I Finally Purchased Some EDV

[Reub]

Always being bond averse, I finally broke down and followed MT's sage advice. I purchased EDV today, not quite enough to give me a 10% share to go along with my PRPFX, but a good start towards that. My plan is to dollar cost average in with the goal of reaching a 10% holding over the next few months, or so.

[MediumTex]

It's volatile and thinly traded.  Don't be alarmed.  Over time it gives you the volatility you need to smooth out the PRPFX ride.

[Reub]

Thank you, Tex! Could you please give me some idea how you came up with the 10% figure to balance out the PRPFX?

[MediumTex]

Thank you, Tex! Could you please give me some idea how you came up with the 10% figure to balance out the PRPFX?

When you look at the 35% that PRPFX holds in treasuries and the average duration, adding 10% of EDV gets you much closer to the 50% treasury exposure in a HB PP, along with exposure on the long end of the yield curve that you don't get with PRPFX.

[longeyes]

Bold move when some of us are buying TBT to hedge TLT.

[MediumTex]

Bold move when some of us are buying TBT to hedge TLT.

Why are you doing that?

[HB Reader]

Bold move when some of us are buying TBT to hedge TLT.

Why are you doing that?

Yes, why would you hedge against TLT? 

I can see maybe using TBT in your VP if you want to bet on rising long term rates, but otherwise I don't get it. 

[longeyes]

That's what I meant: in VP.  (But not yet.)

My point was just that EDV right now seems iffy given the threat of rising interest rates.

[MediumTex]

My point was just that EDV right now seems iffy given the threat of rising interest rates.

You mean that same threat that has been with us for the past 25 years or so?

[longeyes]

Yes, and we both know the trend.

[MediumTex]

Yes, and we both know the trend.

What is the trend?

Long term interest rates are currently slightly above the 100 year mean and we are in a period of deleveraging, which is typically deflationary. 

If you knew nothing about an economic situation except that it was structurally deflationary and that interest rates were above the 100 year mean, what would be your guess as to where interest rates would be headed?

The TV and punditry never talks about these more subtle long term trends.

[Reub]

Longeyes, I don't market time within my PP.

[longeyes]

I don't market-time either inside my DIY PP. 

I am considering TBT for my Variable Portfolio.

***

MT, what you say is true long-term, but in the most recent cycle rates have been declining for a long while.  I'm looking at the last 30 years, not the last 100.

[pershing83]

I posted this on the pp board but no comments were forth coming so I'll try this board. IMO, this is the sort of thing that should be discussed, not long and tedious ramblings about LTT and the like.

When asked about the classic pp performance YTD, Tex was kind enough to provide it. To change the subject somewhat and since I own a large amount of PRPFX, YTD 9%, outperforming the classic pp by a bit, it would seem to me the pp needs a more global look. HB's last book, actually the only one I have read, twice now BTW, was published in 1999. It would be interesting to know if his allocation and assets within those allocations would have changed. I think he would have made some changes. For example PPRPFX owns 5% silver and 10% Swiss franc assets. I like this.

I do not read every post but I wonder if I could steer the discussion to that issue? Would HB have made changes over the laast 12 yrs but still maintaining the basic 25% parts. I do like the 25% allocations.

Also I'm curious to what degree some of you regulars have tinkered with your pp's, and if so, how?

[AdamA]

Would HB have made changes over the last 12 yrs but still maintaining the basic 25% parts.

No.

PRPFX is the PP in its original form.  HB later figured out that the 25% x 4 was less complicated and would work just as well.

PRPFX is weighted more heavily toward precious metals and does well when they perform well.  This year it has outperformed the 25% x 4, but it was more volatile (in the downward direction) during the crash in 2008.

HB was still recommending the 25% x 4 approach on his radio show in 2005, and I don't think anything has happened since then that would cause him to change his mind.

[AdamA]

Also I'm curious to what degree some of you regulars have tinkered with your pp's, and if so, how.

As little as possible.  I hold 1/5 of my gold in GTU for rebalancing purposes, but that's pretty much it.

[pershing83]

PRPFX is not weighted more heavily in precious metals. It holds 20% gold and 5% silver. This might might vary from time to time prior to rebalancing  but as of 06/11 held 25% metal.

HB said, at least in 1999, hold 25% in the broad mkts and suggested several domestic mutual funds.

PRPFX has deviated from this somewhat, holding individual stocks, largest single stock holding is BHP (a foreign stock). PRPFX holds REIT's also.

[AdamA]

PRPFX is not weighted more heavily in precious metals. It holds 20% gold and 5% silver. This might might vary from time to time prior to rebalancing  but as of 06/11 held 25% metal.

I should have said it is more heavily weighted toward precious metals than it is toward long term treasuries, to which there is limited exposure.

HB said, at least in 1999, hold 25% in the broad mkts and suggested several domestic mutual funds.

PRPFX has deviated from this somewhat, holding individual stocks, largest single stock holding is BHP (a foreign stock). PRPFX holds REIT's also.

Again, PRPFX is more or less the original form of the PP.  HB eventually figured out that a broad market fund was probably better than trying to pick individual stocks.

[pershing83]

PRPFX has a mix of bonds and does not hold a lot of LTT.  I've often thought PRPFX would be better just to hold indexs for stocks. They have a huge portion of the gold in coins. Eagles and Maple Leafs 

[AdamA]

I've often thought PRPFX would be better just to hold indexs for stocks.

Agree.

[Reub]

Man, I wish I would have purchased some more EDV! Thanks, MT!

[dualstow]

Bill Gross, eat your heart out!

[dualstow]

I'm so pleased with the pp that I'm going to get rid of my VUSTX i.e. Vanguard's "long" treasury index fund, and buy TLT. Nothing to do with past performance, but I bought VUSTX for diversification from stocks before I knew that the holdings were not all of the longest duration. And, in fact, before I knew the pp existed. It will be a neutral transaction as VUSTX will finally break even for me today at closing.

EDV makes up only 10% of my holdings, so I think I'm going to keep it even after I unload VUSTX.
  instrument  |                % of bond holdings
---------------------------------------------------------
VUSTX Vanguard Long-Term Treasury Inv 18%
US 30-Year Treasury bonds, held directly         39%
TLT iShares Barclays 20+ Yr Treas.Bond ETF        33%
EDV Vanguard Extended Duration ETF 10%

[Reub]

I bought some more EDV this morning. It is through the roof again!

[MediumTex]

I bought some more EDV this morning. It is through the roof again!

Is this part of a mechanical PRPFX/EDV strategy or are you just speculating?

EDV has had a really nice run.