Absolutely brutal - 5/5

[Kbg]

Bitcoin is just too young and Harry was wise. Even though he would probably have been fascinated by it, I can’t imagine that he would have recommended crypto to investors depending on his sage advice, let alone telling people to put in in a portfolio of “money you can’t afford to lose.”

Bitcoin supporters (esp those in places like Canada) would say that Bitcoin can be for "money you can't afford to lose" when the government decides to start freezing or seizing financial assets without any due process because you have the wrong views on certain topics.

As opposed to the safety provided by private vendors who lose just a couple hundred mil here and there to the occasional hack.

Well like gold, if you dont hold it in a private vault then you probably dont own it.

Conspiracy theory: does the existence of paper gold suppress the price of gold? It seems plausible to me. I'm sure there is some degree of fractional reserve going on somewhere in the world, and that reduces the demand for the real thing.

There is a belief amongst some that the US Government helped to create the gold futures market to suppress prices. This is largely fueled by some documents pointing to the government doing research about the impact of physical gold if a paper gold market were established. For example, https://wikileaks.org/plusd/cables/1974 ... 154_b.html

Wow, that's some serious extension into make believe land. The actual cable however, makes complete sense.

Of note, we hire and pay diplomats who have economic backgrounds to collect information in foreign countries about economic things. They are known as FCS (Foreign Commercial Service) Officers.

I'm going to guess the US going off the gold standard involved lots of trying to figure out what was going to happen and what the implications of it might be back in the day. Doing so was a huge policy shift. Just so you know, your government probably has 10s of thousands of people doing exactly this thing every day on a host of topics...but sure it goes without saying "the man" is keeping the price of gold down from what it truly ought to be.

Now this is cool because all those gold dealers and future traders across the globe are definitely not creating a free market that is establishing price by the nanosecond. Hmmm...I don't like the price of gold today. My stock portfolio is down quite a bit. I think the price right now should be 10K per ounce. If you will send me 10K per oz in USD I'll execute delivery on my gold futures (which I actually have) and send you the physical gold in August. Heck, let's drop it to 8K because you have to wait.

Now for a reality check...futures markets get created (and fail) because people want to lock prices, take or give delivery at a later date, speculate and have enhanced liquidity. Market makers create them to pocket the spread of every transaction. If there's not enough interest or not enough money to be made by the MMs the futures market for the physical goes away.

Counterfactual thought experiment...once the US let gold float, can you imagine there NOT being a gold futures market with a commodity of gold's scale? I can't.

[joypog]

IMHO, the HBPP isn't really as "permanent" as the name suggest... but at the same time people here would benefit from having a "system" that gives them the illusion of control in their life.

I think the illusion of control is a big appeal to these risk parity portfolios. On my end I've never been comfortable with a basic a stocks/bond allocation given my perma-bear inclinations.

The HBPP certainly gave me a sense of control with extra tools that might be able to respond to weirdness in the market. The good thing of about this board is that there is a variety of users to help new converts slow their roll and really think about how to actualize this new info their portfolios.

Even though I'm unconvinced about LTT's and Gold (and even less so for commodities) I still plan to allocate some money towards these classes due to a pathological need for diversification and to maintain that sense of control.

And If throwing some of my cash towards those questionable goods makes me feel comfortable to throw extra $$$ towards stocks, I think it will ultimately be a net winner....with a long time horizon, a 50% stock portfolio should ultimately be a long term winner over a 25% stock portfolio, even if it includes some lumps of yellow metal.

Brains are weird.

[I Shrugged]

I don’t think the PP appeals to the OCD as much as does the slicing and dicing approach. You know, is a bond barbell 0.1% better than just intermediate bonds, should I add 5% SCV, etc etc. I was (am) a control freak and I find the PP refreshingly does not feed that impulse.

[ahhrunforthehills]

I don’t think the PP appeals to the OCD as much as does the slicing and dicing approach. You know, is a bond barbell 0.1% better than just intermediate bonds, should I add 5% SCV, etc etc. I was (am) a control freak and I find the PP refreshingly does not feed that impulse.

I think I probably did a bad job of articulating what I meant.

I think having a "system" allows people with OCD (who have come to realize they cannot predict the market) find comfort. Simply set it on "autopilot" and go be OCD about something else (whether that be a VP or something non investment related). For those that cannot fully trust the "autopilot" with blinders on, I think the HBPP "system" could probably use some tweaks, otherwise it will be abandoned completely in specific environments.

[Desert]

Pretty interesting series of posts in this thread today. ahhrunforthehills, I find your writing style to be pretty entertaining (in a good way, not a bad way).

I think a wiki could make sense, though we're a pretty headstrong group here, so it might be tough to arrive at a consensus on many topics.

My overall conclusion is quite similar to joypog's. I think a 40-50% equity portfolio is a good choice for many investors. Throw in some bonds of intermediate duration, and a slice of gold, and it'll all probably perform a lot like a 40/60 Boglehead portfolio.

I have tired of backtesting, however. And I backtested the crap out of everything for years. I think backtesting is a useful phase to pass through, but eventually it needs to be set aside. The world has changed (and will continue to change) too much to think that assets are going to perform as they did in the past. I do still hold onto a few core "beliefs" regarding portfolio construction:

1. Most investors should have 40+ percent in equities for most of their lives. Businesses are in business to make earnings, and while markets will careen all over the place, over time the value of equities should converge on the value of discounted future earnings.

2. I like value investing. I particularly like value investing with a quality screen, which is essentially what the Wellesley managers do. I think value will likely continue to over perform over the long term simply because the herd likes to chase overvalued shiny growth stocks, and they tend to pay too much for them and suffer the mean reversion.

3. Fixed income can take many forms, depending on the best investments available in a given period. If an OCD investor wants to tinker, this might be the place to do it. Sometimes intermediate treasuries are about as good as anything. Wellesley/Wellington advisors do a pretty nice job with corporate bonds. CD's can be more attractive than treasuries at times. I Bonds are awesome at times. There isn't anything magical about the cash/LTT split. Pick your favorite fixed income investments that average out to an intermediate duration. They've performed similarly in the past, and the yield curve favors them today.

4. Buy some gold if you must. We're all here (probably) because we have at least a small inner gold bug. So own some gold, and keep your expectations low. If you own 25 percent gold and you expect it to save a portfolio like it did in the 70's and 2000's, I'd suggest studying those two periods in detail and figuring out the two major things that changed the gold market in those decades. Maybe there will be some new driver in the future, maybe there won't. Meanwhile, there is no way to calculate a "correct" value for gold. It's been a store of value for thousands of years and probably will remain so. But it's never going to produce any earnings.

Portfolio optimization is super fun. But at some point it's a bit of a relief to realize that investment portfolios fluctuate. They lose money, sometimes for years. All of them. It's part of our duty as investors to man (or woman) up during those times and not be a little bitch about it.

[Hal]

FWIW....

If I had my time again, I would go with a 50/50 Global Bond(Hedged)/Global Share portfolio with Gold added to minimise the volatility.
Ben Graham got through the Great Depression and recommended the 50/50 allocation. Only difference being for most of his life they were on a Gold Standard

Is there anything wrong with the PP... well not really.... It was a good starting point for when I knew absolutely nothing about investing.
But it is primarily designed for a US investor. The two fund PP works fine for me. Are there better approaches - sure. But on a cost/benefit basis this is acceptable

Anyway, the 6 minute to 8 minute mark is worth listening to.
https://wealthion.com/the-secret-to-sur ... -bank-cio/

[vnatale]

In fairness, I do not post here often anymore and have only read a fraction of mathjak's posts. Maybe I am wrong and he kicks puppies and purposely farts in the produce section,

I can testify regarding the following I have learned about him from reading just about all he has written here:

1) He is a drummer of renown, having played with several musical groups that we would be familiar with.

2) He is an exceptional photographer. Do a search in this forum to see examples of this work.

3) He was not an exceptionally high earner during his working career but invested with risk in equities and has done quite well.

4) Is a student of Michael Kitces, who is on my Mt. Rushmore of people in personal finance. Maybe the George Washington.

5) Again took risk and invested in real estate and did extremely well.

He is an American example of applying oneself through hard work, taking risks, and coming out on top! Ignore him at your own personal loss of learning things you already did not know!

[vnatale]

2. I like value investing. I particularly like value investing with a quality screen, which is essentially what the Wellesley managers do. I think value will likely continue to over perform over the long term simply because the herd likes to chase overvalued shiny growth stocks, and they tend to pay too much for them and suffer the mean reversion.

Along those lines what grades would you give to Vanguard's two index offerings in this area?

Value Fund and Small Cap Value Fund. I've been in both since January 2003.

[joypog]

Along those lines what grades would you give to Vanguard's two index offerings in this area?

Value Fund and Small Cap Value Fund. I've been in both since January 2003.

I haven't studied the matter too seriously, but I will say that the folks at Rational Reminder forum (heavy on factor investing) prefer the Avantis or Dimensional ETFs.

If you don't want active managed funds, then they would at least recommend that you go with Vanguard's S&P 600 small cap value ETF instead of their main small cap fund. I think the companies in that S&P index are smaller and more valuey.

[mathjak107]

In fairness, I do not post here often anymore and have only read a fraction of mathjak's posts. Maybe I am wrong and he kicks puppies and purposely farts in the produce section,

I can testify regarding the following I have learned about him from reading just about all he has written here:

1) He is a drummer of renown, having played with several musical groups that we would be familiar with.

2) He is an exceptional photographer. Do a search in this forum to see examples of this work.

3) He was not an exceptionally high earner during his working career but invested with risk in equities and has done quite well.

4) Is a student of Michael Kitces, who is on my Mt. Rushmore of people in personal finance. Maybe the George Washington.

5) Again took risk and invested in real estate and did extremely well.

He is an American example of applying oneself through hard work, taking risks, and coming out on top! Ignore him at your own personal loss of learning things you already did not know!

Thanks Vinny …I should hire you as my publicist

[dockinGA]

In fairness, I do not post here often anymore and have only read a fraction of mathjak's posts. Maybe I am wrong and he kicks puppies and purposely farts in the produce section,

I can testify regarding the following I have learned about him from reading just about all he has written here:

1) He is a drummer of renown, having played with several musical groups that we would be familiar with.

2) He is an exceptional photographer. Do a search in this forum to see examples of this work.

3) He was not an exceptionally high earner during his working career but invested with risk in equities and has done quite well.

4) Is a student of Michael Kitces, who is on my Mt. Rushmore of people in personal finance. Maybe the George Washington.

5) Again took risk and invested in real estate and did extremely well.

He is an American example of applying oneself through hard work, taking risks, and coming out on top! Ignore him at your own personal loss of learning things you already did not know!

Perhaps Mathjak should focus on posting on drumming and photography forums. If all the investment expertise he brings to this forum is that he invested in stocks over the last 40 years or so and did well, and invested in real estate for the last however many years and did well, then I'm not sure he's bringing anything of value to this particular forum. There are literally millions of baby boomers who can say the exact same things.

[Jack Jones]

It’s not about value to us. It’s about getting a rise out of us. The language he uses makes it clear. I’m sure he loves the fact that we’re all talking about him now.

Based on the “points” he makes, I don’t think he has a good understanding of probability, tail risks, etc. He seems to believe you can look at portfolios after a period of time and see which one “won”. This is kind of like saying the best poker player in the hand was the one that won. Anyone who has played poker a bit knows that you can make terrible decisions from a risk perspective and still win the hand.

So again, you can have the last ten years of performance, ten times over for all I care. The one time in ten where my life isn’t wiped out due to tail risk is worth the reduced performance.

The PP is more than an investment portfolio, IMO. If you don’t see value in having 25% of your wealth outside the financial system, it’s probably not for you. That value is unlikely to show up on any traditional performance comparison.

[mathjak107]

There is another argument that says you can wait so long for that ship to come in the pier collapses….

So yep it is possible to never recover what was given up waiting for the big one where a particular portfolio shines and it may never happen in your lifetime .

So all our portfolios have dropped as off at the station we are currently at ….

All that matters is where they go from here.

And yes each year matters , as I said my pay check is dependent on where those portfolios drop me off.

In fact even a 4% swr is dependent on a certain real return as a minimum over the years needed to support it .

Studies show at least a 2% real return is needed over the first 15 years of a 30 year retirement


The last 10 years now shows the pp at an inflation adjusted cagr return of 2.23% and a nominal return of about 4.50%

That is in the danger zone so retirees basing a draw on portfolio returns need to be very aware of things going forward as every Single 4% failure to date has happened when real returns were under 2% over the first 15 years .

[Jack Jones]

There is another argument that says you can wait so long for that ship to come in the pier collapses….

So yep it is possible to never recover what was given up waiting for the big one where a particular portfolio shines and it may never happen in your lifetime .

Yup. Now we’re getting somewhere. I’m totally cool with this possibility. Like I said, I’m cool with forgoing some returns even if only one in ten lifetimes the insurance pays out - because I am not the average investor, this is my only life, I can't average myself out of a tail-risk scenario.

This is why your thesis that this was the bear market where the PP was supposed to shine and we should be disappointed (a troll's thesis), is flawed. So instead of (poorly) trying to sow discord, why don't you find a more enriching way to spend your time? Or you can continue to be the guy who hangs out on a forum for a portfolio he's not interested in.

[Kbg]

Data check...both MachineGhost and I, using daily data, reported in the past that the max dd of the PP is in the high 20s something percent. PV has it at 13% using monthly data.

I think the thing that surprised me most about the PP was how cyclical/countertrending its performance is. In other words, it is pretty much like any other portfolio only a little more chill and historically (and very roughly) it is countercyclical to a standard stocks and bonds portfolio.

[Xan]

Data check...both MachineGhost and I, using daily data, reported in the past that the max dd of the PP is in the high 20s something percent. PV has it at 13% using monthly data.

I think the thing that surprised me most about the PP was how cyclical/countertrending its performance is. In other words, it is pretty much like any other portfolio only a little more chill and historically (and very roughly) it is countercyclical to a standard stocks and bonds portfolio.

My recollection was that MachineGhost for quite a while went on and on about a 25% max drawdown, and eventually somebody finally "cornered" him, pointing out that he had never shown any data supporting his 25% number. He eventually admitted that he didn't have the data and dropped it.

[Kbg]

I need to remember where I got my data and see if I can run those numbers again...just by the math of it (using PV monthly returns) I'd be a bit surprised if daily data didn't at least show low 20%s.

[barrett]

I need to remember where I got my data and see if I can run those numbers again...just by the math of it (using PV monthly returns) I'd be a bit surprised if daily data didn't at least show low 20%s.

The site I (and many others) used to use was peaktotrough.com but that stopped updating years ago. That data was super granular. I think the high 20%s figure was including inflation. I posted what I found years ago somewhere on this forum but don't want to look for it now. The draw down I am referring to was over about a two-year time from sometime in 1980 to sometime in 1982.

[mathjak107]

There is another argument that says you can wait so long for that ship to come in the pier collapses….

So yep it is possible to never recover what was given up waiting for the big one where a particular portfolio shines and it may never happen in your lifetime .

Yup. Now we’re getting somewhere. I’m totally cool with this possibility. Like I said, I’m cool with forgoing some returns even if only one in ten lifetimes the insurance pays out - because I am not the average investor, this is my only life, I can't average myself out of a tail-risk scenario.

This is why your thesis that this was the bear market where the PP was supposed to shine and we should be disappointed (a troll's thesis), is flawed. So instead of (poorly) trying to sow discord, why don't you find a more enriching way to spend your time? Or you can continue to be the guy who hangs out on a forum for a portfolio he's not interested in.

That’s where you are wrong …harry brown had been a guru to me since I read his early books .

But the pp was not appropriate for me in my accumulation stage….by the time I reached retirement I had other models in place .


So I still take an interest in how it does , especially compared to my other choices

[mathjak107]

A better week , in fact the first up week in 12 weeks for equities

Pp minus 11.56%


Insight income model , minus 9.98


Wellesley minus 9.79

[Kbg]

I need to remember where I got my data and see if I can run those numbers again...just by the math of it (using PV monthly returns) I'd be a bit surprised if daily data didn't at least show low 20%s.

The site I (and many others) used to use was peaktotrough.com but that stopped updating years ago. That data was super granular. I think the high 20%s figure was including inflation. I posted what I found years ago somewhere on this forum but don't want to look for it now. The draw down I am referring to was over about a two-year time from sometime in 1980 to sometime in 1982.

Ok, I'm not going to dive into this in the early 1980s was my recollection as well. I did a minor dive using London spot, ZB T-Bill futures and SPX...ball parking it I'm getting a potential of 25% MDD quite easily from the period 1980 to the summer of 1981. This period sucked for everything except for cash. All figures are nominal.

Using SHY, SPY, TLT and GLD which gives me daily history from 2006 to now and rebalancing weekly (just to track the DD closer/minimize smoothing) I have a 14.56% MDD.

[D1984]

I need to remember where I got my data and see if I can run those numbers again...just by the math of it (using PV monthly returns) I'd be a bit surprised if daily data didn't at least show low 20%s.

The site I (and many others) used to use was peaktotrough.com but that stopped updating years ago. That data was super granular. I think the high 20%s figure was including inflation. I posted what I found years ago somewhere on this forum but don't want to look for it now. The draw down I am referring to was over about a two-year time from sometime in 1980 to sometime in 1982.

Ok, I'm not going to dive into this in the early 1980s was my recollection as well. I did a minor dive using London spot, ZB T-Bill futures and SPX...ball parking it I'm getting a potential of 25% MDD quite easily from the period 1980 to the summer of 1981. This period sucked for everything except for cash. All figures are nominal.

Using SHY, SPY, TLT and GLD which gives me daily history from 2006 to now and rebalancing weekly (just to track the DD closer/minimize smoothing) I have a 14.56% MDD.

From what little daily granularity backtesting I've done--using a 25/25/25/25 annually rebalanced combo of a daily index of 3-month T-Bill TR, LBMA PM closing spot gold, simulated S&P 500 TR daily (S&P500 PR but adding enough return each day so that the total monthly return in any month is equal to the S&P 500 TR return for that month...since the only S&P 500 TR index I have is monthly i.e. month end and not daily), and the Ryan ALM daily 20-30 yr Treasury Bond TR index--the max inflation-adjusted (not nominal) DD was indeed around 24 or 25% down from the top and happened in--IIRC--the near middle or so of June 1982; stocks would only reach their bottom in early August 1982 but bonds were already rebounding by then and that was enough to keep the portfolio from hitting another all-time low when the US market bottomed in said August. From what I remember--and I freely admit I might be wrong--there were indeed two or three points in 1981 and--IIRC--one in 1980 that were pretty close to the June 1982 bottom in real terms but none that quite exceeded it.

Speaking of bad drawdowns.....seeing as how another fairly safe portfolio choice--Wellesley--was mentioned earlier in this thread (by mathjak, I believe) check out its inflation-adjusted drawdown from its high in late November 1972 ( https://www.portfoliovisualizer.com/tes ... ion1_1=100 and then set the returns chart of Portfolio Growth for "Inflation adjusted" ); it actually bottomed out in late 1974 in real terms but then kept bouncing up and down (again, in real terms....in nominal terms it beat its 1972 high by late 1975) from the December 1974 to mid-1982; it never quite touched its 1974 low ever again but not until late February 1983 would it again meet and exceed its 11-30-1972 real inflation-adjusted high.

[Jack Jones]

There is a belief amongst some that the US Government helped to create the gold futures market to suppress prices. This is largely fueled by some documents pointing to the government doing research about the impact of physical gold if a paper gold market were established. For example, https://wikileaks.org/plusd/cables/1974 ... 154_b.html

ALSO EXPRESSED WAS THE EXPECTATION THAT LARGE
VOLUME FUTURES DEALING WOULD CREATE A HIGHLY VOLATILE MAR-
KET. IN TURN, THE VOLATILE PRICE MOVEMENTS WOULD DIMINISH
THE INITIAL DEMAND FOR PHYSICAL HOLDING AND MOST LIKELY
NEGATE LONG-TERM HOARDING BY U.S. CITIZENS.

Fascinating. I wonder if the same playbook is going on with Bitcoin. The feds were happy to approve Bitcoin futures ETFs, but not spot ETFs.

Maybe. I always thought it was interesting that since a lot of crypto is involved in illegal transactions, the government seizes billions and billions worth of it. More levers at their disposal.

Apparently they just denied another spot ETF. I thought this comment on Hacker News was interesting:

And all of this is a false dilemma.
The SEC being in a position to use its own arbitrary discretion to gatekeep an investment’s existence and availability to retail investors is pure happenstance that only exists in a subset of ETFs due to the F part meaning Fund.
Otherwise the SEC specifically does not judge the merit of investments, it advocates for 100 pages of disclaimers and says “we did it guys! We protected investors!” For the issuer, most SEC compliance is simply posting a notice to the SEC, not asking them for permission.
It is an extremely broad interpretation of a multitude of investment acts that has the SEC looking deep into the spot markets of an entirely different asset class to make any arguments at all. And its also their choice to do that, its their choice to act out of character specifically for crypto (they stonewalled gold etfs for a long time too though).