Alternative PP Weightings

[MachineGhost]

Don't like the risk vs reward of the orthodox PP?  Can't handle losing at least moderate amounts of real wealth during a tight money recession/depression/deflation?  I have crunched the numbers since 1971 and have arrived at salvation:

Stocks T-Bills T-Bonds Gold Total
12.00% 61.00% 11.00% 16.00% 100%

Real CAGR: 1.52%
Real MaxDD: -5% (1981)
Risk/Reward: 0.304

Since 1971 we've had 2 stock bear markets, 1 stock bull market, 1 bond bear market, 1 bond bull market, 2 gold bull markets and 1 gold bear market.

For comparison, the orthodox PP:

Real CAGR: 2.34%
Real MaxDD: -15% (1981)
Risk/Reward: 0.156

Next time, I will explore adding AAA corporate bonds, real estate, timberland or silver.

[D1984]

What happens if we get an extended period where t-bill rates are kept negative and gold and LTTs are already in a bubble (or at least if not in a bubble, not as "cheap" as they were in 2000-2001 when the current period of negative real rates started)?

Also, what about a situation where t-bill rates are (usually) about a percent or two above inflation but not much more? Using silver or a commodities index, how would such a t-bill heavy portfolio done from, say, 1937-1950 (t-bill rates were suppressed) or 1950-1967 (short-term rates not suppressed but still only typically a percent or two above inflation)?

Finally, what happens if you use SCV from 1968 to the present in place of TSM? How did that effect this portfolio in 1997-1999?

[MachineGhost]

What happens if we get an extended period where t-bill rates are kept negative and gold and LTTs are already in a bubble (or at least if not in a bubble, not as "cheap" as they were in 2000-2001 when the current period of negative real rates started)?

Apparantly, one needs to have faith that the PP would successfully deal with that scenario.  In that if real rates are negative, then there is no way the gold "bubble" can pop anytime soon without stocks or bonds first going into the poorhouse ala 1970's.  We're at the half-time of such a period at present.  If gold were to tank from here along with stocks, then bubblicious bonds would rally even more while gold sets up for the mother of all bubbles.  There is no such scenario I can foresee where at least one of the assets is not going up.

Also, what about a situation where t-bill rates are (usually) about a percent or two above inflation but not much more? Using silver or a commodities index, how would such a t-bill heavy portfolio done from, say, 1937-1950 (t-bill rates were suppressed) or 1950-1967 (short-term rates not suppressed but still only typically a percent or two above inflation)?

The Real MaxDD for 1937-1950 with 16% in silver was -27.64% in 1948; breakeven was not reached until 1962.  But remember, we were not yet on a debt-money system at the time, so commodities were deflationarily constrained.

It's not the end of the world if you only make a few percent above inflation.  The PP isn't a wealth generating portfolio, its a wealth preservation.  However, Japan's post-1971 experience seems pretty clear that the other assets will do very little when T-Bill rates are low, whether suppressed by the Fed or deflationary forces.  Deflation acts differently in a debt-money system vs under a gold standard.

Finally, what happens if you use SCV from 1968 to the present in place of TSM? How did that effect this portfolio in 1997-1999?

I don't have data for that, however I believe that is not wise.  Value and true growth (not the polar opposite of value screening) can both outperform, but there are long periods where one or the other can be in favor.  It's prudent not to style tilt.

[blackomen]

Past performance does not guarantee future performance.  Unless there's some deeper fundamental reason for your weighting, it's not likely to perform as well as it did in the past.  Not saying it can't work but simple fitting to better stats usually results in disappointment (trust me, I tried it it with trading systems in the past.)

[doug6zj9]

Awesome!  I'll just hop into my time machine, scroll back to 1971, and prepare accordingly. 

[dragoncar]

For comparison, the orthodox PP:

Real CAGR: 2.34%
Real MaxDD: -15% (1981)
Risk/Reward: 0.156

I thought the PP did better than 2.34% CAGR (historically).  Which years did you use?

[Xan]

Note that that is *real* CAGR, that is, after accounting for inflation.

[dragoncar]

Clive, your genius is over my head for this hour, but based on Gumby's chart (here http://gyroscopicinvesting.com/forum/ht ... ic.php?t=9), it looks like PP returned around 4.6% real from 1970 to 2010.

Here, https://web.archive.org/web/20160324133 ... l-returns/, Craig shows  9.3% CAGR from 1972-2011, which would be around 4.8% real based on inflation calc.

That meshes with what I though I've heard before... somewhere in the 4% range.  What's different here?  Are you guys including pre-1970's data?

[MachineGhost]

Clive, your genius is over my head for this hour, but based on Gumby's chart (here http://gyroscopicinvesting.com/forum/ht ... ic.php?t=9), it looks like PP returned around 4.6% real from 1970 to 2010.

Here, https://web.archive.org/web/20160324133 ... l-returns/, Craig shows  9.3% CAGR from 1972-2011, which would be around 4.8% real based on inflation calc.

That meshes with what I though I've heard before... somewhere in the 4% range.  What's different here?  Are you guys including pre-1970's data?

Interesting, I didn't know Gumby had put up some historical performance data.  It was long before I joined the forum.

I'm not sure why there would be a difference with the inflation rate.  There are various ways of calculating CPI, but the standard is to use end of year to previous end of year which is what I use.  Intrayear values can be substantially different.