Beware of MJ's stats. They are cherry picked. Let's take a more realistic/broader view of GLD vs. TLT during the crisis.mathjak107 wrote: except treasury's reaction to the event in 2008 blew golds out of the water . as i said , another asset always did better . TLT UP 34% , GLD 5%
Golds run up for whatever reason started way before in 2005. It then petered out , just the opposite in 2008. Then it resumed again in 2009 . No one really knows why , there are loads of guesses but it could have just been the bigger fool theory at work and based on nothing else.
without high inflation being present golds reaction to any news or events will be tepid if at all . unless high inflation is in the works gold will not respond to much in an effective manner . there likely will always be something else that did a better job .
which is why bernstein said the flaw with the pp is it has equal money in assets that have anything but an equal chance of playing out .
I picked the week of 10/12/07 as the "start of the crisis." Why? That also was the week equities peaked. One could have gone a bit earlier and I wouldn't argue with that point (and OBTW gold would have done even better than TLT relative to its peak value).
The opening prices that week were:
GLD: 72.66
TLT: 87.77
GLD's max high (100.44) occurred the week of 3/20/08 with an open to peak return of 38.23%
TLT's max high (123.15) occurred the week of 12/19/08 with an open to peak return of 40.31%
If we look to the point when the crisis had subsided let's go with the week of 3/6/09...the absolute bottom in equities. We find from 10/12/07 - 3/6/09:
GLD: 27.02% (close 92.29)
TLT: 18.79% (close 104.26)
And as MJ did correctly note, GLD pretty much trashed TLT into the 2011 hiccup. And, we all know how well GLD has done since 2011 (-42%) while TLT is up low single digits.
So what can we actually understand/conclude, based on real prices at non-cherry picked times?
1. Gold and LTTs pretty much returned the same thing during the crisis at their peaks.
2. From crisis beginning to end GLD bested TLT by "only" 43.8% in returns.
3. What has really driven the relative performance of TLT vs. GLD over this time period and since? Inflation expectations. Initially the market believed inflation would be the longer term byproduct of QE, but that has since changed. Prediction: This relative performance of TLT & GLD will continue to be based on inflation expectations. The moment the market flips its opinion you can be assured that GLD will be outperforming TLT. If/when that happens, I make zero predictions as to timing.
4. Starting and ending dates matter when reviewing market history... You see this constantly in the financial press (cherry picking of points in time to support an argument).
The whole thing about HB and PP is the assumption you can't or don't want to try to predict the future. If this applies for you, the PP makes sense. If it doesn't, PP does not. It is that simple. Financial academics have proven (repeatedly) that equally balanced portfolios perform better over time than more complex weighting schemes due to the instability of the values that go into more complex portfolio weighting formulas. Said differently, these variables aren't predictive. It has also been posted (and was written about by HB), that if you have a bias then indulge it by reallocating 5-10% points toward your bias. Just don't go hog wild. The cost is higher volatility, the reward is higher returns if you get it right.
Full Disclosure: I am not positive if my calcs are dividend adjusted...so here are the Morningstar Returns
ETF 2007 2008 2009 2010 2011 Total Rtn
GLD (Price) 30.56 4.96 23.99 29.27 9.57 98.35
TLT (Price) 10.23 33.92 -21.80 9.05 33.96 65.38
Note added after original post: Equally weighted in this context means fixed percentage of a portfolio vice percentage is adjusted (annually, quarterly, monthly etc.) due to whatever formula is being used for weighting.