vincent_c wrote: ↑
Thu Oct 21, 2021 7:57 pm
Kbg wrote: ↑
Thu Oct 21, 2021 5:55 pm
If you have some time to read more the main topic is leveraging bonds to chill (and improve) risk adjusted returns. Unfortunately the nuggets of the main idea are buried in the minutiae of treasury futures pricing.
I did see something about leveraging STTs or ITTs with perhaps what they think is a better risk adjusted return compared to LTTs. I've investigated this myself in the past and concluded it carries both different risks and hidden costs and ultimately was not worth it. I may be wrong about it but it does potentially fall in the splitting hairs/tweaking category of optimizations.
Leveraging in effect borrows money in order to scale up exposure to a asset. Simply by dropping cash from the PP to scale up stock/gold/LTT exposure to thirds each is a 1.33x PP.
Harry expected one of the PP assets to be losing at any one time. He also said something like
Well there's a interesting thing about investments that people rarely notice during a Bull, Bear, whatever market and that is the investments that are winning have a greater impact upon your portfolio than those that are losing. When a investment is in a Bear market it may do down 25, 35 maybe even 40 or maybe even 50% in some rare occasions, but when a investment is in a Bull market it doesn't go up 25, 35 or 40% but goes up 100% or 200% sometimes 300 or 400%, far far more than some other investment is losing, and as a result any combination of them tends to be driven by the investment that is winning and has a bigger impact on the outcome.
i.e. that one of the assets would do very well over a number of years, perhaps rising 200% or more over a decade/whatever whilst the other assets might be relatively dull.
As a alternative to fixed weight leverage, consider these PV views
Straight PP 1980 to 2019
. Started with $10K, ended with $178K
. 1980 - 2019 that ended with $342K by dropping cash and swapping out TSM for more volatile (form of leverage) SCV for the stock.
Now for some rotational action ...
. Started with $10K, ended with $157K, holding 50/50 SCV/LTT given that in 1980 the Dow/Gold ratio was down at around 1.0 levels i.e. a prediction in 1980 that gold was unlikely to be the 'big winner'.
Continuing that, $157K invested 2000 to 2009 in 50/50 LTT/gold
as the Dow/Gold ratio was very high, up at 40 levels, and other stock valuations methods also indicated extremes. That ended 2009 with $447K.
For 2010 to 2019 50/50 In SCV/Gold
saw $447K grow to $1019K. Back at the end of 2009 it was quite widely being proclaimed that longer dated treasury bonds had little growth prospects given such low yields.
Collectively that drop cash, drop the asset that looks to have the weakest 10 year prospect to provide a 200%+ gain, resulted in a 1014 / 178 = 5.7 greater gain factor compared to the straight PP over those 40 years, a 4.4% higher annualized reward.
Going forward, continuing that on for 2020 to 2029, and I'd say dropping LTT's would be reasonable. However Dow/Gold
was up at around 19 levels at the end of 2019, also suggesting that stocks were somewhat expensive, as also suggested by PE
. If in doubt we can always de-leverage back down to holding a standard 4x25 PP, however LTT's do still seem to have little prospect so might be replaced by cash 25/25/50 TSM/gold/cash
1980 to date and that rotation set compared in total return to that of 100% TSM, over a period that was pretty good/great for stocks. And with the worst of bad years seeing considerably less downside volatility. Leveraging by selecting the asset you opine is least likely to be the provider of a 200%+ type forward ten year reward.