Golden Butterfly Portfolio

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

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Desert
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Re: Golden Butterfly Portfolio

Post by Desert » 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.
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Kbg
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Re: Golden Butterfly Portfolio

Post by Kbg » Tue Jun 06, 2017 11:19 am

Crazy is also associated with a bubble...curious as to what this group considers a bubble?
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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..
"The future ain't what it used to be."

Belief is the death of intelligence. As soon as one believes a doctrine of any sort, or assumes certitude, one stops thinking about that aspect of existence
barrett
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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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Desert
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Re: Golden Butterfly Portfolio

Post by Desert » Tue Jun 06, 2017 8:36 pm

I guess bubbles are in the eye of the beholder. Gold peaked in 1980, and 37 years later the real price of gold has never recovered. I'd call that a bubble. If it wasn't a bubble, and gold's price was responding to inflation, it should have at least maintained the 1980 peak. Instead it plummeted, despite the fact that there wasn't any deflationary recovery of the dollar's value.

But it probably isn't important whether one calls it a bubble or not. I think most of us recognize that gold held in isolation has been a very poor investment. Its uncorrelated and utterly unpredictable behavior has made it a decent diversifier.
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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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Desert
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Re: Golden Butterfly Portfolio

Post by Desert » Wed Jun 07, 2017 8:48 pm

Here's a nice little pic showing the stages of a bubble.

Image
https://people.hofstra.edu/geotrans/eng ... ubble.html

That curve looks mighty familiar ... the "take off" was in 1972. :)
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Tyler
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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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sophie
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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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Desert
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Re: Golden Butterfly Portfolio

Post by Desert » Thu Jun 08, 2017 8:23 am

Tyler wrote:
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.
:)
I agree!
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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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