Golden Butterfly Portfolio

[gull1]

I know this is the cardinal sin but anyone else thinking about switching back to PP from GB? I am just having a hard time seeing how stocks are going to perform much better in the upcoming several years in real terms. They'll prob go sideways. Then again, they seem to be doing OK and the world is a basket case, so is there all upside? My gut tells me the current stock market is a potemkin village.

Regrets, I've had a few, but then again, too few to mention.

I switched from the pure PP to the GB a few years back because it seemed like a good idea looking at Tyler's chart when stocks were doing well. Will that turn out to be a bad decision in the long run based on current events?

How the hell do I know and neither do you or any of the "experts". I try to make it a habit not to look at my portfolio very often but when I do I see that SCV is not doing so well right now. Is that going to hold true in the future? Again, how the hell do I know? My attitude is that you just make the best decisions you can based on available information at the time. What more can you really do?

Found this random article which seems reassuring https://osam.com/Commentary/a-historic- ... -small-cap

[Tyler]

I was moving slowly into GB and I have been buying SCV because it was my lagging asset. I have made some nice percentage gains on my latest contributions because of this.

Anyone continuing to buy SCV in the downswing is feeling pretty good today. (It's up about 5.5% as I write this).

But in all seriousness, no matter how you invest I think it's important to find a portfolio you're comfortable sticking with through both good times and bad. Constantly second-guessing yourself will make you miserable and will likely also cost you money in the long run as you repeatedly change strategies. Pick a good plan, let it do its thing, and focus your energy on saving more. You'll be a lot happier and wealthier in the long run!

[pmward]

I know this is the cardinal sin but anyone else thinking about switching back to PP from GB? I am just having a hard time seeing how stocks are going to perform much better in the upcoming several years in real terms. They'll prob go sideways. Then again, they seem to be doing OK and the world is a basket case, so is there all upside? My gut tells me the current stock market is a potemkin village.

Regrets, I've had a few, but then again, too few to mention.

I switched from the pure PP to the GB a few years back because it seemed like a good idea looking at Tyler's chart when stocks were doing well. Will that turn out to be a bad decision in the long run based on current events?

How the hell do I know and neither do you or any of the "experts". I try to make it a habit not to look at my portfolio very often but when I do I see that SCV is not doing so well right now. Is that going to hold true in the future? Again, how the hell do I know? My attitude is that you just make the best decisions you can based on available information at the time. What more can you really do?

You obviously haven't looked at things this week. SCV is up over 15% this week alone...

[sophie]

And it's up 20% since I rebalanced. And my GB is up over 4%.

I was a bit terrified to be buying such a crazy amount of SCV at the time. It always goes against the grain to buy low and sell high - almost by definition it's the opposite of what everyone else is doing, and thus what every bone in your body is telling you to do. This is what's happening to you now, pp4me.

But, as hard as it is, it's exactly what you need to do to succeed in the investing game. If you can't do it, you're better off buying a single target date/lifestrategy/balanced fund and forgetting the whole portfolio maintenance bit. Jumping between portfolios trying to chase returns is a really bad idea. It's just another way to buy high and sell low.

[pmward]

And it's up 20% since I rebalanced. And my GB is up over 4%.

I was a bit terrified to be buying such a crazy amount of SCV at the time. It always goes against the grain to buy low and sell high - almost by definition it's the opposite of what everyone else is doing, and thus what every bone in your body is telling you to do. This is what's happening to you now, pp4me.

But, as hard as it is, it's exactly what you need to do to succeed in the investing game. If you can't do it, you're better off buying a single target date/lifestrategy/balanced fund and forgetting the whole portfolio maintenance bit. Jumping between portfolios trying to chase returns is a really bad idea. It's just another way to buy high and sell low.

Human psychology really is setup to buy high and sell low. All successful investing/trading strategies are all about different ways to counter or minimize this one fundamental flaw we all possess. It really is the hardest and most unnatural thing in the world to buy low and sell high.

[Kevin K.]

A chorus of wise advice here I must say - or rather, ruefully admit, since I sold my SCV at a loss a few weeks back and reverted to the PP from the GB. My (dubious) "logic" was that the GB tilt towards prosperity makes sense almost all the time, with a global pandemic being an obvious exception. And we all know what's been happening to the stock market in general and SCV in particular in recent days.

I am probably one of those people who ought to have just put everything into Wellesley or Vanguard Target Retirement Income and called it a day. But I still believe in the logic behind the PP and GB and am just going to stop looking at the markets so often. I have a feeling I'm far from alone in letting too much time indoors and online during this lockdown lead to way too much news consumption - including financial "porn" from CNBC and the like that I used to know better than to read.

[Tyler]

I have a feeling I'm far from alone in letting too much time indoors and online during this lockdown lead to way too much news consumption - including financial "porn" from CNBC and the like that I used to know better than to read.

You're definitely not alone. We're all human. And cabin fever affects us all in different ways.

When it comes to portfolio jitters, taking a break from the news definitely helps. Writing down the reasons you invested in something so that you can refer to it later also comes in handy. And maybe most importantly, I have a hard rule that I never trade when I'm overly excited or fearful. Things almost never work out the way you think they will when you're worked up.

[sophie]

Kevin, don't beat yourself up about it. It's understandable. Rebalancing my GB was simple in terms of entering orders, but psychologically I had to really force myself to do it.

This forum is an invaluable support group - if you're feeling those sort of jitters, help is just one post away. In retrospect, we should have had a thread entitled "Rebalancing Support Room" or something like that.

Watch old Harry Potter movies, or the Indiana Jones flicks, or old Star Trek reruns. Anything but cable news. I was devouring that in the first few weeks and tracking reported COVID cases, but eventually I realized I was simply letting not so smart people parrot their latest stupid ideas into my head. Don't let that happen! (Also the fun part about old movies & shows: count how many times a character says or does something that would get them arrested today. Even in the socially liberal Star Trek next generation shows, that was about 1-2 times per episode.)

[pmward]

A chorus of wise advice here I must say - or rather, ruefully admit, since I sold my SCV at a loss a few weeks back and reverted to the PP from the GB. My (dubious) "logic" was that the GB tilt towards prosperity makes sense almost all the time, with a global pandemic being an obvious exception. And we all know what's been happening to the stock market in general and SCV in particular in recent days.

I am probably one of those people who ought to have just put everything into Wellesley or Vanguard Target Retirement Income and called it a day. But I still believe in the logic behind the PP and GB and am just going to stop looking at the markets so often. I have a feeling I'm far from alone in letting too much time indoors and online during this lockdown lead to way too much news consumption - including financial "porn" from CNBC and the like that I used to know better than to read.

The stock market performs the BEST going forward when the news is the worst and people are the most fearful. It performs the WORST when the news is the best and people are the most excited about the market/economy. Really let that sink in and digest for awhile. Most people refuse to accept this, and this is why their behavior causes them to habitually underperform. I know because I've been there myself.

Warren Buffet isn't Warren Buffet because he is a "value investor". His methodology is not what made him successful at all. People that try to worship and copy his methodology are missing the boat entirely. He has become as successful as he is purely because he has super human levels of discipline. When the media are fear mongering and fear is at extremes he is the only person in the room putting large sums of money into the markets. When we are in a meltup and the media is saying there is nowhere to go but up, he is the only person in the room sitting on a pile of cash. This is not natural, and it is not easy at all. Matter of fact, it's almost impossible for anyone to do this.

[mathjak107]

It also has given him pretty poor returns now for 15 years compared to many mutual funds ...I mean fidelity contra beat Berkshire every time frame the last 15 years ....what ever he had, that mojo seems to be gone for a long time .

The poor choices he made the last decade in investments is pretty bad

[Kevin K.]

Kevin, don't beat yourself up about it. It's understandable. Rebalancing my GB was simple in terms of entering orders, but psychologically I had to really force myself to do it.

This forum is an invaluable support group - if you're feeling those sort of jitters, help is just one post away. In retrospect, we should have had a thread entitled "Rebalancing Support Room" or something like that.

Watch old Harry Potter movies, or the Indiana Jones flicks, or old Star Trek reruns. Anything but cable news. I was devouring that in the first few weeks and tracking reported COVID cases, but eventually I realized I was simply letting not so smart people parrot their latest stupid ideas into my head. Don't let that happen! (Also the fun part about old movies & shows: count how many times a character says or does something that would get them arrested today. Even in the socially liberal Star Trek next generation shows, that was about 1-2 times per episode.)

Thank you Sophie for your kind words, Tyler for the same and for your brilliant work on Portfolio Charts, and pmward for your consistently insightful posts.

As you say Sophie this forum is indeed an invaluable support group, and I'm certainly going to take advantage of it before making any future moves. I learn so much from all of you. I'm most grateful.

[Kevin K.]

Another question for GB fans here is to what extent people consider it heretical to use something other than SCV for the second 20% of the stock allocation. I understand Tyler's well thought-out recommendation of SCV or SCB as complementing the TSM allocation. And he has mentioned that perhaps a slice of international could be OK, but not really needed in a portfolio that holds 20% gold.

The sea change (if that's not too dramatic a phrase) I'm seeing is captured in this recent NY Times article:

https://www.nytimes.com/2020/04/28/busi ... tocks.html

The trends talked about in that article, which is from late April, have only increased since. Even my least-favorite stock market talking head seems to get this one right:

"The coronavirus pandemic and corresponding lockdown made way for “one of the greatest wealth transfers in history,” CNBC’s Jim Cramer said Thursday.

The stock market is rising as big business rebounds from state-ordered stoppage of nonessential activity, while small businesses drop like flies, the “Mad Money” host said.

“The bigger the business, the more it moves the major averages, and that matters because this is the first recession where big business … is coming through virtually unscathed, if not going for the gold,” he added."

So the juxtaposition I'm seeing is mainstream firms like Vanguard and DFA predicting that international and value are going to soar based purely on valuations (as they've been predicting - incorrectly - for many years now) while the NYT article is talking about STRUCTURAL changes to the stock markets that got underway during the Great Recession and have been launched into hyperspace by the pandemic. It kind of looks like QQQ might be a better call than VBR going forward.

Thoughts?

[Tyler]

So the juxtaposition I'm seeing is mainstream firms like Vanguard and DFA predicting that international and value are going to soar based purely on valuations (as they've been predicting - incorrectly - for many years now) while the NYT article is talking about STRUCTURAL changes to the stock markets that got underway during the Great Recession and have been launched into hyperspace by the pandemic. It kind of looks like QQQ might be a better call than VBR going forward.

I understand the argument that current conditions may disproportionately harm small caps. But there's more to the structural makeup of the stock market than company size.

For reference, the thing that eventually pushed me over the top on my own SCV vs SCB debate (I settled on SCV) was when I realized just how different the sector makeup is for SCV vs LCB. Large caps are dominated by tech and healthcare, while small cap value is heavily weighted towards financials and industrials (SCB is a lot more similar to LCB in sector makeup than you'd think). Balance them equally and you get a nice amount of sector diversification on top of the other economic diversification in the portfolio.

Will tech and healthcare do better than financials and industrials in the near term? Sure - it's very possible. But having my bases covered in a methodical rebalancing structure gives me the confidence to stick with the plan no matter what industry takes the lead next.

[Kevin K.]

So clear, so well-reasoned, so helpful! Thanks - again! - Tyler. The GB is so well thought-out.

It seems like the only real obstacle to "staying the course" with the GB or PP is the one William Bernstein wisely pointed out years ago: tracking error regret, which in turn is only a danger to the degree that one insists on following stock market news.

[pmward]

Another question for GB fans here is to what extent people consider it heretical to use something other than SCV for the second 20% of the stock allocation. I understand Tyler's well thought-out recommendation of SCV or SCB as complementing the TSM allocation. And he has mentioned that perhaps a slice of international could be OK, but not really needed in a portfolio that holds 20% gold.

The sea change (if that's not too dramatic a phrase) I'm seeing is captured in this recent NY Times article:

https://www.nytimes.com/2020/04/28/busi ... tocks.html

The trends talked about in that article, which is from late April, have only increased since. Even my least-favorite stock market talking head seems to get this one right:

"The coronavirus pandemic and corresponding lockdown made way for “one of the greatest wealth transfers in history,” CNBC’s Jim Cramer said Thursday.

The stock market is rising as big business rebounds from state-ordered stoppage of nonessential activity, while small businesses drop like flies, the “Mad Money” host said.

“The bigger the business, the more it moves the major averages, and that matters because this is the first recession where big business … is coming through virtually unscathed, if not going for the gold,” he added."

So the juxtaposition I'm seeing is mainstream firms like Vanguard and DFA predicting that international and value are going to soar based purely on valuations (as they've been predicting - incorrectly - for many years now) while the NYT article is talking about STRUCTURAL changes to the stock markets that got underway during the Great Recession and have been launched into hyperspace by the pandemic. It kind of looks like QQQ might be a better call than VBR going forward.

Thoughts?

Another variation as well would be QQQ/SCV instead of SPY/SCV. I think QQQ/SCV has a greater juxtaposition than SPY/SCV. I'll admit, I'm not a big believer in value long term, as I think value indexes contain mostly worthless zombie companies, but they do still have periods (like the last couple weeks) of severe outperformance whenever you get a massive crap big. And generally speaking, the times when SCV out performs are usually the times when QQQ underperforms, and the reverse. So I think QQQ/SCV would be something to think about, especially since you're bullish on QQQ.

[pmward]

It also has given him pretty poor returns now for 15 years compared to many mutual funds ...I mean fidelity contra beat Berkshire every time frame the last 15 years ....what ever he had, that mojo seems to be gone for a long time .

The poor choices he made the last decade in investments is pretty bad

Oh I agree with you. Though I don't think that his choices in investments necessarily were bad on the whole (aside from maybe Wells Fargo), but the fact that value itself has been such a poor performer for 18 years now. Any true blue value guy has underperformed over the last 18 years now. Eventually that pendulum will swing back again, but who knows how long that will be? Odds are Buffet won't be in charge of Berkshire anymore at that time, and they likely will no longer be pure value. But yes, any actual fund manager would have been fired with his poor performance over the last dozen years or so. But that's the difference between a fund and a company. A fund is forced to chase current trends (plenty of value managers have loaded up on growth stocks in the last decade simply to keep their jobs), a company has a bit more room to stick to their formula and wait out the inevitable swing back into favor. Value out performed growth for many decades, so there are still another couple decades of potential mean reversion in growths favor to bring both back to even on the longest timeframe.

[LittleDinghy]

A chorus of wise advice here I must say - or rather, ruefully admit, since I sold my SCV at a loss a few weeks back and reverted to the PP from the GB.

We have a similar story. Earlier this year my wife and I moved SCV-invested money from our employer-provided individual HSA accounts to new HSA accounts at Fidelity. The HSA companies requested that we first sell the SCV so we would be transferring cash. By the time the move was complete (it took over a month), equities had bottomed and were heading back up. My wife and I continued to think that equities would take another dive, which they never did. And each of our Fidelity HSA accounts still hold that money in cash. So, we've lost out on some significant gains on that money.

I think our lesson is to stick to the allocation plan; that is, we should have immediately reinvested the money in SCV as soon as the transfer occurred. But maybe we still haven't learned that lesson because with SCV prices being up a lot, we are now reluctant to buy high. So, even now, we aren't sticking to the plan.

Fortunately the HSA amounts are less than 10% of the total SCV investment allocation in our GB portfolio. But still, I think there is a lesson here.

Would love any others' thoughts on this.

[pmward]

I think our lesson is to stick to the allocation plan; that is, we should have immediately reinvested the money in SCV as soon as the transfer occurred. But maybe we still haven't learned that lesson because with SCV prices being up a lot, we are now reluctant to buy high. So, even now, we aren't sticking to the plan.

Just because something is up does not mean it is "high". Can you see your emotional bias coming forth there in that wording? SPY is 5% away from all-time highs. SLYV is still 25% away from all-time highs. Relatively speaking, there's still a lot of room left for SCV to play catch up. If your allocation is to hold 20% SCV, I would just plug your nose and do it. I mean it sounds like you would still be buying in cheaper than you sold, so that should be something you should celebrate and not want to risk missing out on! There are rules in the portfolio for a reason. It's almost a sure bet that whenever you break or bend the rules of your portfolio you're going to live to regret it eventually.

[LittleDinghy]

Can you see your emotional bias coming forth there in that wording? SPY is 5% away from all-time highs. SLYV is still 25% away from all-time highs. Relatively speaking, there's still a lot of room left for SCV to play catch up. If your allocation is to hold 20% SCV, I would just plug your nose and do it. I mean it sounds like you would still be buying in cheaper than you sold, so that should be something you should celebrate and not want to risk missing out on! There are rules in the portfolio for a reason. It's almost a sure bet that whenever you break or bend the rules of your portfolio you're going to live to regret it eventually.

Thank you for pointing out my emotional bias in my language. And you're right, it probably is still worth less than when we sold it. We'll take a look.

[snedgar]

... eventually I realized I was simply letting not so smart people parrot their latest stupid ideas into my head. Don't let that happen! ...

There is so much wisdom here but this is the best quote of the week!

You guys rock!

[whatchamacallit]

Sorry for short type. I am on phone.

Anyone else try:
25% each in
Tsm
Scv
Intermediate term treasury
Gld

It tops the portfolio matrix

https://portfoliocharts.com/portfolio/portfolio-matrix/

I love the bit more of simplicity of it. Intermediate treasury is a lot easier to find in retirement accounts.

[Mark Leavy]

Sorry for short type. I am on phone.

Anyone else try:
25% each in
Tsm
Scv
Intermediate term treasury
Gld

It tops the portfolio matrix

https://portfoliocharts.com/portfolio/portfolio-matrix/

I love the bit more of simplicity of it. Intermediate treasury is a lot easier to find in retirement accounts.

There is absolutely nothing wrong with that portfolio. It looks pretty sane.

Careful with your metrics, though. It's tough to measure what you get when you reduce cash/bond exposure for more equities.
It almost always makes the numbers better. But there are a lot of real life trade-offs happening there. It isn't just all what you can see in the numbers.

When I war-game against real life, I like to remove cash from the percentages and divide my portfolio up as 5 years living expenses in cash - and then the rest divvied up in LT bonds, Equities and Physical Gold - with exposures to your preference.

EDIT: If you are still working and very confident in your income, then that could replace the cash cushion that I use.

[joypog]

My simplistic way of potentially dealing with rebalancing a GB (which is just a HBPP + 20% VB for me) was to track the HBPP portion separately and when the HBPP portion hits a 15%/35% limit on any of the HBPP assets I would rebalance everything back to a GB allocation (20% in all 5 assets). My rational is that whatever environment caused one of the HBPP components to trigger a rebalance would probably hold true for a GB allocation as well.

I currently have 18.4% VTI, 27.2% TLT, 21.9% GLD and 32.5% "cash" in my HBPP portion which is getting close to the 35% limit. My GB allocation currently works out to be 16.7% VTI, 9% VB, 24.7% TLT, 20% GLD and 29.6% "cash". If my HBPP "cash" portion hits 35%, I would try to rebalance everything back to 20% each in a GB allocation (or as reasonably close).

I'm not experienced in finance, but I play a ton of boardgames. I have no idea how this rebalancing scheme works in real life but numerically it is an elegant solution. I'm most likely going to adopt it as I sort out my finances and transition to a HBPP/GB asset allocation.

Have you kept to it? Or have you changed your process over the past couple of years.

(on a seperate note I just read this thread over the past ninety minutes as I procrastinate on finishing some overdue work that I was supposed to deliver on Friday. I feel like I just read a novel...but maybe its my stress from being behind. Cheers!)

[ochotona]

I have RSP on the brain today (equal-weight S&P500 ETF). A GB with 40% RSP beats a GB with 20% ISV and 20% VTI, but the limiting factor for my backtesting (portfoliovisualizer.com) is when GLD started. It makes sense, RSP is not an implicit growth strategy (unlike cap-weighted ETFs) is therefore more value-ish, and has less weight put into the "titans" of the day of the S&P500, smaller firms contribute more.

[D1984]

I have RSP on the brain today (equal-weight S&P500 ETF). A GB with 40% RSP beats a GB with 20% ISV and 20% VTI, but the limiting factor for my backtesting (portfoliovisualizer.com) is when GLD started. It makes sense, RSP is not an implicit growth strategy (unlike cap-weighted ETFs) is therefore more value-ish, and has less weight put into the "titans" of the day of the S&P500, smaller firms contribute more.

I may be wrong here, but doesn't PV let you use the ticker ^GOLD to go back to 1985 (or even 1972) rather than just using the ticker symbol GLD?