfly Portfolio

Post by vnatale » Tue Dec 24, 2019 7:13 pm

Desert wrote:
Tue Jun 06, 2017 8:21 am
grapesofwrath wrote:
Desert wrote:I do like the 40 percent equity though, and am slowly building up from 30% to 40%.
You feel comfortable increasing your equity exposure at a time when US stocks are "richly" valued ?
I'm well below 30% and would like to increase towards 40% but am reluctant to do so now and wish to wait for a "mean reversion". Of course I could be waiting a long time as US stocks could be on a permanently high plateau.
I really don't feel comfortable increasing equity exposure right now. As you said, equities are expensive, by any measure I'm aware of, particularly U.S. equities. But I'm trying to stay focused on the long-term view, and remind myself that predictions are difficult, particularly those regarding the future. I did decide to do it gradually, just directing new contributions toward equities rather than doing it in one lump-sum rebalance (and yes Mathjak, I know this is sub-optimal, so there is no need to lecture me on this point). :)

At 40 percent equities, I think it's necessary to be prepared for a ~20% decline in portfolio value at any time in the future.
2 1/2 years later, what did you end up doing?

At the time you wrote the above post you believed equities to be expensive when the S&P 500 was about 2,400. Now it's about 3,200. A 33% increase. That would seem to make them super expensive right now?

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: Golden Butterfly Portfolio

Post by Kbg » Tue Dec 24, 2019 7:14 pm

I have not but they can be found easy enough. PortCharts, PortViz other places have asset returns.

Since the ishares ETFs were created in 2001 there is no appreciable difference in performance.

I’ve said this before, but one should never take index results at face value. Frankly, any index that has not been commercially exploited is an interesting theoretical exercise only.

The “observer effect” definitely applies to investing.
User avatar
vnatale
Executive Member
Executive Member
Posts: 9423
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: Golden Butterfly Portfolio

Post by vnatale » Tue Dec 24, 2019 7:18 pm

Tyler wrote:
Mon May 21, 2018 6:17 pm
Just thought I'd give a quick update on my own personal Golden Butterfly portfolio for anyone keeping track.

If you read back a ways you'll note that I have 100% of my money in the GB but (after an extended bout of analysis paralysis) chose to go with small cap blend over small cap value when first setting things up. While that has worked out very well, after updating my source data, studying it every way I can think of, and educating myself on the theory behind the value premium I finally decided to go all-in and convert my SCB allocation to SCV. I don't anticipate a huge change in performance or anything and still believe that other options are just fine, but I figured it was time to trust my data-driven instincts.

So for anyone reading along wondering if people really invest in the Golden Butterfly or if it's just some crazy idea on the internet, know that there's at least one guy happy to share his experience. :)
After no one posting on this topic for nearly a year, Tyler pops up to give us his update on the next chapter of his personal Golden Butterfly investing! And, gives the reason why the change. I look forward to any future announcements!

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
User avatar
vnatale
Executive Member
Executive Member
Posts: 9423
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: Golden Butterfly Portfolio

Post by vnatale » Wed Dec 25, 2019 8:21 pm

From a footnote in: The Overtaxed Investor: Slash Your Tax Bill & Be a Tax Alpha Dog

"Let it be remembered that one reason value stocks perform better than growth stocks over time (at least pre-tax) is because management on average destroys capital with its far-flung investment schemes."

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
User avatar
Mark Leavy
Executive Member
Executive Member
Posts: 1950
Joined: Thu Mar 01, 2012 10:20 pm
Location: US Citizen, Permanent Traveler

Re: Golden Butterfly Portfolio

Post by Mark Leavy » Wed Dec 25, 2019 10:55 pm

Vinnie, you are really causing me to re-evaluate my world view. I've never met anyone in real life that can both think analytically and blabber as much as you do.

It's a conundrum.

My brain says you have to be doing only one or the other. But I can't tell which. Evidently, it is me that is broken.

Mark
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Golden Butterfly Portfolio

Post by mathjak107 » Thu Dec 26, 2019 2:38 am

vnatale wrote:
Wed Dec 25, 2019 8:21 pm
From a footnote in: The Overtaxed Investor: Slash Your Tax Bill & Be a Tax Alpha Dog

"Let it be remembered that one reason value stocks perform better than growth stocks over time (at least pre-tax) is because management on average destroys capital with its far-flung investment schemes."

Vinny
there are stupid things done whether growth or value or dividends or not .

we hear the same silly things about dividend payers not wasting money .

case in point .

AT&T paid $100 billion to enter the cable business

AT&T thought it would be a good idea to diversify by paying $100 billion to take on cable company TCI. It was wrong! AT&T broke itself up a few years later and sold off the cable assets.

AT&T tried to elbow its way into the personal computer business with a hostile $7 billion takeover of NCR. It didn't work, and AT&T later spun the company back out at a $4 billion valuation.

Microsoft paid an estimated $500 million for mobile phone company Danger. It was supposed to be working on new phones for Microsoft, but most of the key employees left the company. The end result of the acquisition was the Kin, a social smartphone from Microsoft that totally bombed.

Cisco probably bought Pure Digital, the company that makes the Flip, right at the peak of its value in 2009. Since then high definition video cameras have been built into just about every smartphone making the Flip pretty much worthless in the long run. Which is probably why Cisco killed the $590 million acquisition earlier this year.

After Google bought DoubleClick, Microsoft tried to keep up by buying ad company aQuantive for $6 billion. The acquisition never really worked out. The aQuantive executives left two years after the deal closed and the technology was discarded.
..
AOL-Time Warner is obviously the worst

i can go on and on
senecaaa
Full Member
Full Member
Posts: 77
Joined: Fri Nov 29, 2019 4:33 am

Re: Golden Butterfly Portfolio

Post by senecaaa » Thu Dec 26, 2019 3:21 am

Something completely different, but related to the Golden Butterfly Portfolio:

I don't really understand the reason we have short-term treasuries in the portfolio. Similar to cash/bills in the PP. From reading the book about the PP the only reason I can come up with is that it provides liquid assets when we need to rebalance because one of the four (or five) allocations is out of bounds.
Is that it? Or is there more to it?

Short term treasuries in the EU have a negative yield. We have "bank loans" that provide a couple of percent interest (at the cost of not being allowed to use it for a year or two). Can I use that for the GB instead? Or do short-term treasuries provide some special behavior that is essential?

When I repace STT with BILL in PortfolioCharts I do see that the performance goes down a bit. Why is that?
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Golden Butterfly Portfolio

Post by mathjak107 » Thu Dec 26, 2019 3:26 am

with 1/2 the bond budget in LT treasuries and 1/2 in short it also acts as a barbell and overall interest rate sensitivity is tempered .

in rising rates you would get creamed otherwise if you had 2x the amount in LT bonds .

in falling rates short term bond funds that are 1-3 years will do better , in rising rates they will do worse . BIL is very short term.

the short term stuff acts as options would , to buy assets at lower prices but with no expiration date unlike the options
User avatar
Hal
Executive Member
Executive Member
Posts: 1349
Joined: Tue May 03, 2011 1:50 am

Re: Golden Butterfly Portfolio

Post by Hal » Thu Dec 26, 2019 9:01 am

senecaaa wrote:
Thu Dec 26, 2019 3:21 am
Short term treasuries in the EU have a negative yield. We have "bank loans" that provide a couple of percent interest (at the cost of not being allowed to use it for a year or two). Can I use that for the GB instead? Or do short-term treasuries provide some special behavior that is essential?
With treasuries you don't run the risk of bail-ins.

https://www.investopedia.com/articles/m ... ilouts.asp

Detailed discussion from "down under"

https://www.youtube.com/watch?v=4DvFoNtfWgM
senecaaa
Full Member
Full Member
Posts: 77
Joined: Fri Nov 29, 2019 4:33 am

Re: Golden Butterfly Portfolio

Post by senecaaa » Fri Dec 27, 2019 4:46 am

Thanks, guys!
User avatar
rocketdog
Executive Member
Executive Member
Posts: 688
Joined: Fri Dec 07, 2012 3:35 pm

Re: Golden Butterfly Portfolio

Post by rocketdog » Tue Dec 31, 2019 9:51 am

I only keep 60% of my HSA portfolio in the HBPP. I divide up the other 40% by putting 10% each into:
  • Small Cap Value
  • US REIT
  • Foreign Developed Markets
  • Diversified Emerging Markets
Working nicely for me so far.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Golden Butterfly Portfolio

Post by mathjak107 » Tue Dec 31, 2019 10:00 am

this year anything with the word "buy" worked nicely
User avatar
vnatale
Executive Member
Executive Member
Posts: 9423
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: Golden Butterfly Portfolio

Post by vnatale » Tue Feb 18, 2020 6:23 pm

Tyler wrote:
Mon Apr 11, 2016 10:23 pm
sophie wrote: A question Tyler:  what would you use for rebalance bands?
30/10 is a nice round number.  It's more instinct than science, but it seems reasonable. 

Almost four years later......has your instinct remained the same regarding this?

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
User avatar
vnatale
Executive Member
Executive Member
Posts: 9423
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: Golden Butterfly Portfolio

Post by vnatale » Tue Feb 18, 2020 6:31 pm

Kbg wrote:
Wed Apr 20, 2016 10:33 am
It's called negatively and weakly correlated assets. The risk mitigation is organically built in not externally derived. I continue to be dumbfounded at the focus on the PPs individual pieces.

The only thing that makes sense to me is a "factor" tilt of some kind. For someone younger I can easily see altering the stock component up to 30 or 35% by taking from gold/LTTs/both. Of course volatility will go up a bit, but not a ton.

Lastly, the portfolio performance profile is entirely visible in the historical returns...stock market strong bull the PP is not fun. Flat to down the PP is awesome. Hit rinse cycle and repeat. Over very long periods of time the results are comparable but WAY more predictable with the PP.
Am I correct in assuming that nearly four years later you hold to the same analysis? Your analysis seems reasonable to me but just checking to see if you still believe the same.

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: Golden Butterfly Portfolio

Post by Kbg » Tue Feb 18, 2020 11:26 pm

vnatale wrote:
Tue Feb 18, 2020 6:31 pm
Kbg wrote:
Wed Apr 20, 2016 10:33 am
It's called negatively and weakly correlated assets. The risk mitigation is organically built in not externally derived. I continue to be dumbfounded at the focus on the PPs individual pieces.

The only thing that makes sense to me is a "factor" tilt of some kind. For someone younger I can easily see altering the stock component up to 30 or 35% by taking from gold/LTTs/both. Of course volatility will go up a bit, but not a ton.

Lastly, the portfolio performance profile is entirely visible in the historical returns...stock market strong bull the PP is not fun. Flat to down the PP is awesome. Hit rinse cycle and repeat. Over very long periods of time the results are comparable but WAY more predictable with the PP.
Am I correct in assuming that nearly four years later you hold to the same analysis? Your analysis seems reasonable to me but just checking to see if you still believe the same.

Vinny
Yes. I do what I call a VP PP...more risk, more growth but based on PP principles.
User avatar
Hal
Executive Member
Executive Member
Posts: 1349
Joined: Tue May 03, 2011 1:50 am

Re: Golden Butterfly Portfolio

Post by Hal » Wed Feb 26, 2020 8:06 pm

Smith1776 wrote:
Sun Dec 22, 2019 2:13 pm
This recent turn of conversation has me curious as to how much of the GB's outperformance over the PP is due to the SCV tilt, rather than the fact that it has more equity in an absolute sense (40% vs 25%).

I'd like to research into this more. You'd also have to control for the altered levels of gold, cash and bonds.

My first brief glance at the numbers seems to suggest the balance of GB outperformance over the PP may indeed be because of the tilt, rather than the 40% equity.

However, if that's the case, we go back to the gnarly problem of whether or not the factor premiums will persist.

If indeed a SCV tilted PP closes most of the gap in performance against the GB, it'd make me that much more content with the 4 x 25% allocation.
Just resurrecting the SCV topic. I think this series of three lectures on how ETF's are structured explain the outperformance.

https://www.youtube.com/watch?v=xpk3triMLZQ

https://www.youtube.com/watch?v=Ih7bWOSwECU

https://www.youtube.com/watch?v=0JfGplGv3BA

As always, all comments welcome :)
ppnewbie
Executive Member
Executive Member
Posts: 850
Joined: Fri May 03, 2019 6:04 pm

Re: Golden Butterfly Portfolio

Post by ppnewbie » Thu Feb 27, 2020 12:46 pm

So I got a little confused - what did Tyler settle on SCV or SCB for 20%.
User avatar
Tyler
Executive Member
Executive Member
Posts: 2066
Joined: Sat Nov 12, 2011 3:23 pm
Contact:

Re: Golden Butterfly Portfolio

Post by Tyler » Thu Feb 27, 2020 2:00 pm

ppnewbie wrote:
Thu Feb 27, 2020 12:46 pm
So I got a little confused - what did Tyler settle on SCV or SCB for 20%.
I'm personally using SCV right now. But I've owned SCB in the past and think that also is a good choice. Value has slightly better historical returns but has faded a bit over time, while blend has slightly lower returns but has been more consistent.
ppnewbie
Executive Member
Executive Member
Posts: 850
Joined: Fri May 03, 2019 6:04 pm

Re: Golden Butterfly Portfolio

Post by ppnewbie » Thu Feb 27, 2020 3:43 pm

On another note. I just checked my GB 401k (which I converted a year ago) and the off kilter gyroscope is still gyrating. Year to Date it's up 14%. Thanks for the reply Tyler.
Post Reply