Golden Butterfly Portfolio

A place to talk about speculative investing ideas for the optional Variable Portfolio

Moderator: Global Moderator

User avatar
l82start
Global Moderator
Global Moderator
Posts: 1296
Joined: Sun Apr 25, 2010 9:51 pm

Re: Golden Butterfly Portfolio

Post by l82start » Tue Jun 06, 2017 11:40 am

i always thought a bubble was self descriptive, a rise with nothing substantial underneath it..
-Government 2020+ - a BANANA REPUBLIC - if you can keep it

-Belief is the death of intelligence. As soon as one believes a doctrine of any sort, or assumes certitude, one stops thinking about that aspect of existence
barrett
Executive Member
Executive Member
Posts: 1637
Joined: Sat Jan 04, 2014 2:54 pm

Re: Golden Butterfly Portfolio

Post by barrett » Tue Jun 06, 2017 4:23 pm

Kbg wrote:Crazy is also associated with a bubble...curious as to what this group considers a bubble?
That's a fair question. To me a bubble is more easily quantified after the fact. Have a look at this NASDAQ price history:

http://www.macrotrends.net/1320/nasdaq-historical-chart

That is in inflation-adjusted numbers so we can see that the index broke through the 2,500 level in about March of 1998 and peaked at over 6,700 (again, in today's dollars) in February of 2000. I use the number 2,500 because that was a sort of trading range that the index settled into again when the stock market as a whole recovered in 2003.

Using this sort of thinking would put gold in a bubble from November of 1979 to September of 1980.

I'm really just thinking out loud here. Hope what I'm saying makes sense. There seems to be a price that everyone more or less agrees on after the craziness ends. Anything above that "floor" was probably bubbly.

For me gold did a great job protecting against an eroding US Dollar in the late 1970s (before its price briefly got bubbly).
User avatar
Desert
Executive Member
Executive Member
Posts: 3253
Joined: Sat Jun 26, 2010 2:39 pm

Re: Golden Butterfly Portfolio

Post by Desert » Tue Jun 06, 2017 8:36 pm

I guess bubbles are in the eye of the beholder. Gold peaked in 1980, and 37 years later the real price of gold has never recovered. I'd call that a bubble. If it wasn't a bubble, and gold's price was responding to inflation, it should have at least maintained the 1980 peak. Instead it plummeted, despite the fact that there wasn't any deflationary recovery of the dollar's value.

But it probably isn't important whether one calls it a bubble or not. I think most of us recognize that gold held in isolation has been a very poor investment. Its uncorrelated and utterly unpredictable behavior has made it a decent diversifier.
barrett
Executive Member
Executive Member
Posts: 1637
Joined: Sat Jan 04, 2014 2:54 pm

Re: Golden Butterfly Portfolio

Post by barrett » Wed Jun 07, 2017 5:19 am

I'm going to amend what I wrote two posts ago (the validity of my posts has a very short half life!) and say that gold was in a bubble from roughly September of 1978 to September of 1980. The bubble finished popping around June of 1982 when gold's price was back to its pre-bubble level. From that point on gold shows a weakly positive real return through the present.

I don't 100% agree with Desert's assertion that its behavior is "uncorrelated and utterly unpredictable." Uncorrelated, yes. But it has done well when stocks have struggled because of economic uncertainty/weak USD, etc. Under those conditions investors don't trust that stocks will keep up with inflation.

In other words, there is an actual reason that it's a good diversifier.

Grain of salt and all that.
User avatar
Desert
Executive Member
Executive Member
Posts: 3253
Joined: Sat Jun 26, 2010 2:39 pm

Re: Golden Butterfly Portfolio

Post by Desert » Wed Jun 07, 2017 8:48 pm

Here's a nice little pic showing the stages of a bubble.

Image
https://people.hofstra.edu/geotrans/eng ... ubble.html

That curve looks mighty familiar ... the "take off" was in 1972. :)
User avatar
Tyler
Executive Member
Executive Member
Posts: 2003
Joined: Sat Nov 12, 2011 3:23 pm
Contact:

Re: Golden Butterfly Portfolio

Post by Tyler » Wed Jun 07, 2017 11:53 pm

Desert wrote: That curve looks mighty familiar ... the "take off" was in 1972. :)
Or stocks starting in 1982. ;)

A bubble is just another word for "unsustainable in hindsight". It's not isolated to gold by any means, which is why diversification matters.
User avatar
sophie
Executive Member
Executive Member
Posts: 4544
Joined: Mon Apr 23, 2012 7:15 pm

Re: Golden Butterfly Portfolio

Post by sophie » Thu Jun 08, 2017 7:56 am

As long as the asset in question is the financial equivalent of Euclid's basic postulates, a pattern like this is made-to-order for a multi-asset allocation with set rebalancing bands - whether you call this a bubble or not. If people are buying this much gold, then they aren't buying other things like stocks or bonds. You get to reap the benefits when you rebalance, as long as you keep emotions out of it and go with your pre-set rebalancing bands. This kind of volatility in uncorrelated assets is exactly what you want.

I still think the alternative hypothesis that these fluctuations reflect market conditions at the time is a better explanation, but I suppose the only way to test this is to go through another 1970s style event. On the other hand, you could consider crisis periods in other countries, examining gold price in their currency - keeping mind that no two financial events will be alike, and that direct comparison is probably not possible. I recall past threads looking at Iceland and Argentina.
User avatar
Desert
Executive Member
Executive Member
Posts: 3253
Joined: Sat Jun 26, 2010 2:39 pm

Re: Golden Butterfly Portfolio

Post by Desert » Thu Jun 08, 2017 8:23 am

Tyler wrote:
Desert wrote: That curve looks mighty familiar ... the "take off" was in 1972. :)
Or stocks starting in 1982. ;)

A bubble is just another word for "unsustainable in hindsight". It's not isolated to gold by any means, which is why diversification matters.
:)
I agree!
User avatar
Tyler
Executive Member
Executive Member
Posts: 2003
Joined: Sat Nov 12, 2011 3:23 pm
Contact:

Re: Golden Butterfly Portfolio

Post by Tyler » Mon May 21, 2018 6:17 pm

Just thought I'd give a quick update on my own personal Golden Butterfly portfolio for anyone keeping track.

If you read back a ways you'll note that I have 100% of my money in the GB but (after an extended bout of analysis paralysis) chose to go with small cap blend over small cap value when first setting things up. While that has worked out very well, after updating my source data, studying it every way I can think of, and educating myself on the theory behind the value premium I finally decided to go all-in and convert my SCB allocation to SCV. I don't anticipate a huge change in performance or anything and still believe that other options are just fine, but I figured it was time to trust my data-driven instincts.

So for anyone reading along wondering if people really invest in the Golden Butterfly or if it's just some crazy idea on the internet, know that there's at least one guy happy to share his experience. :)
Last edited by Tyler on Mon May 21, 2018 9:43 pm, edited 1 time in total.
hardlawjockey
Full Member
Full Member
Posts: 59
Joined: Sat Apr 28, 2018 3:30 pm

Re: Golden Butterfly Portfolio

Post by hardlawjockey » Mon May 21, 2018 9:03 pm

Tyler wrote:
Mon May 21, 2018 6:17 pm
Just thought I'd give a quick update on my own personal Golden Butterfly portfolio for anyone keeping track.

If you read back a ways you'll note that I have 100% of my money in the GB but (after an extended bout of analysis paralysis) chose to go with small cap blend over small cap value when first setting things up. While that has worked out very well, after updating my source data, studying it every way I can think of, and educating myself on the theory behind the value premium I finally decided to go all-in and convert my SCB allocation to SCV. I don't anticipate a huge change in performance or anything and still believe that other options are just fine, but I figured it was time to trust my data-driven instincts.

So for anyone reading along wondering if people really invest in the Golden Butterfly or if just some crazy idea on the internet, know that there's at least one guy happy to share his experience. :)
Very interesting Tyler. I also adopted the GB a few years back after reading about it on your website but stuck with SCV.

Nice to know I was right. Or maybe not. Data doesn't lie but human interpretations of financial data are notoriously unreliable due to the unavoidable fact that there is no way to predict the future.

But here's to hoping that the future will feel constrained to behave in the same way it has done in the fairly recent past. At least as long as I need it to.
User avatar
Dieter
Executive Member
Executive Member
Posts: 487
Joined: Sat Sep 01, 2012 10:51 am

Re: Golden Butterfly Portfolio

Post by Dieter » Mon May 21, 2018 11:49 pm

Looking just at Vanguard funds, Small Cap Growth vs Value pretty much a wash over the last five years. Last 12 months through 4/30 has Growth way ahead: 16.1% vs 7.3.

S&P 500 12.9% last 5 years, so the tilt has hurt in short term. Ach well. SC, especially SCG, has done better than LCB YTD though :)

In my GBish IRA, I have stocks 1/3 TSM, 1/3 SCV, 1/3 ISB (VG International Explorer -- good in last 12 months - 20%; a wash last 5 years vs Small Cap.
User avatar
foglifter
Executive Member
Executive Member
Posts: 595
Joined: Tue Apr 27, 2010 5:37 pm
Location: The Golden State

Re: Golden Butterfly Portfolio

Post by foglifter » Tue May 22, 2018 1:09 am

Tyler, you're not alone! I have 2 GB-ish (or should I say GB-esque :D ) portfolios, both in retirement accounts. I've become comfortable with using GB in lieu of classic HBPP and I do understand the differences. For me GB seems to be a decent compromise between classic PP and Bogleheads-type allocation which is easier to stick with for a long term.
"Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep in reserve."
- Talmud
User avatar
mrbk2fi
Junior Member
Junior Member
Posts: 9
Joined: Tue May 22, 2018 1:05 pm

Re: Golden Butterfly Portfolio

Post by mrbk2fi » Tue May 22, 2018 1:39 pm

I have all of my 401k in a GB style portfolio, except I use the Paul Merriman index fund allocation, which is worldwide instead of just US.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 3808
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Golden Butterfly Portfolio

Post by mathjak107 » Tue May 22, 2018 2:01 pm

i much prefer the gb to the pp . it makes more sense . i used it for a short while when the elections came up . but once it looked like rates were going to climb i ditched it for my regular models . i did not want gold and long term treasuries at that stage .
User avatar
williswine
Associate Member
Associate Member
Posts: 46
Joined: Mon Sep 13, 2010 6:23 pm

Re: Golden Butterfly Portfolio

Post by williswine » Wed Jun 20, 2018 7:10 pm

Tyler wrote:
Mon May 21, 2018 6:17 pm
Just thought I'd give a quick update on my own personal Golden Butterfly portfolio for anyone keeping track.

If you read back a ways you'll note that I have 100% of my money in the GB but (after an extended bout of analysis paralysis) chose to go with small cap blend over small cap value when first setting things up. While that has worked out very well, after updating my source data, studying it every way I can think of, and educating myself on the theory behind the value premium I finally decided to go all-in and convert my SCB allocation to SCV. I don't anticipate a huge change in performance or anything and still believe that other options are just fine, but I figured it was time to trust my data-driven instincts.

So for anyone reading along wondering if people really invest in the Golden Butterfly or if it's just some crazy idea on the internet, know that there's at least one guy happy to share his experience. :)
Tyler, would you mind sharing which fund or ETF you are now using for SCV? If you are investing in a taxable account, have you considered using Vanguard Tax-Managed Small-Cap Fund Admiral Shares (VTMSX)? I recall reading at bogleheads that at least some people found it has a small cap value orientation. Of course some ETFs may be sufficiently tax-efficient there as well... thanks!
User avatar
Tyler
Executive Member
Executive Member
Posts: 2003
Joined: Sat Nov 12, 2011 3:23 pm
Contact:

Re: Golden Butterfly Portfolio

Post by Tyler » Wed Jun 20, 2018 9:05 pm

williswine wrote:
Wed Jun 20, 2018 7:10 pm
Tyler, would you mind sharing which fund or ETF you are now using for SCV? If you are investing in a taxable account, have you considered using Vanguard Tax-Managed Small-Cap Fund Admiral Shares (VTMSX)? I recall reading at bogleheads that at least some people found it has a small cap value orientation. Of course some ETFs may be sufficiently tax-efficient there as well... thanks!
I personally use VBR, but there are several good SCV ETFs out there. I'm not familiar with VTMSX so don't have much to offer on that front.
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2281
Joined: Fri May 21, 2010 4:16 pm

Re: Golden Butterfly Portfolio

Post by buddtholomew » Thu Jun 21, 2018 5:42 am

Personally I use IJS as my core holding and have been happy aside from the low trading volume. Prices can stay fixed for 10-15 minutes until they adjust if there is a large move in either direction.

Supposedly it is more small and value oriented than most, which differs from others I’ve seen that include a healthy dose of mid-caps as well.
User avatar
williswine
Associate Member
Associate Member
Posts: 46
Joined: Mon Sep 13, 2010 6:23 pm

Re: Golden Butterfly Portfolio

Post by williswine » Thu Jun 21, 2018 3:43 pm

Indeed, the choices are many. VBR's E/R is appealing. IJS may have low trading volume but other offerings had even lower ones last time I checked: PXSV is one example, despite being considered by some bogleheads as having an ideal profile, perhaps better than even DFA US Small Cap Value. Of course, the difference in E/R (PXSV is at 0.39%) compared to VBR (0.07%) may take away any advantage PXSV may have over VBR in terms of "small-ness" and "value-ness"...
User avatar
Desert
Executive Member
Executive Member
Posts: 3253
Joined: Sat Jun 26, 2010 2:39 pm

Re: Golden Butterfly Portfolio

Post by Desert » Sat Jul 21, 2018 3:59 pm

Here's yet another variation of the GB I was looking at today: retain the 20% in each of gold, STT and LTT, but go all value in the equity, including a slice of international. The rationale is to completely get away from the large growth dominated indices, go all in on value across the size range, and to globally diversify. To do so, split the 40% equity equally among:
Small Cap Value
Mid Cap Value
Large Cap Value
International Value

Past returns and withdrawal rates (from the BH spreadsheet), appear to be essentially identical to the standard GB. The pros include the addition of some international diversification to protect a bit against the Japan scenario, and also the complete departure from large growth dominated indices. Cons include more funds, and the risk of a full bet on the combination of value and foreign keeping up with TSM/SCV.

This variation may not be a significant enough change to be interesting to most, but I'm continuing to search for a portfolio that includes some international diversification without sacrificing returns. I won't be surprised if the U.S. outperforms in the future, but I'm increasingly uncomfortable making a full bet on that. I also believe that there are investor behavioral reasons that could cause the value premium to persist.
User avatar
sophie
Executive Member
Executive Member
Posts: 4544
Joined: Mon Apr 23, 2012 7:15 pm

Re: Golden Butterfly Portfolio

Post by sophie » Sun Jul 22, 2018 9:42 am

What's wrong with large growth? That's basically the S&P 500, isn't it?

I actually think that the US stock market includes international diversification. Most of the big corporations operate internationally to a large extent. Plus, gold is a form of international diversification. Assuming you hold the stuff, or enough of it, as in around 20% not 5%.

I only bother with international stocks in my 403b portfolio, where I can't hold gold.
User avatar
Desert
Executive Member
Executive Member
Posts: 3253
Joined: Sat Jun 26, 2010 2:39 pm

Re: Golden Butterfly Portfolio

Post by Desert » Mon Jul 23, 2018 8:42 am

Sophie, I don't think there's anything particularly wrong with Growth stocks, but value stocks have generally performed better in the past, probably for a variety of reasons. Some folks are also not real happy with the fundamental structure of large cap weighted indices like TSM or S&P500, since they tend to be dominated by a few large growth companies, inherently leading investors to "buy high" as those stocks occupy an increasing percentage of the index. I haven't totally bought into that theory, but I can see a bit of the point. The outperformance of the S&P 500 equal weighted index is often used to support this idea.

Anyway, I think my last post included backtesting that is probably getting too detailed/granular anyway. But I do think a foreign allocation could make sense, even though U.S. companies do a lot of business overseas. I think of Japan (and no, I don't think w'ere in a 1990 Japan-style bubble), with all their business overseas, and their status as the second largest economy in the world, and yet their stock market went into a multi-decade decline. So while I don't think it'll play out that way in the U.S., I wouldn't mind diversifying a bit just in case. Also, foreign stocks have underperformed domestic stocks pretty heavily in recent years. Foreign stocks and gold look the most interesting to me right now, since everyone hates them again. :)
Kbg
Executive Member
Executive Member
Posts: 2034
Joined: Fri May 23, 2014 4:18 pm

Re: Golden Butterfly Portfolio

Post by Kbg » Mon Jul 23, 2018 9:29 am

Desert wrote:
Mon Jul 23, 2018 8:42 am
Sophie, I don't think there's anything particularly wrong with Growth stocks, but value stocks have generally performed better in the past, probably for a variety of reasons. Some folks are also not real happy with the fundamental structure of large cap weighted indices like TSM or S&P500, since they tend to be dominated by a few large growth companies, inherently leading investors to "buy high" as those stocks occupy an increasing percentage of the index. I haven't totally bought into that theory, but I can see a bit of the point. The outperformance of the S&P 500 equal weighted index is often used to support this idea.

Anyway, I think my last post included backtesting that is probably getting too detailed/granular anyway. But I do think a foreign allocation could make sense, even though U.S. companies do a lot of business overseas. I think of Japan (and no, I don't think w'ere in a 1990 Japan-style bubble), with all their business overseas, and their status as the second largest economy in the world, and yet their stock market went into a multi-decade decline. So while I don't think it'll play out that way in the U.S., I wouldn't mind diversifying a bit just in case. Also, foreign stocks have underperformed domestic stocks pretty heavily in recent years. Foreign stocks and gold look the most interesting to me right now, since everyone hates them again. :)
I'm going to be a bit persnickety here...cuz it matters. What we can say is value and growth have periods where one outperforms the other and which is which is a function of the start and end dates (see the gold thread where I picked various dates of stocks vs. stocks...you can find exactly the same thing here.)
User avatar
Desert
Executive Member
Executive Member
Posts: 3253
Joined: Sat Jun 26, 2010 2:39 pm

Re: Golden Butterfly Portfolio

Post by Desert » Mon Jul 23, 2018 9:55 am

It's true that value and growth have their own long stretches of outperformance/underperformance. It's also true that over long periods, value has outperformed growth. See Fama/French, Swedroe, etc. Value and size are two of the well-known "factors" in that school of thought.

edited to add: Right after this post, I saw this article on bogleheads, regarding this topic.
http://www.etf.com/sections/index-inves ... mium-lives
hardlawjockey
Full Member
Full Member
Posts: 59
Joined: Sat Apr 28, 2018 3:30 pm

Re: Golden Butterfly Portfolio

Post by hardlawjockey » Fri Jul 27, 2018 3:22 pm

When I transitioned into the GB a couple of years ago I set things up so that all of the SCV is in my Roth IRA's.
Don
Executive Member
Executive Member
Posts: 201
Joined: Fri Apr 21, 2017 6:21 pm

Re: Golden Butterfly Portfolio

Post by Don » Thu Oct 04, 2018 9:06 pm

So how is the GB doing so far this year?
Post Reply