Golden Butterfly

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vnatale
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Golden Butterfly

Post by vnatale » Mon Dec 16, 2019 8:30 pm

In my time here I've seen many references to the Golden Butterfly.

It was not until now that I finally even went this far to see what it is:

https://portfoliocharts.com/portfolio/golden-butterfly/

Is it simply the Permanent Portfolio with one modification? Each of the four have 5% taken away from them and that 20% is allocated to Small Cap Value?

All else is basically the same? Except I assume instead of 15% / 35% bands, those must be modified? Guessing 12% / 28%?

How many here using the Golden Butterfly with no modifications as opposed to the classic Permanent Portfolio?

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Tyler
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Re: Golden Butterfly

Post by Tyler » Tue Dec 17, 2019 12:04 am

The short story is that the Golden Butterfly is a simple iteration of the Permanent Portfolio that I came up with when exploring what to do with my variable portfolio. Here's the original thread that tracks the first idea through many pages of discussion: viewtopic.php?t=7700
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Re: Golden Butterfly

Post by Smith1776 » Tue Dec 17, 2019 2:31 am

A post I made way back when which I will repeat here as I believe it is relevant!

---------------

I really do think the Golden Butterfly is where it's at in terms of the optimal "default" choice for people getting into investing. The ideal starting point that people can deviate from as they wish. A sort of centre of gravity for portfolio composition.

It's got all the elements of, in my opinion, the most sound arguments that have been made on this board and the broader investing world:

1) low cost indexing
2) risk parity
3) alternative/hard assets
4) factor diversification
5) asset class diversification
6) allocation based on economic conditions
7) modern portfolio theory
8) passive buy and hold approach
9) No credit risk on bond side (uncompensated risk via Swedroe)

I'm sure there's more, but that's just off the top of my head. No other portfolio allocation integrates all of the soundest thinking quite like the GB IMHO.
Pretty much all of the other popular portfolios misses the mark on at least one of the above points.

My only very minor nitpick is that I think the equities should have an international component by default. That may be down to personal taste, to be fair.

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Re: Golden Butterfly

Post by sophie » Tue Dec 17, 2019 7:57 am

Nice to re-read that Golden Butterfly thread!

I was quite skeptical at first because I thought there was a good bit of recency bias leading to the increase in stock allocation, and I definitely think it resulted in a lot of the enthusiasm for it. What finally convinced me was the observations (my own, and Machine Ghost's) that gold and bonds tend to be more volatile than stocks - especially gold. In other words, as gold/bonds sink and stocks increase, the stocks don't quite pull their weight when they're only 25% of the portfolio. And, that there are structural reasons why recessions (the worst case scenario for the GB) comprise a much smaller proportion of years than prosperity.

I spent quite a bit of time puzzling it out but finally decided to convert from PP to Golden Butterfly myself. I figured that would immediately usher in a major stock market correction :-).

As far as rebalance bands - the 40% bands that work well for the PP won't work as well here, because 8% of any one asset is too little. So I set mine for 30% bands (14-26%).
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Re: Golden Butterfly

Post by flyingpylon » Tue Dec 17, 2019 9:20 am

I was PP + a single-stock VP. The VP was the result of option exercises from a previous employer, I don't have any particular need to trade or speculate anymore. When the company was acquired in an all-cash transaction I took a closer look at the GB and decided it was a good fit for me.

I am still in the accumulation phase and because of the way my contributions come in, I tend to let cash build up. So about once a year or so I'll rebalance things. I have been wondering what others use for rebalancing bands so I appreciate the discussion about that.
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Re: Golden Butterfly

Post by Smith1776 » Tue Dec 17, 2019 2:13 pm

My only other bone to pick with the Golden Butterfly is the name...

...I'd prefer something less... "ornamental" sounding?

Like, Permanent Portfolio sounds authoritative, for instance.

Maybe we should shall the GB the Super Permanent Portfolio. I mean, that's really what it is. O0
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The Permanent Portfolio will be safe enough to walk away from and forget about completely only if it allows for more than just the problems and hazards that are obvious today. It will have to allow for all of the unforeseeable events of the next 5, 10, 15, or 20 years.
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Re: Golden Butterfly

Post by dualstow » Tue Dec 17, 2019 2:37 pm

Smith1776 wrote:
Tue Dec 17, 2019 2:13 pm
My only other bone to pick with the Golden Butterfly is the name...

...I'd prefer something less... "ornamental" sounding?

Like, Permanent Portfolio sounds authoritative, for instance.

Maybe we should shall the GB the Super Permanent Portfolio. I mean, that's really what it is. O0
I love the name. I have a portfolio called the Sleepy Phoenix. I'm just not sure what the components and proportions are yet. Got the name down, though.
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Re: Golden Butterfly

Post by Smith1776 » Tue Dec 17, 2019 2:53 pm

dualstow wrote:
Tue Dec 17, 2019 2:37 pm
Smith1776 wrote:
Tue Dec 17, 2019 2:13 pm
My only other bone to pick with the Golden Butterfly is the name...

...I'd prefer something less... "ornamental" sounding?

Like, Permanent Portfolio sounds authoritative, for instance.

Maybe we should shall the GB the Super Permanent Portfolio. I mean, that's really what it is. O0
I love the name. I have a portfolio called the Sleepy Phoenix. I'm just not sure what the components and proportions are yet. Got the name down, though.
Honestly, it sounds like we're talking about Pokemon now... LOL. ;D
e + 1 = 0
Any computer is a server if you're brave enough.
The Permanent Portfolio will be safe enough to walk away from and forget about completely only if it allows for more than just the problems and hazards that are obvious today. It will have to allow for all of the unforeseeable events of the next 5, 10, 15, or 20 years.
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Re: Golden Butterfly

Post by dualstow » Tue Dec 17, 2019 5:13 pm

haha O0
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Re: Golden Butterfly

Post by Tyler » Tue Dec 17, 2019 8:30 pm

I'm definitely not hung up on only using domestic assets in the Golden Butterfly. On the one hand, I do naturally have a Browne-influenced perspective on economic diversification that focuses more on the cycles of the local economy and the importance of diversifying outside of stocks entirely rather than simply diversifying stock markets. But on the other hand, I'm always fascinated by portfolios that also did well in Japan, and a GB with the 40% stocks subdivided into domestic/international was pretty impressive in any country. As I continue to add more data, that's a general theme I'm still exploring.

Interestingly, one of the more unique criticisms I've read of the Golden Butterfly is that the name is just too catchy and draws more attention than they think it deserves. :) While not my intention, I take that as a badge of honor and am happy that the memorable name helps people find more info.
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Re: Golden Butterfly

Post by D1984 » Tue Dec 17, 2019 10:03 pm

Tyler wrote:
Tue Dec 17, 2019 8:30 pm
I'm definitely not hung up on only using domestic assets in the Golden Butterfly. On the one hand, I do naturally have a Browne-influenced perspective on economic diversification that focuses more on the cycles of the local economy and the importance of diversifying outside of stocks entirely rather than simply diversifying stock markets. But on the other hand, I'm always fascinated by portfolios that also did well in Japan, and a GB with the 40% stocks subdivided into domestic/international was pretty impressive in any country. As I continue to add more data, that's a general theme I'm still exploring.

Interestingly, one of the more unique criticisms I've read of the Golden Butterfly is that the name is just too catchy and draws more attention than they think it deserves. :) While not my intention, I take that as a badge of honor and am happy that the memorable name helps people find more info.

How did the 50/50 foreign/Japan golden butterfly do CAGR-wise in real terms in Japanese Yen (since this would be from the perspective of a Japanese investor who would have his portfolio and his spending denominated in that currency) from 1990-2011?

Also, what would you be using for the "rest of the world" in this case? EAFE ex-Japan? US + EAFE ex-Japan? ACWI ex-Japan (which works fine starting in 1990 but can't be backtested much beyond the late 1980s--say, to 1970--since the late 1980s is when MSCI ACWI data starts)? Finally, while I presume you were using the Nomura SCV data for Japan (since it goes all the way back to 1980 IIRC) but what were you using for the "rest of the world" SCV data? World stock index data going back to the 1970s and 80s is fairly easy to find; world SCV return data going back that far is not.
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Re: Golden Butterfly

Post by Tyler » Tue Dec 17, 2019 10:29 pm

D1984 wrote:
Tue Dec 17, 2019 10:03 pm
How did the 50/50 foreign/Japan golden butterfly do CAGR-wise in real terms in Japanese Yen (since this would be from the perspective of a Japanese investor who would have his portfolio and his spending denominated in that currency) from 1990-2011?

Also, what would you be using for the "rest of the world" in this case? EAFE ex-Japan? US + EAFE ex-Japan? ACWI ex-Japan (which works fine starting in 1990 but can't be backtested much beyond the late 1980s--say, to 1970--since the late 1980s is when MSCI ACWI data starts)? Finally, while I presume you were using the Nomura SCV data for Japan (since it goes all the way back to 1980 IIRC) but what were you using for the "rest of the world" SCV data? World stock index data going back to the 1970s and 80s is fairly easy to find; world SCV return data going back that far is not.
The site has evolved a lot over the years, and if you haven't visited in a while you should check it out. Try the My Portfolio tool and set it to Japan. That automatically converts everything to Yen and Japanese inflation, and you can explore all of the numbers for yourself. ;)

For "International" from the perspective of an investor outside of the US, right now I just use data for the developed world. Sure there's a little overlap with the home country, but really the US is the only country that's large enough where it makes a big difference. I may eventually expand those ex-domestic international options for a few larger countries like Japan, but right now my priority is to add more home countries first.

Regarding data sources, I can model SCV for Japan and a World fund going back to 1970 using a few different sources. First there's my own calculations using Fama French source data. Then there's a cool collection of older IIA data I found. And finally I have a homegrown asset replacement system that fills in older data with something similar and checks to make sure the replacement asset models the desired one closely enough. You can read about that here: https://portfoliocharts.com/portfolio/tools-data/
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