Golden Butterfly Portfolio

[Smith1776]

Does anyone know if there's a canonical rebalancing policy with the GB?

I've been wrestling with it for a bit and I think something like +/-5% absolute bands or +/-25% relative bands seem reasonable.

[snedgar]

I have never found anything canonical, but have just scaled from the PP.

In other words, I rebalance at +/- 8% = +/-10% (from PP) * (20% allocations / 25% allocations)

Still hit that pretty infrequently.

[senecaaa]

If you scale them proportionally with the PP you get a 14-26% band like:

Screenshot 2023-06-20 at 21.26.14.png (139.63 KiB) Viewed 15651 times

[Kevin K.]

Yes - 14% and 26% were the consensus recommendation years ago when the GB was introduced. I’ve rarely come close to them in actual practice.

[snedgar]

I'm not questioning it, but I can't quite understand how you get +/- 6% by scaling from the HBPP +/-10% bands.

Can somebody (gently) explain the maths?

[Kevin K.]

I'm not questioning it, but I can't quite understand how you get +/- 6% by scaling from the HBPP +/-10% bands.

Can somebody (gently) explain the maths?

As I recall it’s 30% of the 20% slice of each asset in the GB.

[ochotona]

This AAII NYC Event may be of interest to those who want to learn more about Small Cap Value.


Hello,


The AAII NYC chapter cordially invites you to attend a special two-part mega-event featuring two of our most popular speakers, Paul Merriman and Chris Pedersen.

Date: Wednesday, October 11
Time: 6:30 PM ET, 5:30PM CT. 4:30 PM MT, 3:30 PM PT
Place: Online, via Zoom
Register: https://us02web.zoom.us/webinar/registe ... s8DfcAYxLQ

Part 1: The Case for Small-Cap Value: the Good, the Bad, and the Ugly (Paul Merriman)

Few equity styles generate as much love and hate as small-cap value. It boasts impressive long-term returns, but the ride can be rocky. The silver lining to that dark cloud is diversification. Portfolios that include an allocation to small-cap value have increased returns more than they've increased risk and been more resilient. This presentation looks at small cap value performance from seven different points of view. Come see how small-cap value can help in accumulation or retirement and the easiest ways to get and use it for a lifetime.

What you'll learn:

1. Why small-cap value deserves a place in your portfolio

2. How and why you need to right-size your small-cap value allocation

3. What to expect when it's combined with a target-date fund in accumulation and retirement

4. How to choose small-cap value funds with the highest expected returns

To help you make the most out of this event, you can download some free books and other resources at the Merriman website:
https://paulmerriman.com/millions-downloads/

Registration is free and open to all, but you must register to attend. See you there!

[Smith1776]

This AAII NYC Event may be of interest to those who want to learn more about Small Cap Value.


Hello,


The AAII NYC chapter cordially invites you to attend a special two-part mega-event featuring two of our most popular speakers, Paul Merriman and Chris Pedersen.

Date: Wednesday, October 11
Time: 6:30 PM ET, 5:30PM CT. 4:30 PM MT, 3:30 PM PT
Place: Online, via Zoom
Register: https://us02web.zoom.us/webinar/registe ... s8DfcAYxLQ

Part 1: The Case for Small-Cap Value: the Good, the Bad, and the Ugly (Paul Merriman)

Few equity styles generate as much love and hate as small-cap value. It boasts impressive long-term returns, but the ride can be rocky. The silver lining to that dark cloud is diversification. Portfolios that include an allocation to small-cap value have increased returns more than they've increased risk and been more resilient. This presentation looks at small cap value performance from seven different points of view. Come see how small-cap value can help in accumulation or retirement and the easiest ways to get and use it for a lifetime.

What you'll learn:

1. Why small-cap value deserves a place in your portfolio

2. How and why you need to right-size your small-cap value allocation

3. What to expect when it's combined with a target-date fund in accumulation and retirement

4. How to choose small-cap value funds with the highest expected returns

To help you make the most out of this event, you can download some free books and other resources at the Merriman website:
https://paulmerriman.com/millions-downloads/

Registration is free and open to all, but you must register to attend. See you there!

Thanks for posting this. I'll be there for sure.

[ppnewbie]

Did anyone go to this session?

[ochotona]

Did anyone go to this session?

I could not, but the author posted an article in the AAII Newsletter, plain text excerpt below. It backs up the Golden Butterfly results. There was much more written. Here is the entire journal for that month from my Google Drive.

----------------------------------------------------------------------------------------------------------------

Small cap value article AAII journal October 2023

Small-Cap Value Is the Best Choice for Equity Diversication
By Paul Merriman

Any long-term portfolio anchored by the S&P 500 can benefit from the addition of small-cap value stocks.

Although there are more small-cap stocks in the total market index, the large-cap companies, with their higher individual values, make up the majority of the Wilshire 5000's total index value. Wilshire states the 747 large cap stocks comprise more than 91 percent of the Wilshire 5000 index value. The next 1,737 small-cap stocks are worth about 9 percent. The remaining roughly 2,500 micro-cap stocks are, despite being numerous, collectively worth less than 1 percent of the stock market value tracked by the index.


Small Cap Improves Upon S&P 500 Returns

Here’s what I’m suggesting: Assume your default bedrock equity investment is the familiar, comfortable S&P 500. Also assume that you would like to do better than that index over the long term and you’re willing to put a portion of your equities into another asset class. In that scenario, I think small-cap value is your best choice for diversification.

I can’t show you the future, but I can show the past.

Many investors believe small-cap value stocks are riskier than the S&P 500. Our analysis paints a different picture. We studied 53 years of returns from 1970 through 2022. We compared the S&P 500 alone to an equity portfolio split 50%/50% between the S&P 500 and small-cap value stocks. {that’s what Golden Butterfly does}

Here’s what we found:

» The two-fund combination had a compound annual growth rate of 12.2%, compared with 10.4% for the S&P 500 itself.

» In 11 of the 53 calendar years, the S&P 500 lost money; in three of those losing years, small-cap value stocks realized gains.

» In another five of those 11 years in which the S&P 500 lost money, the two-fund combination also lost money, but not as much as the S&P 500.

» In its 42 profitable years, the S&P 500 was up 18.7% on average; in those same years, the average gain for small-cap value was 21.3%.

[ppnewbie]

Thanks!

[yankees60]

Did anyone go to this session?

I could not, but the author posted an article in the AAII Newsletter, plain text excerpt below. It backs up the Golden Butterfly results. There was much more written. Here is the entire journal for that month from my Google Drive.

----------------------------------------------------------------------------------------------------------------

Small cap value article AAII journal October 2023

Small-Cap Value Is the Best Choice for Equity Diversication
By Paul Merriman

Any long-term portfolio anchored by the S&P 500 can benefit from the addition of small-cap value stocks.

Although there are more small-cap stocks in the total market index, the large-cap companies, with their higher individual values, make up the majority of the Wilshire 5000's total index value. Wilshire states the 747 large cap stocks comprise more than 91 percent of the Wilshire 5000 index value. The next 1,737 small-cap stocks are worth about 9 percent. The remaining roughly 2,500 micro-cap stocks are, despite being numerous, collectively worth less than 1 percent of the stock market value tracked by the index.


Small Cap Improves Upon S&P 500 Returns

Here’s what I’m suggesting: Assume your default bedrock equity investment is the familiar, comfortable S&P 500. Also assume that you would like to do better than that index over the long term and you’re willing to put a portion of your equities into another asset class. In that scenario, I think small-cap value is your best choice for diversification.

I can’t show you the future, but I can show the past.

Many investors believe small-cap value stocks are riskier than the S&P 500. Our analysis paints a different picture. We studied 53 years of returns from 1970 through 2022. We compared the S&P 500 alone to an equity portfolio split 50%/50% between the S&P 500 and small-cap value stocks. {that’s what Golden Butterfly does}

Here’s what we found:

» The two-fund combination had a compound annual growth rate of 12.2%, compared with 10.4% for the S&P 500 itself.

» In 11 of the 53 calendar years, the S&P 500 lost money; in three of those losing years, small-cap value stocks realized gains.

» In another five of those 11 years in which the S&P 500 lost money, the two-fund combination also lost money, but not as much as the S&P 500.

» In its 42 profitable years, the S&P 500 was up 18.7% on average; in those same years, the average gain for small-cap value was 21.3%.

So after 20 years of holding the lesser performing asset - small cap value - the time may have come where the reverse will happen??!!

[ochotona]

That's a portfolio for you. Something always is bad, sometimes for a long time. The alternative is what?

[yankees60]

That's a portfolio for you. Something always is bad, sometimes for a long time. The alternative is what?

Market timing which leads to the worse results of all!

[ppnewbie]

Another way to look at it is that with VBR having a P/E around 10 it’s about a 10 percent return (not sure if that is naive). That also seems about as cheap as it will get.

As long as they are mostly good companies that’s better than most alternatives. And eventually the stock price will catch up with earnings.