PP risk and reward compared to more diverse alternatives?
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Clive
PP risk and reward compared to more diverse alternatives?
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Last edited by Clive on Mon Jul 04, 2011 5:36 pm, edited 1 time in total.
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NomadicRiley
Re: PP risk and reward compared to more diverse alternatives?
Very interesting chart Clive. The apparent benefits of numerous asset classes may be one in line w/ Faber's thinking in GTAA. Last I checked there were 70+ different holdings in it. Really looking forward to when we have more data on GTAA and it's longer term performance.
Re: PP risk and reward compared to more diverse alternatives?
Very interesting. Though, I would imagine a portfolio with many assets — and more rebalancing triggers — would have greater tax consequences than a 4x25% PP.Clive wrote:Any thoughts/comments?
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
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NomadicRiley
Re: PP risk and reward compared to more diverse alternatives?
Remind me again what your using as the baseline CHP?
Re: PP risk and reward compared to more diverse alternatives?
As we begin to put some time between now and 2008, I think it is important to note that 2008-type events are VERY rare. It's not that the economy is in so much better shape now than then, but the shock and fear that occurred in 2008 are unlikely to occur again any time soon, simply because people can normally only be that frightened once--the next time is always a shadow of the original event, unless it occurs decades later when there are a new group of people experiencing it.
Note, however, that all sorts of unpredictable things ARE likely in our future, it's just that they are likely to be DIFFERENT things from what happened in 2008.
Also, I think that using log charts would be more helpful. I see that some of the charts above are log charts and some aren't.
Note, however, that all sorts of unpredictable things ARE likely in our future, it's just that they are likely to be DIFFERENT things from what happened in 2008.
Also, I think that using log charts would be more helpful. I see that some of the charts above are log charts and some aren't.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: PP risk and reward compared to more diverse alternatives?
I'm surprised nobody has mentioned one of the key benefits of the PP: simplicity!
Clive has shown --- and I don't think anybody would dispute --- that slicing and dicing like crazy can indeed improve returns while lowering risks. But one of the reasons that the PP appeals to me is that it's so simple. You only have to look at a few asset classes, you only have to rebalance (and pay the associated taxes, if in taxable accounts) occasionally, etc. With 20+ funds in your portfolio you give up all simplicity. Personally, I will take a slightly lower annualized return for significantly improved simplicity.
Clive has shown --- and I don't think anybody would dispute --- that slicing and dicing like crazy can indeed improve returns while lowering risks. But one of the reasons that the PP appeals to me is that it's so simple. You only have to look at a few asset classes, you only have to rebalance (and pay the associated taxes, if in taxable accounts) occasionally, etc. With 20+ funds in your portfolio you give up all simplicity. Personally, I will take a slightly lower annualized return for significantly improved simplicity.
Re: PP risk and reward compared to more diverse alternatives?
I agree simplicity is a paramount consideration. To me the alternatives to the HBPP are PRPFX or, maybe, GTAA. Personally, I'm using both of the first two.
Re: PP risk and reward compared to more diverse alternatives?
There is a utilitarian aspect to this as well. Most people can profit more from investing time and energy into their career or entrepreneurial projects than in managing a more complex portfolio.chrikenn wrote: I'm surprised nobody has mentioned one of the key benefits of the PP: simplicity!
Remember rule #1: Your career provides your wealth.
Re: PP risk and reward compared to more diverse alternatives?
Just curious, but aren't there a lot of risks to relying so heavily on Simba's spreadsheets for investment ideas?
Even backtesting with perfect data has its issues. Does Simba's spreadsheets only use annualized data? If so, I'd imagine that even a handful of different assets can have large swings during a 12 month period which wouldn't show up in annualized data. You'd think crucial rebalancing bands would be missed along the way and skewing the data.
And then there's question of the accuracy of the data and the calculations. Please note that I'm not discounting the portfolio. I'm only questioning the usefulness and wisdom of investing one's lifetime of wealth (and sharing the strategy with others) that's mostly based on the calculations that come out of a spreadsheet with annualized data that a random and anonymous user generated in their spare time. Very curious to hear opinions on this.
Even backtesting with perfect data has its issues. Does Simba's spreadsheets only use annualized data? If so, I'd imagine that even a handful of different assets can have large swings during a 12 month period which wouldn't show up in annualized data. You'd think crucial rebalancing bands would be missed along the way and skewing the data.
And then there's question of the accuracy of the data and the calculations. Please note that I'm not discounting the portfolio. I'm only questioning the usefulness and wisdom of investing one's lifetime of wealth (and sharing the strategy with others) that's mostly based on the calculations that come out of a spreadsheet with annualized data that a random and anonymous user generated in their spare time. Very curious to hear opinions on this.
Last edited by Gumby on Fri Feb 18, 2011 1:20 pm, edited 1 time in total.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
Re: PP risk and reward compared to more diverse alternatives?
Pretty interesting! Now what I'd like to understand is what the theoretical basis for this mix is. Why this particular mix of assets in these quantities? It seems that what it yields is a slightly smoother version of the CHP. I was a little surprised by how closely it follows the CHP considering that it's somewhat lighter in stocks than CHP. Perhaps it's the effect of the REITs. Were you surprised that it was such a pseudo-CHP?
It is also impressive how few losing years that mix has. Very impressive to coast through 1981 like that. It did take some big lumps in 2008 though.
I agree with MT that the top graph is a little hard to get much out of without a log scale. I can tell that stocks and REITs made a lot of money in the 90s but a lot of other interesting information on relative performance is obscured I think.
It's also kind of unfortunate that the spreadsheet uses VUSTX for long-term government bonds, which isn't really Permanent Portfolio compliant. I have no idea how big of a difference this makes but it bothers me that there's no true measure of the PP that can be used here.
It is also impressive how few losing years that mix has. Very impressive to coast through 1981 like that. It did take some big lumps in 2008 though.
I agree with MT that the top graph is a little hard to get much out of without a log scale. I can tell that stocks and REITs made a lot of money in the 90s but a lot of other interesting information on relative performance is obscured I think.
It's also kind of unfortunate that the spreadsheet uses VUSTX for long-term government bonds, which isn't really Permanent Portfolio compliant. I have no idea how big of a difference this makes but it bothers me that there's no true measure of the PP that can be used here.