Gyroscopic Investing

I have been giving thought to structuring a HB equivalent portfolio that

1. Could be used by both US and non-US investors and
2. Could be implemented, with the exception of gold, in standard retirement accounts.

Benjamin Graham recommended a model portfolio of 50% Shares/50% Bonds (or cash equivalents depending on the prevailing interest rates)

HB model is the 4x25%, but very few (any?) retirement accounts have 20 year plus Bond equivalents

So.... if you took a Benjamin allocation of 50/50 (MSCI World) shares/cash and added gold to optimise the ulcer index you get the results attached. Plus for small economies you get almost 2/3 non local assets.

Rip into it - what are the downsides (or benefits) of this model portfolio !

Very interesting work. And here I thought I was the only one still interested in talking about portfolios and investing instead of politics. I think the interest in politics may be a reflection of the split between U.S. and international forum members.

I see the filename alludes to 28% gold and 36% for cash and shares each. I think if we were to turn this into a model portfolio it should be 30% for gold and 35% each for cash and shares so that the numbers are easily digestible. I'd also be interested in how this portfolio would perform in 1930s scale depression with a prolonged deflation. Given that there is little in the way of long term fixed income, that may be an issue?

I would also like to see how much further one could push this optimization with the use of factors.

As far as I can make out, there always seems to be a sweet spot that includes an element of home bias. Too much international, at least for a UK investor, results in deeper/longer draw-downs.

Smith1776 wrote: ↑Thu Jun 18, 2020 2:25 pm Very interesting work. And here I thought I was the only one still interested in talking about portfolios and investing instead of politics. I think the interest in politics may be a reflection of the split between U.S. and international forum members.

I see the filename alludes to 28% gold and 36% for cash and shares each. I think if we were to turn this into a model portfolio it should be 30% for gold and 35% each for cash and shares so that the numbers are easily digestible. I'd also be interested in how this portfolio would perform in 1930s scale depression with a prolonged deflation. Given that there is little in the way of long term fixed income, that may be an issue?

I would also like to see how much further one could push this optimization with the use of factors.

Good point - 30/35/35 is more "readable" and the Ulcer Index is the same.

With regards to 1930's depression, have a read of the attached five part post. If I am interpreting it correctly, cash provides better protection than bonds during the worst historical scenarios.

https://www.idiosyncraticwhisk.com/2014 ... short.html

Enjoy the good weather in Canada - its winter down here

Like the idea. 30% gold might be a bit too much for most people, 25% seems to be a kind of upper limit.
How about 40/40 with 20% gold, like the golden butterfly. Msci world, bonds in your own currency, plus some gold should make a pretty solid portfolio. Easy to implement in most countries.

And yeah, I guess there are still some non-US investors on this board interested in talking about investing

WhiteElephant wrote: ↑Thu Jun 18, 2020 3:28 pm
And yeah, I guess there are still some non-US investors on this board interested in talking about investing

Hey, this U.S. investor is still interested in talking about investing, haha. I'm very much burned out on all the politic talk these days...

GH47 wrote: ↑Thu Jun 18, 2020 2:33 pm As far as I can make out, there always seems to be a sweet spot that includes an element of home bias. Too much international, at least for a UK investor, results in deeper/longer draw-downs.

That makes sense. Australia's economy is tiny compared to the UK's.
Have a look on the MSCI website for the World ex UK - here is the link for World ex Australia. Note UK is listed as a country weighting of 4.59%, Australia must be in other

https://www.msci.com/documents/10199/49 ... 93b1f3d60b

May be best just to use a MSCI World Fund? Can't model it directly on Portfolio Charts though, would have to approximate using UK and International (Ex UK?) as you mentioned.
Thanks for the input.

And for Smith et al, have a look at the attachment

Hal wrote: ↑Thu Jun 18, 2020 1:34 pm Benjamin Graham recommended a model portfolio of 50% Shares/50% Bonds (or cash equivalents depending on the prevailing interest rates)

IIRC, what Graham said to do was hold 50/50 when you didn't really have a reason to weight one side over the other. But when you thought stocks were poised to do good, you could tilt as much as 75/25, and the same the other way.

Kriegsspiel wrote: ↑Thu Jun 18, 2020 7:07 pm

Hal wrote: ↑Thu Jun 18, 2020 1:34 pm Benjamin Graham recommended a model portfolio of 50% Shares/50% Bonds (or cash equivalents depending on the prevailing interest rates)

IIRC, what Graham said to do was hold 50/50 when you didn't really have a reason to weight one side over the other. But when you thought stocks were poised to do good, you could tilt as much as 75/25, and the same the other way.

Good Memory!
Here's a screenshot for history's sake.

Smith1776 wrote: ↑Thu Jun 18, 2020 2:25 pm Very interesting work. And here I thought I was the only one still interested in talking about portfolios and investing instead of politics. I think the interest in politics may be a reflection of the split between U.S. and international forum members.

I was going to point out a few days ago that if you looked at Active Topics that you'd clearly see that politics have been dominating the discussions.

Vinny

Hal wrote: ↑Thu Jun 18, 2020 5:39 pm May be best just to use a MSCI World Fund? Can't model it directly on Portfolio Charts though...

I actually added that option early this year. In the portfolio interface, look for the dropdown below "WLD". The default is XUS, but it also has a DEV option. That will switch everything in the row to Developed World funds (including the US). In that setting, TSM will be equivalent to MSCI World.

pmward wrote: ↑Thu Jun 18, 2020 4:42 pm

WhiteElephant wrote: ↑Thu Jun 18, 2020 3:28 pm
And yeah, I guess there are still some non-US investors on this board interested in talking about investing

Hey, this U.S. investor is still interested in talking about investing, haha. I'm very much burned out on all the politic talk these days...

i got investing on the brain at the beginning of the corona virus, as thing were changing, then i hit my re-balance and now i have nothing to talk about or look at -- an un fortunate side effect of the permanent portfolio..

Tyler wrote: ↑Thu Jun 18, 2020 9:04 pm

Hal wrote: ↑Thu Jun 18, 2020 5:39 pm May be best just to use a MSCI World Fund? Can't model it directly on Portfolio Charts though...

I actually added that option early this year. In the portfolio interface, look for the dropdown below "WLD". The default is XUS, but it also has a DEV option. That will switch everything in the row to Developed World funds (including the US). In that setting, TSM will be equivalent to MSCI World.

Thanks Tyler,
And here I was thinking if Australia was selected, WLD-Dev = MSCI World Ex Australia *Slaps Self*
Hal, read the asterisk that says "All Developed"

Once again, appreciate your making such a great portfolio tool.

And in a Japanese Deflationary environment.....

Hal wrote: ↑Thu Jun 18, 2020 11:57 pm And in a Japanese Deflationary environment.....

Dead last in average return, close to last in longest drawdown, and in the bottom half of safe and perpetual withdrawal rate. Considering this is the market environment the globe is in right now, that does not look promising.

The stale performance of the Japan environment is all the more reason why I think diversifying amongst international factors is beneficial. Historically, when market beta has had negative premiums, it has typically resulted in positive premiums for size, value, momentum, etc. I rather lament that here in Canada we don't have easy access to alternative premia like reinsurance risk.

Having said that, I think that no matter the portfolio you choose, there can be a state of the world where that portfolio performs poorly for an extended period of time. You can have portfolios that are more well built (like the PP), but nothing is truly immune to disappointing periods of returns.

Vinny, yeah I agree with your observation about politics taking over the Other Discussions part of the forum. Obviously I don't want to shut down what other people want to talk about. It's not my first choice for topic of discussion though.

You are correct, with the limited choices from a typical retirement fund, the returns in a "Japanese environment" look poor.
Replacing the 35% Cash with bonds helps a little....

Update: Quote on when to use cash instead of bonds
ps: Far right chart column is total fees

And when applied to the US market, the results look decidedly "Golden Butterflyish"

Portfolio 1 is Benjamin Graham plus gold. Note: Intermediate Treasuries used - Read Intelligent Investor re US Market
Portfolio 2 is the PP

And on reading a Vanguard Paper for Australia....

50/50 Split Aus/International Shares for 38% Total,
38% Cash
24% Gold