Golden Butterfly Portfolio
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Re: Golden Butterfly Portfolio
The SCV premium may or may not show up for a decade or two (or more.)
Probably shows up a few years after most give up on it and large caps are perceived to be more risky....
I do some tilting to SCV, but got enough tracking error vs Boglehead 60/40 that I can't see all my stock in SCV...
And the. There are Mel's unloved Midcaps.... (Another BH reference.)
Probably shows up a few years after most give up on it and large caps are perceived to be more risky....
I do some tilting to SCV, but got enough tracking error vs Boglehead 60/40 that I can't see all my stock in SCV...
And the. There are Mel's unloved Midcaps.... (Another BH reference.)
Re: Golden Butterfly Portfolio
Hi Tyler, thanks for your thoughtful response. I checked out Swedroe and it turns out just a few days ago he posted a new paper on this very topic: http://www.etf.com/sections/index-inves ... nopaging=1.Tyler wrote: Hi JPeizie. Welcome to the forum!
Good questions.
I like small cap because it provides good diversification away from large cap, not just in correlations but also in company exposure. Because of cap weighting, the price of large cap funds (or even total market funds) is really driven by a relative handful of mega caps. Honestly, mid-caps or total international would also be reasonable choices for the same reason.
Beyond the simplified GB version, I also am attracted to the specific combination of VB/VBR with VTI. They all also include a good amount of mid caps as well, and the resulting combined portfolio has a relatively even spread between small, mid, and large. Just something to think about.
To be honest, I like small cap value because it works. The historical performance over blend or growth is pretty striking. Now opinions differ on why it works and whether it will continue to work, and I've discussed that in the thread a bit. I don't know the answer. The most vocal supporter of SCV is probably Larry Swedroe. So for the pros, google some of his articles.
REITs are also a tempting choice, but I don't like them for myself because between my house and the REITs already included in the stock market index, I'm already plenty exposed to real estate. I didn't include them in the GB because many others are in the same boat, and for those people a portfolio with REITs may not be as diverse as it seems on the surface. But everyone's situation is different, and they may also be a decent option for you.
And don't forget -- if you're worried about the US going the direction of Japan, the good ol' Permanent Portfolio is still an excellent option. I've been very happy with it. No 5th component or tilting required.
Hope that helps.
His take makes me really uncomfortable though... It looks to me like he's admitting that the SCV premium is gone, but he chalks it up to statistics and says it'll be back. When I look at it, I see a sector that historically overperformed, but once that overperformance was became widely known, the market corrected and its not coming back. What attracts me to the PP is that there are good solid macro-economic reasons to think that as the big money flows out of one of these assets (eg. a stock market crash) we can expect it to flow into one of the others, so end of day the portfolio is OK. I just don't see SCV working like that in the future. (Though by that logic, I guess my idea about residential REITs doesn't help much either)
I hear your argument about correcting for over-exposure to mega-caps, but that just makes me want to take my existing stock allocation and divide it between LCB and SCB, not double the size of my stock allocation.
End of the day is I'm a real beginner at this stuff and trying to figure out what's going to work best for me as I save for retirement. I know that I need to feel comfortable with the theory behind the portfolio to stop myself from second guessing my allocations if one of the assets underperforms for a decade. That's why I'd be comfortable holding under-performing gold for a decade but totally uncomfortable holding under-performing SCV for a decade. This is what draws me to the PP. But I cant help from wanting to juice the returns!
Re: REIT's, I think your reasons for not liking them make sense. So far though, I don't look at a house as an investment, but rather a depreciating illiquid asset, so I don't include my own house in my AA. And while REITs are part of the overall stock market, I think theres a reasonable argument to make that they're a different breed and perhaps I should include them as a substantial part of my portfolio in their own right. Their size as a percent of the overall market is much too small to make a difference if I only included them as part of the stocks portion of my allocation.
Thanks again for your thoughts. I appreciate the discussion. I've learned an incredible amount from portfoliocharts.com.
Re: Golden Butterfly Portfolio
Have a look at 12.5% mid-cap blend, 12.5% small-cap blend. It outperforms, and has good risk measures.Jpeizie wrote: I hear your argument about correcting for over-exposure to mega-caps, but that just makes me want to take my existing stock allocation and divide it between LCB and SCB, not double the size of my stock allocation.
This is what draws me to the PP. But I cant help from wanting to juice the returns!
Well, I'd say if you are in your 20s, 30s, the PP isn't hot enough, so the returns do have to be juiced for young investors, unless they are OK with scaling-down and being more frugal in retirement than they would be otherwise.
Re: Golden Butterfly Portfolio
Well you guys are certainly giving me something to think about. Don't get me wrong - I LOVE the way those allocations backtest. But it's hard for me to commit to that as a strategy when according to Larrys article the premium only existed for 6 out of the last 21 years and I'm not sure there's a real fundamental economic reason they would outperform consistently going forward. Choices choices...
Re: Golden Butterfly Portfolio
Now that I've figured out how to map the results of all possible combinations of assets, the explanation for why the Permanent Portfolio and Golden Butterfly are so appealing is a little more obvious:
[img width=600]http://i65.tinypic.com/125ho9t.jpg[/img]
Both are among the most efficient portfolios available in terms of balancing risk and return. The GB, specifically, lies right on the efficient frontier as one of the least stress inducing available portfolios for its return class. Of course that position may change depending on the timeframe chosen, but I think there's something to be learned there about the power of true diversification.
[img width=600]http://i65.tinypic.com/125ho9t.jpg[/img]
Both are among the most efficient portfolios available in terms of balancing risk and return. The GB, specifically, lies right on the efficient frontier as one of the least stress inducing available portfolios for its return class. Of course that position may change depending on the timeframe chosen, but I think there's something to be learned there about the power of true diversification.
Last edited by Tyler on Tue Mar 08, 2016 3:58 pm, edited 1 time in total.
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Re: Golden Butterfly Portfolio
Wow, Tyler, this is definitely worthy of charging people somehow. I feel like I am taking advantage. Great work!
Test of the signature line
- lordmetroid
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Re: Golden Butterfly Portfolio
Whooaaaaa *Clap, Clap, Clap, Clap, Clap, Clap*
This is an awesome tool. You are a god of the future robo-advising industry!
This is an awesome tool. You are a god of the future robo-advising industry!
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Re: Golden Butterfly Portfolio
Cool, b/c I took over my own finances ~ 2004 and a large part of my equities has been Vanguard's small cap index fund.ochotona wrote: Interesting, over the last 10 years, a PP with small cap blend has had higher CAGR than one with large cap blend or small cap value.
Re: Golden Butterfly Portfolio
I'd like to know what is directly to the RIGHT of the PP! Now I can find out
Re: Golden Butterfly Portfolio
This tool is awesome! Thanks yet again Tyler.
What I've learned so far is that its not just the GB - there's a whole family of portfolios that devote two parts to prosperity (some combo of stocks and maybe REITs) along with one part each of LTT, STT, and gold, that all have expected returns around 5.5-6% and expected worst years around -9-10%. Loving it! Definitely helping reinforce my thinking about my own portfolio.
To ochotona - I'm definitely giving some thought to your suggestion about how to split up the stock portion of my portfolio. I think something GB-like has plenty of juice for me even though I'm relatively young. I'm hoping to FIRE so my savings rate is going to swamp portfolio gains while I'm accumulating anyway, and I really like these portfolios for the retirement phase.
What I've learned so far is that its not just the GB - there's a whole family of portfolios that devote two parts to prosperity (some combo of stocks and maybe REITs) along with one part each of LTT, STT, and gold, that all have expected returns around 5.5-6% and expected worst years around -9-10%. Loving it! Definitely helping reinforce my thinking about my own portfolio.
To ochotona - I'm definitely giving some thought to your suggestion about how to split up the stock portion of my portfolio. I think something GB-like has plenty of juice for me even though I'm relatively young. I'm hoping to FIRE so my savings rate is going to swamp portfolio gains while I'm accumulating anyway, and I really like these portfolios for the retirement phase.
Re: Golden Butterfly Portfolio
I noticed that, too. I find it reassuring that there's nothing particularly magical about SCV that makes the Golden Butterfly work. It's more about the overall structure of the portfolio, and there are several nice alternatives following the same theme.Jpeizie wrote: What I've learned so far is that its not just the GB - there's a whole family of portfolios that devote two parts to prosperity (some combo of stocks and maybe REITs) along with one part each of LTT, STT, and gold, that all have expected returns around 5.5-6% and expected worst years around -9-10%. Loving it! Definitely helping reinforce my thinking about my own portfolio.
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Re: Golden Butterfly Portfolio
Tyler, what you are suggesting is something half way towards Merriman's portfolio for the equity portion of PP. So, can you please backtest it with the Simplified Ultimate Buy and Hold
https://www.bogleheads.org/forum/viewtopic.php?t=38374
That is, instead of allocating 40% to 20/20 LB/SV, can you do it with 12.5% allocated to each of LB,SV,ILV,IS
https://www.bogleheads.org/forum/viewtopic.php?t=38374
That is, instead of allocating 40% to 20/20 LB/SV, can you do it with 12.5% allocated to each of LB,SV,ILV,IS
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Re: Golden Butterfly Portfolio
Using your portfolio finder tool
-10.81 I-VAL I-SML LTT 5-T GLD 6.59
-10.81 I-VAL I-SML LTT 5-T GLD 6.59
Re: Golden Butterfly Portfolio
I'll take a look. In the meantime, you can also test it for yourself.LazyInvestor wrote: So, can you please backtest it with the Simplified Ultimate Buy and Hold
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Re: Golden Butterfly Portfolio
Thanks, missed the calculator, I'll check it out awesome website!
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Re: Golden Butterfly Portfolio
'Cuz the value effect is bullshit. It only exists in uninvestable microcaps and quality triumphs value traps. Almost all value funds are overinvested in way too many securities to capture the effect anyway.Reub wrote: Can I nominate this for the thread of the year? One question, Tyler. If the Golden Butterfly outperforms the PP then why aren't you investing in it? Just curious.
The proper way to stock pick is to focus on quality and then from there focus on value and then on growth. The value vs growth vs momentum distrinction then become meaningless.
Last edited by MachineGhost on Thu Mar 24, 2016 5:24 pm, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
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Re: Golden Butterfly Portfolio
May I suggest spending more time investigating other Prosperity subasset classes and less on tilting a turd? Stocks are currently priced to deliver 0% returns 10-12 years out.Jpeizie wrote: Well you guys are certainly giving me something to think about. Don't get me wrong - I LOVE the way those allocations backtest. But it's hard for me to commit to that as a strategy when according to Larrys article the premium only existed for 6 out of the last 21 years and I'm not sure there's a real fundamental economic reason they would outperform consistently going forward. Choices choices...
Last edited by MachineGhost on Thu Mar 24, 2016 5:25 pm, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Re: Golden Butterfly Portfolio
Today I officially pulled the trigger and started my Golden Butterfly.
After lots of research, I personally settled on small cap blend (VB) to complement my TSM fund (VTI) and to best fit my neutral Harry Browne outlook. As I said when I first proposed the idea, I like how it's really just a Permanent Portfolio with a complementary prosperity tilted VP. Value stocks were tempting but ultimately unnecessary to meet both my needs and my personality.
I'm happy to be the guinea pig, and I'll report back how it goes.
After lots of research, I personally settled on small cap blend (VB) to complement my TSM fund (VTI) and to best fit my neutral Harry Browne outlook. As I said when I first proposed the idea, I like how it's really just a Permanent Portfolio with a complementary prosperity tilted VP. Value stocks were tempting but ultimately unnecessary to meet both my needs and my personality.
I'm happy to be the guinea pig, and I'll report back how it goes.
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Re: Golden Butterfly Portfolio
So why smallcap instead of microcap? If you have such conviction about the size effect, why not really target where the effect was and may be in the future?Tyler wrote: I'm happy to be the guinea pig, and I'll report back how it goes.
http://www.business.unr.edu/faculty/liu ... t_1980.pdf
And how do you plan to weight your smallcap blend with VTI in terms of marketcap percentages? I like the idea of a barbell approach.
Last edited by MachineGhost on Mon Apr 04, 2016 4:24 pm, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Re: Golden Butterfly Portfolio
It's not so much that I have conviction that small is superior to large. If anything, I lack conviction that large is superior to small and don't like how a total market fund is less diversified than it seems. IMHO, the numbers support the idea that equal weight is a good idea in the long run and I like your idea of diversifying that way.
The thing I like about small cap blend funds (specifically VB -- others may vary) is that when you picture the typical Morningstar 9-segment style box it's basically an inverse of a TSM fund. It has a few mid caps as well, and when you split the two 50/50 you get a nicely even distribution across all categories that doesn't bet on any one sector.
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That it accomplishes this with a balanced barbell is nice for rebalancing and fits well in the overall portfolio concept from a simplicity perspective. I'm currently 25% VTI and 15% VB purely because I'm carefully managing my taxes and avoiding unnecessary capital gains, but an even split is my long-term goal.
If you wanted to add a micro cap fund like IWC, I wouldn't see a problem with that. Just keep an eye on the ER and turnover.
The thing I like about small cap blend funds (specifically VB -- others may vary) is that when you picture the typical Morningstar 9-segment style box it's basically an inverse of a TSM fund. It has a few mid caps as well, and when you split the two 50/50 you get a nicely even distribution across all categories that doesn't bet on any one sector.
12 12 13
08 09 13
12 12 12
That it accomplishes this with a balanced barbell is nice for rebalancing and fits well in the overall portfolio concept from a simplicity perspective. I'm currently 25% VTI and 15% VB purely because I'm carefully managing my taxes and avoiding unnecessary capital gains, but an even split is my long-term goal.
If you wanted to add a micro cap fund like IWC, I wouldn't see a problem with that. Just keep an eye on the ER and turnover.
Last edited by Tyler on Mon Apr 04, 2016 6:28 pm, edited 1 time in total.
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Re: Golden Butterfly Portfolio
That is simply genius! I wish I had thought of that first instead of size alone. I dare say this has now superseded the EWMC. Just need to throw in some MicroCap and you're golden over several factors.Tyler wrote: The thing I like about small cap blend funds (specifically VB -- others may vary) is that when you picture the typical Morningstar 9-segment style box it's basically an inverse of a TSM fund. It has a few mid caps as well, and when you split the two 50/50 you get a nicely even distribution across all categories that doesn't bet on any one sector.
12 12 13
08 09 13
12 12 12
Last edited by MachineGhost on Mon Apr 04, 2016 6:22 pm, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
- MachineGhost
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Re: Golden Butterfly Portfolio
I've crunched the numbers for a equal weight size, value and growth portfolio: http://gyroscopicinvesting.com/forum/pe ... msg125648/
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Re: Golden Butterfly Portfolio
New start-date-independent analysis, same tune:
Actually, nearly all of those portfolios to the right are based in some kind of Permanent Portfolio methodology. Consistency is an attractive quality.
Actually, nearly all of those portfolios to the right are based in some kind of Permanent Portfolio methodology. Consistency is an attractive quality.
Re: Golden Butterfly Portfolio
Very cool! Thanks again Tyler. Your site has been a huge influence on how I look at portfolios and has taught me a lot.
I decided to take Ochtona's advice from a couple posts back re: my own portfolio. I'm going to be allocating into a GB style portfolio but instead of 20% large cap and 20% small, I'm just going to put 40% into a single extended market fund to get exposure to small and mid caps and call it a day.
Cheers!
I decided to take Ochtona's advice from a couple posts back re: my own portfolio. I'm going to be allocating into a GB style portfolio but instead of 20% large cap and 20% small, I'm just going to put 40% into a single extended market fund to get exposure to small and mid caps and call it a day.
Cheers!
Re: Golden Butterfly Portfolio
Extended market leaves out stocks in the S&P 500 - that your intent, or were you looking for a TotL Stock Market index?Jpeizie wrote: Very cool! Thanks again Tyler. Your site has been a huge influence on how I look at portfolios and has taught me a lot.
I decided to take Ochtona's advice from a couple posts back re: my own portfolio. I'm going to be allocating into a GB style portfolio but instead of 20% large cap and 20% small, I'm just going to put 40% into a single extended market fund to get exposure to small and mid caps and call it a day.
Cheers!
In the GB, get some big, some small, some growth (Large Balanced is more growth I believe), and value....