Markowitz meets Talmud

[Clive]

?

[Maestro G]

If you consider the PP as a form of business (stocks), commodity (gold), and cash three way Talmud type split, with a 75-25 (Markowitz) split of the stock and commodity parts (that results in 25% stocks, 25% gold, 50% cash) allocation - but apply that same concept to a blend of home, gold and cash (25% home value, 25% gold, 50% cash) then for UK data since 1972 IT yielded a 3.43% real annualised reward (with a -3.95% worse year decline).

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Some like to consider properties they own as part of their total investment. Others prefer to exclude their home value, often on the basis that you can't easily trade your home value. I quite like the idea of including a house as part of the overall package as there are options to enable some degree of trading such as short and double short property prices ETF's (ETN's?) and/or going long via REIT type ETF's. And you could always upsize/downsize periodically if deemed to be appropriate (buying a larger home when prices were relatively cheap, moving to a smaller home and profit taking when prices were relatively high).

In the UK your primary home has tax efficiency benefits, such as you don't pay capital gains (CGT) on profits. Gold Sovereign's/Britannia's are legal tender and exempt purchase tax (VAT) and CGT. Investing in Gilts can be tax efficient (held in ISA and/or IBond type (N&SI) investments.

Unlike commercial REIT's, house prices have somewhat retained an inverse correlation to stocks, but if you consider your home as a business, perhaps with the intent to move into a modestly run down place to do-it-up at your leisure whilst living there and later sell on for a profit, and also hold some gold and cash, then it looks like historically at least you could have done relatively OK and with low levels of risk.

Greetings Clive,

Always enjoy your analysis and out of the box thinking on investment matters!

I have recently been contemplating simplifying what I'm doing along the lines of the Talmud philosophy accordingly:

33.3% GTAA (Global Allocation)
33.4% "Safe Assets" (Cash; Tips [LTPZ; TIILX]; TUZ; I-Bonds etc...)
33.3% Concentration (Decision Moose [currently gold] perhaps, or an asset class class of my own choosing) Or, I could just stick with IAU as permanent 1/3 holding a la the PP?

I own my home, but don't factor that into the equation as I view it primarily as consumption item.

My thought is to combine very broad diversification with concentration and "safe assets" as an anchor. The cost of the portfolio is higher then I would like, but as GTAA accumulates assets, their ER will decrease, though only ultimately to about .60.

I'm thinking of calling this the Absolute Maestro Trident Portfolio.

When you have a chance your thoughts would be appreciated!

Best,
Maestro G

[Maestro G]

Hi Maestro G

In the first post in this thread, that paper I linked to indicates that its better to apply Markowitz on top of Talmud. As a 75-25 stock/bond blend can yield similar rewards to all-stock, but typically does so with less risk, then it makes sense to utilise that effect.

That only applies however to untimed asset holdings. Both GTAA and DM utilise timing, for example GTAA will typically be IN for 70% of the time, OUT for 30% of the time, for each of its assets. Which makes it somewhat like a 70-30 blend anyway. So IMO sticking with 33.3% weightings to each would be appropriate for your choice of assets.

Both GTAA and DM are generally low down/stop loss type approaches, but can generate stock like rewards (or potentially more), so my guess an AMTP could serve you well.

Hi Maestro G

In the first post in this thread, that paper I linked to indicates that its better to apply Markowitz on top of Talmud. As a 75-25 stock/bond blend can yield similar rewards to all-stock, but typically does so with less risk, then it makes sense to utilise that effect.

That only applies however to untimed asset holdings. Both GTAA and DM utilise timing, for example GTAA will typically be IN for 70% of the time, OUT for 30% of the time, for each of its assets. Which makes it somewhat like a 70-30 blend anyway. So IMO sticking with 33.3% weightings to each would be appropriate for your choice of assets.

Both GTAA and DM are generally low down/stop loss type approaches, but can generate stock like rewards (or potentially more), so my guess an AMTP could serve you well.

Thanks Clive!

That was my thinking as well. I had also thought about combining my current portfolio with GTAA in this allocation :

12.5% in each of: VTI, VXUS, BND, IAU, LTPZ, USCI, TUZ/and other cash holdings, and GTAA. Very much a N1/Heuristic approach, and quite diversified, a bit cheaper blended ER I believe, though of course, more complicated re-balancing (I was considering 5% bands) and maintenance. Might achieve the same results? My crystal ball is a still foggy .... It's essentially a portfolio that says a la the PP: No one knows what asset class will perform best going forward or what the future will bring!

Cheers!

Maestro G