Just for Fun - The Golden Middle

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Kbg
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Just for Fun - The Golden Middle

Post by Kbg » Sat Jul 25, 2020 10:27 pm

I've never really liked the Golden Butterfly because I'm a big non-believer in SCV. However, I do like the 40/20/20/20 allocation.

So without further adieu, I announce the Golden Middle...40 MCB and the rest you already know. It tops the charts if one puts it into the portfolio matrix.
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Re: Just for Fun - The Golden Middle

Post by Hal » Sat Jul 25, 2020 10:58 pm

Great name Kbg!
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Re: Just for Fun - The Golden Middle

Post by europeanwizard » Sun Jul 26, 2020 1:00 am

SCV = Small Cap Value?
MCB = ?
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Re: Just for Fun - The Golden Middle

Post by Mark Leavy » Sun Jul 26, 2020 6:09 am

europeanwizard wrote:
Sun Jul 26, 2020 1:00 am
SCV = Small Cap Value?
MCB = ?
Mid cap blend
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Re: Just for Fun - The Golden Middle

Post by Kevin K. » Sun Jul 26, 2020 9:44 am

Had to choose either Mid Cap Growth (which I did) or Mid Cap Value on Portfolio Visualizer since they don't offer MCB. Interesting results (constrained to 1978 onwards due to Long Term Treasury availability):

https://www.portfoliovisualizer.com/bac ... tion7_3=20

Bill Bernstein, in the interview I posted the link to the other day, addresses the recurrent question about whether small cap and small cap value alpha persist over time by saying (paraphrasing) "maybe" over long periods (multiple decades) but tilting or not should factor in your age (less or no tilt if older) and just how much you believe in such tilts (enough to put up with decades of underperformance without jumping ships?).

Tyler may chime in here but I don't see how the half SCV half TSM allocation in the GB has to be set in stone. It's a nice symmetry but going all TSM just gives you an optimist's PP and isn't that what GB is at heart anyway? Shaving 5% off each of the other assets and tilting the portfolio towards the most likely of HB's 4 scenarios is exactly what Bernstein would've recommended (his beef with the PP being that it allocates exactly equal amounts of the portfolio to addressing economic conditions that aren't equally likely to occur and aren't equally easy to defend against).

5 companies (Apple, Amazon, Alphabet, Microsoft and Facebook) are responsible for ALL of the S & P's positive performance since 2017 and their dominance has been launched into hyperspace with the pandemic, while entire categories of small business teeter on the verge of extinction. So I can see going with no SCV, or keeping the original GB allocation out of faith that things will eventually revert, or even going with all Total World Stock if you're truly a believer in avoiding home country bias. And hey, then you'd have yet another nifty new name possibility: The Global Butterfly. :D
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Re: Just for Fun - The Golden Middle

Post by Tyler » Sun Jul 26, 2020 10:21 am

Kevin K. wrote:
Sun Jul 26, 2020 9:44 am
5 companies (Apple, Amazon, Alphabet, Microsoft and Facebook) are responsible for ALL of the S & P's positive performance since 2017 and their dominance has been launched into hyperspace with the pandemic, while entire categories of small business teeter on the verge of extinction.
The way the biggest tech stocks dominate TSM these days is exactly why I think more stock diversification is important. I like SCV for the size, valuation, and industry diversification away from large growth tech companies. But you're absolutely correct that there are other good ways to address that, too. And yes, MCB is an underrated choice!

(I also think it's important to note that publicly traded small cap companies are not your typical neighborhood small business crushed by the pandemic. For example, the top company in VBR is currently Atmos Energy with revenues of almost $4 billion.)
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Re: Just for Fun - The Golden Middle

Post by Kriegsspiel » Sun Jul 26, 2020 10:48 am

Hal wrote:
Sat Jul 25, 2020 10:58 pm
Great name Kbg!
I like this.
You there, Ephialtes. May you live forever.
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Re: Just for Fun - The Golden Middle

Post by pp4me » Sun Jul 26, 2020 11:48 am

I started using the Golden Butterfly last year and I have to say I haven't been liking SCV lately either. Down about 15% from the start of the year, last I checked. It's especially disappointing because I keep it mostly in Roth where I would prefer to see more growth over time as opposed to my tax-deferred IRA. Instead I'm getting the opposite result lately.

Then again, I think somebody once said that if there isn't one asset class you don't like at any particular time there is something wrong with your portfolio so I guess I should be thankful for SCV.
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Re: Just for Fun - The Golden Middle

Post by Kbg » Mon Jul 27, 2020 8:25 am

pp4me wrote:
Sun Jul 26, 2020 11:48 am
Then again, I think somebody once said that if there isn't one asset class you don't like at any particular time there is something wrong with your portfolio so I guess I should be thankful for SCV.
This isn't really the point or none of us would invest in the PP where there's always something to hate. My main objection is that pretty much since the day it was discovered/invented it has not performed according to it's prior historicals. SCV isn't the only thing this has happened to so I'm not picking on it as an asset class. Discovery often facilitates elimination of the "edge." I think that's the case here. However, historically small cap tends to due quite well when large cap tech is not doing well. I'm not anti SC, just anti-SCV, Also, stay away from the Russell SC indexes. The GB with SC vs. SCV, I'm on board with that. My personal recommendation would be QQQ with IJR for the 20/20 stock component. Owning tech is like owning the railroads in the late 1800s...its the dominant mover of the stock market now days. One day something else will come along, but for now just as well be where the mojo is.
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Re: Just for Fun - The Golden Middle

Post by Kevin K. » Mon Jul 27, 2020 9:31 am

I can see why you'd prefer using QQQ instead of TSM but it sure seems to me like TSM is already plenty lopsided in tech dominance.

Tyler went into considerable detail in the long GB thread here about his process of ultimately choosing SCV over SCB and as I recall it wasn't a big difference but ultimately the way the holdings in a SCV ETF like VBR diversify TSM's holdings won the day.

I'm not seeing SC out-perform SCV. Just for fun, I also looked at just increasing TSM in the GB to 25% instead of 20% since that happens to be the way things have drifted for me this year thanks to the outperformance of TSM and it still beats a SC/TSM allocation (obviously no way to backtest QQQ since that kind of sector bet is so new).

The arguments about whether SC and/or SCV premiums have disappeared since being identified will doubtless go on forever but from what I can tell recency bias rather than data is at the root of a lot of the dismissal of these things as well as investing in international. Not that I haven't been guilty of that myself; it's hard not to throw in the towel when something massively under-performs for a decade or two, and to justify doing so by saying it's a lasting shift in the market rather than a potential repeat of cyclical trends. Easy to forget how many years international and value outperformed (and how lofty valuations for tech stocks and TSM in general combined with money printing and debt might well have set the stage for another bull run in value and Int'l.)

https://www.portfoliovisualizer.com/bac ... tion6_3=20
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Re: Just for Fun - The Golden Middle

Post by Lonestar » Mon Jul 27, 2020 11:24 am

Kevin K. wrote:
Sun Jul 26, 2020 9:44 am
Had to choose either Mid Cap Growth (which I did) or Mid Cap Value on Portfolio Visualizer since they don't offer MCB. Interesting results (constrained to 1978 onwards due to Long Term Treasury availability):

https://www.portfoliovisualizer.com/bac ... tion7_3=20

I changed the Portfolio Visualizer to "No Re-balancing" and it made a big difference in returns. Normally I don't see this much difference in entering different portfolio variations.
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Re: Just for Fun - The Golden Middle

Post by Kevin K. » Mon Jul 27, 2020 12:16 pm

I changed the Portfolio Visualizer to "No Re-balancing" and it made a big difference in returns. Normally I don't see this much difference in entering different portfolio variations.
Interesting. I'm no expert but it seems like the results of that backtest without rebalancing speak to just how broadly-diversified the "barbell" of TSM with SCV in the original GB are.
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Re: Just for Fun - The Golden Middle

Post by Kbg » Mon Jul 27, 2020 9:31 pm

Not sure where you say PV doesn’t have mid-cap, they do and it beats the GB in return but not sharpe...statistically, pretty much a draw. To gauge performance one should find out when SCV funds started and start your backtest then.

A good backtesting technique for actually trading something is to find out when the method was commercialized and start there. Prior to that is interesting as to good possibilities but closer to reality is what happens when the factor/whatever began to be exploited.
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Re: Just for Fun - The Golden Middle

Post by Kevin K. » Tue Jul 28, 2020 9:18 am

Kbg wrote:
Mon Jul 27, 2020 9:31 pm
Not sure where you say PV doesn’t have mid-cap, they do and it beats the GB in return but not sharpe...statistically, pretty much a draw. To gauge performance one should find out when SCV funds started and start your backtest then.

A good backtesting technique for actually trading something is to find out when the method was commercialized and start there. Prior to that is interesting as to good possibilities but closer to reality is what happens when the factor/whatever began to be exploited.
I said Portfolio Visualizer doesn't have Mid Cap Blend and it doesn't (only MC value or growth).

Yeah I know the well-worn argument that the small and value premiums only apply through the rear-view mirror as the market jumped on them after Fama and French revealed their existence, but the claim that one can only do viable backtesting once a given asset class is something that ordinary investors can invest in, if taken seriously, would mean that most of the asset class data we have is useless given how few years it has been possible to invest in them. I mean 30 year Treasuries have only been around since 1978 so forget them, gold was illegal to own until the mid-70's, sector mutual funds like SC, SCV and mid-caps are often less than a decade old, on and on.

It seems to me that one of the many aspects of Harry Browne's genius was that while the initial idea for the PP doubtless had plenty of backtesting behind it with the best tools available at the time, it's fundamentally based on having assets that respond to particular economic conditions rather than being based purely on backtesting as is the case with so many Bogleheads and MPT allocations. So then the things worth discussing are the kinds of issues William Bernstein and Tyler have brought up: e.g. that gold isn't actually an inflation hedge but more non-correlated STF insurance, that all economic stressors aren't equally likely to occur or equal in cost to insure against (Bernstein) - meaning that allocating equal amounts of the portfolio to them is inadvisable (basically an endorsement of tilting towards the most likely scenario, prosperity, as the GB does).

And yeah, having upped the equities to 40% from 25% which ones to use becomes a lot more important. If you believe the small and value premiums tend to persist over long periods of time then the GB's TSM/SCV barbell or a more extreme QQQ/IJR one makes sense if you truly have conviction in it, but I can also see why someone might just increase the TSM from 25% to 40% and leave everything else alone. Speaking just for myself I was attracted to the PP to begin with because of being fundamentally conservative and risk-averse, after seeing my complex, slice-and-dice, thoroughly backtested "conservative" internationally-diversified, small and value tilted MPT-style 40/60 (bonds/stock) portfolio that *couldn't* lose more than 8% incur 23% losses during the 2008 market crash. Simplicity and the symmetry of equal weighting are appealing to me. Many roads to Rome and all that.
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Re: Just for Fun - The Golden Middle

Post by Kevin K. » Tue Jul 28, 2020 1:13 pm

Interesting article on how wider dissemination of once-arcane info may have substantially contributed to the decline in value premia. The full report mentioned is behind a paywall.

https://www.marketwatch.com/story/value ... =home-page
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Re: Just for Fun - The Golden Middle

Post by pp4me » Tue Jul 28, 2020 1:56 pm

Kevin K. wrote:
Tue Jul 28, 2020 1:13 pm
Interesting article on how wider dissemination of once-arcane info may have substantially contributed to the decline in value premia. The full report mentioned is behind a paywall.

https://www.marketwatch.com/story/value ... =home-page
So should I abandon the GB and go back to the pure PP or ignore the predictions of poor future performance for SCV the same as I do Bonds and Gold?
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Re: Just for Fun - The Golden Middle

Post by Hal » Tue Jul 28, 2020 2:10 pm

pp4me wrote:
Tue Jul 28, 2020 1:56 pm
Kevin K. wrote:
Tue Jul 28, 2020 1:13 pm
Interesting article on how wider dissemination of once-arcane info may have substantially contributed to the decline in value premia. The full report mentioned is behind a paywall.

https://www.marketwatch.com/story/value ... =home-page
So should I abandon the GB and go back to the pure PP or ignore the predictions of poor future performance for SCV the same as I do Bonds and Gold?
How about running a pure PP and consider the SCV as a variable portfolio.
Then pull out your trusty Benjamin Graham texts, study the "Enterprising Investor" sections and run the VP accordingly?
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Re: Just for Fun - The Golden Middle

Post by Kbg » Tue Jul 28, 2020 6:47 pm

Kevin K. wrote:
Tue Jul 28, 2020 9:18 am
Kbg wrote:
Mon Jul 27, 2020 9:31 pm
Not sure where you say PV doesn’t have mid-cap, they do and it beats the GB in return but not sharpe...statistically, pretty much a draw. To gauge performance one should find out when SCV funds started and start your backtest then.

A good backtesting technique for actually trading something is to find out when the method was commercialized and start there. Prior to that is interesting as to good possibilities but closer to reality is what happens when the factor/whatever began to be exploited.
I said Portfolio Visualizer doesn't have Mid Cap Blend and it doesn't (only MC value or growth).
"Select Asset" then select "US Mid Cap" = mid cap blend
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Re: Just for Fun - The Golden Middle

Post by Kevin K. » Wed Jul 29, 2020 9:43 pm

Thanks Kbg! I don’t know how I missed that. I apologize.
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Re: Just for Fun - The Golden Middle

Post by Kbg » Wed Jul 29, 2020 10:40 pm

No worries!

Unfortunately I did not achieve my goal of making Tyler’s list. :'( ;)

Speaking of commercialization...for the oldest small cap etf funds from Ishares...IWM beats both growth and value ETFs for the Russell 2K, while IJT SP600 value beats growth and blend options.
Last edited by Kbg on Wed Jul 29, 2020 10:55 pm, edited 1 time in total.
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Re: Just for Fun - The Golden Middle

Post by Tyler » Wed Jul 29, 2020 10:44 pm

Kbg wrote:
Wed Jul 29, 2020 10:40 pm
Unfortunately I did not achieve my goal of making Tyler’s list. :'( ;)
It's an exclusive list! O0 But you don't have to be on a list to have good ideas.
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Re: Just for Fun - The Golden Middle

Post by Kbg » Wed Jul 29, 2020 10:58 pm

Tyler wrote:
Wed Jul 29, 2020 10:44 pm
Kbg wrote:
Wed Jul 29, 2020 10:40 pm
Unfortunately I did not achieve my goal of making Tyler’s list. :'( ;)
It's an exclusive list! O0 But you don't have to be on a list to have good ideas.

But Tyler I go to the top of YOUR algorithm...come ON, do I have to write a book? >:D
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Re: Just for Fun - The Golden Middle

Post by pp4me » Fri Jul 31, 2020 9:55 am

Hal wrote:
Tue Jul 28, 2020 2:10 pm
pp4me wrote:
Tue Jul 28, 2020 1:56 pm
Kevin K. wrote:
Tue Jul 28, 2020 1:13 pm
Interesting article on how wider dissemination of once-arcane info may have substantially contributed to the decline in value premia. The full report mentioned is behind a paywall.

https://www.marketwatch.com/story/value ... =home-page
So should I abandon the GB and go back to the pure PP or ignore the predictions of poor future performance for SCV the same as I do Bonds and Gold?
How about running a pure PP and consider the SCV as a variable portfolio.
That idea came up when I was thinking about switching to the GB. Unfortunately, the SCV doesn't qualify as a VP because I don't consider it money I can afford to lose.
Then pull out your trusty Benjamin Graham texts, study the "Enterprising Investor" sections and run the VP accordingly?
Not familiar with this but maybe I will take a look. I do finally have a little money to play around with in my Roth IRA's and since I'm bored to death right now it might be a good time to start a real VP.

BTW I just bought some more SCV this morning. My comment about whether or not I should ignore the predictions of poor future performance the same as I do Gold and Bonds was tongue-in-cheek.
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Re: Just for Fun - The Golden Middle

Post by Mark Leavy » Fri Jul 31, 2020 5:31 pm

Kbg, do you know of a 3x fund for the S&P 600? There seem to be some for the Russell 2000, but I'm not interested in that.
It looks like I could do it myself with e-mini futures, but that is a lot of downside risk. I'd rather use an ETF.

Just noodling for now. No implementation plans.

Thanks,
Mark
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Re: Just for Fun - The Golden Middle

Post by Kbg » Sat Aug 01, 2020 9:48 am

Not that I’m aware of. I wish there was one. SAA which is a 2x is the only one I’m aware of. I’m OK 1.5 multiplying a 2x if the allocation isn’t too large. I switched to DGP from UGLD. I’ve also been using the MGC and MNQ micro futures as an experiment in one account. It’s kind of a hassle though computing margin cash.
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