Golden Butterfly Portfolio

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

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l82start
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Re: Golden Butterfly Portfolio

Post by l82start » Tue Jun 06, 2017 11:40 am

i always thought a bubble was self descriptive, a rise with nothing substantial underneath it..
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Re: Golden Butterfly Portfolio

Post by barrett » Tue Jun 06, 2017 4:23 pm

Kbg wrote:Crazy is also associated with a bubble...curious as to what this group considers a bubble?
That's a fair question. To me a bubble is more easily quantified after the fact. Have a look at this NASDAQ price history:

http://www.macrotrends.net/1320/nasdaq-historical-chart

That is in inflation-adjusted numbers so we can see that the index broke through the 2,500 level in about March of 1998 and peaked at over 6,700 (again, in today's dollars) in February of 2000. I use the number 2,500 because that was a sort of trading range that the index settled into again when the stock market as a whole recovered in 2003.

Using this sort of thinking would put gold in a bubble from November of 1979 to September of 1980.

I'm really just thinking out loud here. Hope what I'm saying makes sense. There seems to be a price that everyone more or less agrees on after the craziness ends. Anything above that "floor" was probably bubbly.

For me gold did a great job protecting against an eroding US Dollar in the late 1970s (before its price briefly got bubbly).
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Re: Golden Butterfly Portfolio

Post by barrett » Wed Jun 07, 2017 5:19 am

I'm going to amend what I wrote two posts ago (the validity of my posts has a very short half life!) and say that gold was in a bubble from roughly September of 1978 to September of 1980. The bubble finished popping around June of 1982 when gold's price was back to its pre-bubble level. From that point on gold shows a weakly positive real return through the present.

I don't 100% agree with Desert's assertion that its behavior is "uncorrelated and utterly unpredictable." Uncorrelated, yes. But it has done well when stocks have struggled because of economic uncertainty/weak USD, etc. Under those conditions investors don't trust that stocks will keep up with inflation.

In other words, there is an actual reason that it's a good diversifier.

Grain of salt and all that.
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Re: Golden Butterfly Portfolio

Post by Tyler » Wed Jun 07, 2017 11:53 pm

Desert wrote: That curve looks mighty familiar ... the "take off" was in 1972. :)
Or stocks starting in 1982. ;)

A bubble is just another word for "unsustainable in hindsight". It's not isolated to gold by any means, which is why diversification matters.
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Re: Golden Butterfly Portfolio

Post by sophie » Thu Jun 08, 2017 7:56 am

As long as the asset in question is the financial equivalent of Euclid's basic postulates, a pattern like this is made-to-order for a multi-asset allocation with set rebalancing bands - whether you call this a bubble or not. If people are buying this much gold, then they aren't buying other things like stocks or bonds. You get to reap the benefits when you rebalance, as long as you keep emotions out of it and go with your pre-set rebalancing bands. This kind of volatility in uncorrelated assets is exactly what you want.

I still think the alternative hypothesis that these fluctuations reflect market conditions at the time is a better explanation, but I suppose the only way to test this is to go through another 1970s style event. On the other hand, you could consider crisis periods in other countries, examining gold price in their currency - keeping mind that no two financial events will be alike, and that direct comparison is probably not possible. I recall past threads looking at Iceland and Argentina.
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Re: Golden Butterfly Portfolio

Post by Tyler » 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. :)
Last edited by Tyler on Mon May 21, 2018 9:43 pm, edited 1 time in total.
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Re: Golden Butterfly Portfolio

Post by hardlawjockey » Mon May 21, 2018 9:03 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 just some crazy idea on the internet, know that there's at least one guy happy to share his experience. :)
Very interesting Tyler. I also adopted the GB a few years back after reading about it on your website but stuck with SCV.

Nice to know I was right. Or maybe not. Data doesn't lie but human interpretations of financial data are notoriously unreliable due to the unavoidable fact that there is no way to predict the future.

But here's to hoping that the future will feel constrained to behave in the same way it has done in the fairly recent past. At least as long as I need it to.
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Re: Golden Butterfly Portfolio

Post by Dieter » Mon May 21, 2018 11:49 pm

Looking just at Vanguard funds, Small Cap Growth vs Value pretty much a wash over the last five years. Last 12 months through 4/30 has Growth way ahead: 16.1% vs 7.3.

S&P 500 12.9% last 5 years, so the tilt has hurt in short term. Ach well. SC, especially SCG, has done better than LCB YTD though :)

In my GBish IRA, I have stocks 1/3 TSM, 1/3 SCV, 1/3 ISB (VG International Explorer -- good in last 12 months - 20%; a wash last 5 years vs Small Cap.
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Re: Golden Butterfly Portfolio

Post by foglifter » Tue May 22, 2018 1:09 am

Tyler, you're not alone! I have 2 GB-ish (or should I say GB-esque :D ) portfolios, both in retirement accounts. I've become comfortable with using GB in lieu of classic HBPP and I do understand the differences. For me GB seems to be a decent compromise between classic PP and Bogleheads-type allocation which is easier to stick with for a long term.
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Re: Golden Butterfly Portfolio

Post by mrbk2fi » Tue May 22, 2018 1:39 pm

I have all of my 401k in a GB style portfolio, except I use the Paul Merriman index fund allocation, which is worldwide instead of just US.
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Re: Golden Butterfly Portfolio

Post by mathjak107 » Tue May 22, 2018 2:01 pm

i much prefer the gb to the pp . it makes more sense . i used it for a short while when the elections came up . but once it looked like rates were going to climb i ditched it for my regular models . i did not want gold and long term treasuries at that stage .
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Re: Golden Butterfly Portfolio

Post by williswine » Wed Jun 20, 2018 7:10 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. :)
Tyler, would you mind sharing which fund or ETF you are now using for SCV? If you are investing in a taxable account, have you considered using Vanguard Tax-Managed Small-Cap Fund Admiral Shares (VTMSX)? I recall reading at bogleheads that at least some people found it has a small cap value orientation. Of course some ETFs may be sufficiently tax-efficient there as well... thanks!
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Re: Golden Butterfly Portfolio

Post by Tyler » Wed Jun 20, 2018 9:05 pm

williswine wrote:
Wed Jun 20, 2018 7:10 pm
Tyler, would you mind sharing which fund or ETF you are now using for SCV? If you are investing in a taxable account, have you considered using Vanguard Tax-Managed Small-Cap Fund Admiral Shares (VTMSX)? I recall reading at bogleheads that at least some people found it has a small cap value orientation. Of course some ETFs may be sufficiently tax-efficient there as well... thanks!
I personally use VBR, but there are several good SCV ETFs out there. I'm not familiar with VTMSX so don't have much to offer on that front.
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Re: Golden Butterfly Portfolio

Post by buddtholomew » Thu Jun 21, 2018 5:42 am

Personally I use IJS as my core holding and have been happy aside from the low trading volume. Prices can stay fixed for 10-15 minutes until they adjust if there is a large move in either direction.

Supposedly it is more small and value oriented than most, which differs from others I’ve seen that include a healthy dose of mid-caps as well.
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Re: Golden Butterfly Portfolio

Post by williswine » Thu Jun 21, 2018 3:43 pm

Indeed, the choices are many. VBR's E/R is appealing. IJS may have low trading volume but other offerings had even lower ones last time I checked: PXSV is one example, despite being considered by some bogleheads as having an ideal profile, perhaps better than even DFA US Small Cap Value. Of course, the difference in E/R (PXSV is at 0.39%) compared to VBR (0.07%) may take away any advantage PXSV may have over VBR in terms of "small-ness" and "value-ness"...
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Re: Golden Butterfly Portfolio

Post by sophie » Sun Jul 22, 2018 9:42 am

What's wrong with large growth? That's basically the S&P 500, isn't it?

I actually think that the US stock market includes international diversification. Most of the big corporations operate internationally to a large extent. Plus, gold is a form of international diversification. Assuming you hold the stuff, or enough of it, as in around 20% not 5%.

I only bother with international stocks in my 403b portfolio, where I can't hold gold.
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Re: Golden Butterfly Portfolio

Post by Kbg » Mon Jul 23, 2018 9:29 am

Desert wrote:
Mon Jul 23, 2018 8:42 am
Sophie, I don't think there's anything particularly wrong with Growth stocks, but value stocks have generally performed better in the past, probably for a variety of reasons. Some folks are also not real happy with the fundamental structure of large cap weighted indices like TSM or S&P500, since they tend to be dominated by a few large growth companies, inherently leading investors to "buy high" as those stocks occupy an increasing percentage of the index. I haven't totally bought into that theory, but I can see a bit of the point. The outperformance of the S&P 500 equal weighted index is often used to support this idea.

Anyway, I think my last post included backtesting that is probably getting too detailed/granular anyway. But I do think a foreign allocation could make sense, even though U.S. companies do a lot of business overseas. I think of Japan (and no, I don't think w'ere in a 1990 Japan-style bubble), with all their business overseas, and their status as the second largest economy in the world, and yet their stock market went into a multi-decade decline. So while I don't think it'll play out that way in the U.S., I wouldn't mind diversifying a bit just in case. Also, foreign stocks have underperformed domestic stocks pretty heavily in recent years. Foreign stocks and gold look the most interesting to me right now, since everyone hates them again. :)
I'm going to be a bit persnickety here...cuz it matters. What we can say is value and growth have periods where one outperforms the other and which is which is a function of the start and end dates (see the gold thread where I picked various dates of stocks vs. stocks...you can find exactly the same thing here.)
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Re: Golden Butterfly Portfolio

Post by hardlawjockey » Fri Jul 27, 2018 3:22 pm

When I transitioned into the GB a couple of years ago I set things up so that all of the SCV is in my Roth IRA's.
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Re: Golden Butterfly Portfolio

Post by Don » Thu Oct 04, 2018 9:06 pm

So how is the GB doing so far this year?
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Re: Golden Butterfly Portfolio

Post by Tyler » Thu Oct 04, 2018 9:23 pm

Don wrote:
Thu Oct 04, 2018 9:06 pm
So how is the GB doing so far this year?
The beauty of only dealing with annual data is that I honestly didn't know and had to look it up. ;)

According to ETF replay, a perfectly rebalanced GB is basically at the same place it started YTD (down 0.4%). My own portfolio is slightly up. So not great by any means, but well within historical norms in terms of range of possible returns.
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Re: Golden Butterfly Portfolio

Post by Don » Thu Oct 04, 2018 9:44 pm

Tyler wrote:
Thu Oct 04, 2018 9:23 pm
Don wrote:
Thu Oct 04, 2018 9:06 pm
So how is the GB doing so far this year?
The beauty of only dealing with annual data is that I honestly didn't know and had to look it up. ;)

According to ETF replay, a perfectly rebalanced GB is basically at the same place it started YTD (down 0.4%). My own portfolio is slightly up. So not great by any means, but well within historical norms in terms of range of possible returns.
Thanks. Tyler, I like your portfolio based on the eye test. How would it look with a 10% SCV and 30% TSM? I'm looking for less down years and a slightly lower CAGR. I'm retired.

I'd also prefer something like 10% gold and 30% STTs for stability. Just by the eye test.

30%TSM
10% SCV
20% LTTs
30% STTs
10% gold

Sorry, I'm not very good using your charts or I'd do it myself.
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Re: Golden Butterfly Portfolio

Post by Tyler » Thu Oct 04, 2018 10:42 pm

Don wrote:
Thu Oct 04, 2018 9:44 pm
Sorry, I'm not very good using your charts or I'd do it myself.
I recently updated the charts to be a little easier to use. Try this: https://portfoliocharts.com/portfolio/my-portfolio/ Just enter the percentages you want to study in the black boxes, and everything should update automatically.

But in general, even without looking at the charts I personally have no problem with your tweaks as long as the portfolio meets your needs. The best asset allocation is one that you're comfortable sticking with.
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Re: Golden Butterfly Portfolio

Post by Smith1776 » Wed Dec 18, 2019 5:42 pm

Hey all, I just wanted to resurrect this thread because it seems the Golden Butterfly has been gaining traction as a topic of conversation as of late. This thread has a ton of useful information and perspective on the allocation.

I'm still not the biggest fan of the name (;D), but the allocation is certainly phenomenal!
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Re: Golden Butterfly Portfolio

Post by foglifter » Wed Dec 18, 2019 7:14 pm

Smith1776 wrote:
Wed Dec 18, 2019 5:42 pm
Hey all, I just wanted to resurrect this thread because it seems the Golden Butterfly has been gaining traction as a topic of conversation as of late. This thread has a ton of useful information and perspective on the allocation.

I'm still not the biggest fan of the name (;D), but the allocation is certainly phenomenal!
Thanks for resurrecting the thread! I've moved from classic PP to GB a few years back and I like it.
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Re: Golden Butterfly Portfolio

Post by Smith1776 » Wed Dec 18, 2019 8:05 pm

foglifter wrote:
Wed Dec 18, 2019 7:14 pm
Smith1776 wrote:
Wed Dec 18, 2019 5:42 pm
Hey all, I just wanted to resurrect this thread because it seems the Golden Butterfly has been gaining traction as a topic of conversation as of late. This thread has a ton of useful information and perspective on the allocation.

I'm still not the biggest fan of the name (;D), but the allocation is certainly phenomenal!
Thanks for resurrecting the thread! I've moved from classic PP to GB a few years back and I like it.
Yup!

This thread reminds me of a redux version of the original PP thread back on the Bogleheads forum.
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