Japanese PP performance 2012

[miyazaki]

I joined this forum last year with a lot of questions, and even doubts about the PP. However, I've been watching the performance of a potential PP portfolio during 2012, including other people's results. Perhaps my personal research had some different assumptions, but my historical results were a little different to those I'd seen on here before. I followed the TOPIX index (total stock market) rather than the Nikkei 225, and I presumed bonds be held until maturity. I also assumed re-balancing once a year on the first trading day of the year. It didn't perform as well as the American PP, but the overall performance was excellent compared with any other asset allocation that I've ever researched, especially during terrible times for Japan, like 1990-1991 (-8.5%) and 2008-2009 (-13.5%). However, the overall performance with my assumptions was around 6% per year. I've been researching and studying about the philosophy behind the PP, as well as general economics, and now I feel like I really understand it, so I'm all in!

Anyway, here are some results for 2012 (prices in yen):

Stocks - Topix 721 --> 859 (+19.1%) or Nikkei 225 8560 --> 10395 (+21.4%)
Gold - 120498 --> 147181 (+22.1%)
Bonds - Average rate 0.7%
Cash - Average rate 0.1%
Inflation - Estimated -0.1%

Total real return: 10.5%

What a fantastic year for the Japanese PP! Now, recently the PP has been having one up year followed by one down year in Japan, so I can't say if 2013 is going to be great or not, but here are some of my feelings:

Stocks - The consumption tax is due to go up in 2014, so it's expected that Japanese people will want to buy big ticket items this year, like cars and houses. It actually seems to me that advertising has shifted more towards expensive items, such as cars, houses, electronics and vacations, more than last year. The new prime minister has also made boosting the economy one of his top priorities, including "unlimited quantitative easing", which seems excessive, but caused a big spike in the stock market after the election in December. However, relations with China remain tense, and who knows what kind of stance the PM will take towards that.

Gold - Due to the quantitative easing mentioned above, I'm hoping that will be positive for gold.?Also, the target inflation rate will be raised from 1% to 3% in April, and the Bank of Japan's head (who currently opposes the unlimited quantitative easing), will retire, and likely be replaced by someone who has views more in line with the PM.

Bonds - We keep thinking that interest rates couldn't possibly get any lower. However, I just saw a new 3 year government bond being issued in January which is estimated to have a NEGATIVE (!!) 0.03 percent interest rate...

Cash - Unlikely to change, but who knows...

Anyway, these are all just my feelings. I've been listening to Harry Browne's radio recordings, and the most important thing I've come to understand is that no-one can know the future. Just when you think things will never change, that's exactly the time when they change dramatically. There's no point in trying to guess, because even the best well educated guess might be completely wrong.

I'd be happy to hear any comments about the Japanese PP's performance!

[frugal]

Good, I think you achieved same conclusion as all forum members.

Are you 100% on PP ?

No VP?

Regards

[miyazaki]

I know that I reached the same conclusion as everyone else here  But, at first I had doubts whether it would work in Japan, which has had a radically different investing environment from the US for the past 25 years. However, I realized it's the rebalancing, not the performance of any asset.

I said I'm "all in", but actually I have a small VP. 90% is a PP, though 

[D1984]

However, the overall performance with my assumptions was around 6% per year.

From 1990 to present the Japanese PP didn't perform anywhere close to 6% per year (nominal or real) on average. Marc De Mesel's website has the exact figures but if I recall correctly it was under 2% real since 1990 (and actually a NEGATIVE average annual return from 1990 to 2000).

Did you just mean that you assumed the PP would return 6%....or were you also counting the 1972 to 1989 performance in your average as well?

[stone]

miyazaki, Its great to be reminded that a flat year for gold in GBP doesn't mean that gold wasn't do its job somewhere in the world!
I'm puzzled though about your comment on bonds:

I presumed bonds be held until maturity

I'm not sure I understand this. Do you mean that you won't rebalance into and out of 30year bonds? If so, I think that that might be a mistake. The bond prices can swing around a great deal and rebalancing against that is a big part of the PP strategy IMO. I'm planning on replacing bonds whilst they still have at least 15years left before maturity so as to keep the price volatility.

[miyazaki]

Did you just mean that you assumed the PP would return 6%....or were you also counting the 1972 to 1989 performance in your average as well?

You're right. I was counting results from 1973. I also calculated a return under 2% average from 1990, but then again, I calculated an average of 4% since 2000... Anyway the point is, it's much, much better than the average return for stock investors, and without such a roller coaster ride. None of us know exactly how long we'll be holding the portfolio, so I'm just happy with the relatively low volatility.

I'm not sure I understand this. Do you mean that you won't rebalance into and out of 30year bonds? If so, I think that that might be a mistake. The bond prices can swing around a great deal and rebalancing against that is a big part of the PP strategy IMO.

In Japan, the longest bonds available to individual investors are 10 years. There are some mutual funds which hold 20 year bonds, but they only hold 70% in government bonds as a maximum, and they have fees over 2%. There are no mutual funds that I've found which hold the 30 or 40 year bonds. I'm hoping one will come out at some point, or longer bonds will be available to individuals, but as of now it's not possible.

It is possible to sell bonds, but I really can't see rates going much lower than this, and I'm strongly expecting rates to go up. As long as rates are going up, it is more worthwhile to hold the bonds until they get to a point where the rates come back down again. Having said that, if it is profitable to sell bonds, that's probably what I'll do.


Anyway, back testing is kind of just for fun. I just wanted to say that the PP does in fact work in other countries other than the US. The results might not be as good, but the inflation in Japan is much lower than the US. Anyway, we'll see how it goes into the future!

[frugal]

I know that I reached the same conclusion as everyone else here  But, at first I had doubts whether it would work in Japan, which has had a radically different investing environment from the US for the past 25 years. However, I realized it's the rebalancing, not the performance of any asset.

I said I'm "all in", but actually I have a small VP. 90% is a PP, though 

Hello

what does your VP contains?

Regards|

[Gosso]

I'm not sure I understand this. Do you mean that you won't rebalance into and out of 30year bonds? If so, I think that that might be a mistake. The bond prices can swing around a great deal and rebalancing against that is a big part of the PP strategy IMO.

In Japan, the longest bonds available to individual investors are 10 years. There are some mutual funds which hold 20 year bonds, but they only hold 70% in government bonds as a maximum, and they have fees over 2%. There are no mutual funds that I've found which hold the 30 or 40 year bonds. I'm hoping one will come out at some point, or longer bonds will be available to individuals, but as of now it's not possible.

It is possible to sell bonds, but I really can't see rates going much lower than this, and I'm strongly expecting rates to go up. As long as rates are going up, it is more worthwhile to hold the bonds until they get to a point where the rates come back down again. Having said that, if it is profitable to sell bonds, that's probably what I'll do.

I'd just go with the 1-10 year bond ladder, or buy an ETF with an average duration between 5-7 years.

With rates so low I see little reason to create much fuss over increasing the duration up to 7-10 years.  The Simba spreadsheet shows that a duration of 5 years worked just as well as a STT/LTT barbell with a duration of ~8 years...and this is over a period of long term rates falling from 15% down to 2.5%.  Also, it made little difference to the annual returns.

[miyazaki]

Thank you for the feedback regarding bonds. I will research it in more detail, now that I'm actually holding bonds (before, I was just tracking a potential PP performance.

As for my VP, I'm holding some silver ETF and some individual stocks from Tokyo Electricity Co (which I don't count in the stock portion because this one is purely speculative market timing... Although do far it seems like I bought it pretty close to the bottom, and it's already up 70%. I can imagine the company returning to normal after the nuclear meltdown panic selling after the big earthquake). Anyway, both holdings are very small compared with the PP.

[Thomas Hoog]

The performance of Gold is excellent. Is it because of the Yen-dollar exchange rate ??

[MachineGhost]

The performance of Gold is excellent. Is it because of the Yen-dollar exchange rate ??

Yeah, the new Prime Minister is trying an all-out concerted effort to stoke the fires of inflation, i.e. expected real interest rates are decreasing.

[clacy]

The performance of Gold is excellent. Is it because of the Yen-dollar exchange rate ??

Yeah, the new Prime Minister is trying an all-out concerted effort to stoke the fires of inflation, i.e. expected real interest rates are decreasing.

He definitely seems to be telegraphing this.  I think this will be a great time to hold the PP in Japan. 

[kepaRos]

Re: Japan 2013
I follow John Mauldin. He has been talking about this for some time... at least two years. You need to listen to this. Start at about 8:45 into the audio.
http://thevictoryreport.org/2013/01/04/ ... s-in-2013/
Dispite the URL name he is not a doomer nor is it just about Japan. It's more about the global debt issue and how Japan fits in.
I think the Japanese PP will be VERY useful. If the Yen moves (as it has been) the Gold portion (even if gold in USD terms is static or falls) will be huge in protection. The Yen is going back where it came from 40 years ago and that is now down... way down.
He talks about the fund managers he has met in Japan and how they are desperate trying to figure out how to get their clients assets out of Japan as they see what is coming. 
Also google "john mauldin japan"
K