Gyroscopic Investing

frommi wrote:

brownehead wrote: A PP without cash is far less stable, if you backtest it of course the CAGR is higher because the growing assets are the other 3, but DDs and volatility are much higher too!

Give me numbers!

You can backtest a lot of things here:

http://www.peaktotrough.com/hbpp.cgi

brownehead wrote:

frommi wrote:

brownehead wrote: A PP without cash is far less stable, if you backtest it of course the CAGR is higher because the growing assets are the other 3, but DDs and volatility are much higher too!

Give me numbers!

You can backtest a lot of things here:

http://www.peaktotrough.com/hbpp.cgi

Wow, that is cool! 

buddtholomew wrote:According to the calculator, the PP has experienced a DD of 7.21 YTD in late June. Is this accurate? I don't recall experiencing this magnitude of a loss, but I did contribute to GLD and TLT over this time frame.

Great thread!

Yep, it's accurate.  Keep in mind a couple of things:

1.  We're using daily data, which is more granular than most other backtesting sites and spreadsheets you'll see.  As the granularity of data increases, it is only possible that the size of the drawdowns increases or stays the same, they cannot register as less severe.

2.  The drawdown is calculated as a, ahem, peak to trough drawdown, not on YTD or any other arbitrary time metrics.  In this case, the drawdown occurred after the HBPP went up (slightly) from Jan 1, 2013 through Apr 5, 2013, and then subsequently fell 7.2% from Apr 5 through June 26.

I'm a fan of Mebane Faber.  I've read his blog and the Ivy Porfolio and enjoy both.  In the case of this blog entry, I had a few thoughts...

First, I wish he had continued with his original idea to write this up as a whitepaper.  I'm not sure I agree with his suggestion that a 200 basis point spread in CAGR is too little to concern us such that he could condense it to a few paragraphs.

Further, I wish he would use more granular data.  In the case of the HBPP for example, he shows a MaxDD of 12.74% using monthly data.  Using daily data, I and others on this forum have confirmed the MaxDD from 1972-2013 is actually on the order of 20%.  That's a remarkable difference in risk-adjusted returns for this one portfolio, and it calls into question his findings on the 8 others.  They must necessarily be at least as risky as his table shows, and very likely much more.

Still, the data he presents is probably "close enough" to show the relative strengths and weaknesses of the respective portfolios.  That said, for my part, I'm *shocked* at the drawdowns exhibited by some of these other portfolios.  How is it that men of this kind of financial stature are unable to create a portfolio of non-correlated assets in such a way as to avoid 40%+ drawdowns?  I find that almost incredible. 

Based on the drawdown numbers alone, there are only 2-3 portfolios in that list I would even consider, and the HBPP is clearly at the top of it.

Peak2Trough wrote:
I'm a fan of Mebane Faber.  I've read his blog and the Ivy Porfolio and enjoy both.  In the case of this blog entry, I had a few thoughts...

First, I wish he had continued with his original idea to write this up as a whitepaper.  I'm not sure I agree with his suggestion that a 200 basis point spread in CAGR is too little to concern us such that he could condense it to a few paragraphs.

Further, I wish he would use more granular data.  In the case of the HBPP for example, he shows a MaxDD of 12.74% using monthly data.  Using daily data, I and others on this forum have confirmed the MaxDD from 1972-2013 is actually on the order of 20%.  That's a remarkable difference in risk-adjusted returns for this one portfolio, and it calls into question his findings on the 8 others.  They must necessarily be at least as risky as his table shows, and very likely much more.

Still, the data he presents is probably "close enough" to show the relative strengths and weaknesses of the respective portfolios.  That said, for my part, I'm *shocked* at the drawdowns exhibited by some of these other portfolios.  How is it that men of this kind of financial stature are unable to create a portfolio of non-correlated assets in such a way as to avoid 40%+ drawdowns?  I find that almost incredible. 

Based on the drawdown numbers alone, there are only 2-3 portfolios in that list I would even consider, and the HBPP is clearly at the top of it.

I don't find that incredible at all. If you have blinders on such that only stocks and bonds are "valid" investments, that result is pretty much guaranteed.

Libertarian666 wrote:I don't find that incredible at all. If you have blinders on such that only stocks and bonds are "valid" investments, that result is pretty much guaranteed.

Right, well what I'm saying is I find it incredible men with the collective financial knowledge of these esteemed gentlemen wear such blinders, but apparently that is the case.

Peak2Trough wrote:

Libertarian666 wrote:I don't find that incredible at all. If you have blinders on such that only stocks and bonds are "valid" investments, that result is pretty much guaranteed.

Right, well what I'm saying is I find it incredible men with the collective financial knowledge of these esteemed gentlemen wear such blinders, but apparently that is the case.

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" (http://en.wikiquote.org/wiki/Upton_Sinclair)