PP compared to 8 other asset allocation strategies by Mebane Faber
Posted: Sat Aug 17, 2013 10:22 am
Permanent Portfolio Forum
https://www.gyroscopicinvesting.com/forum/
https://www.gyroscopicinvesting.com/forum/viewtopic.php?t=5048
Hm its the lower blue line, isn`t it?annieB wrote: Awesome.
PP looks like the clear best of class.
Indeed. In the words of the great Mike Tyson:annieB wrote: Good for you that you can stand the drawdowns but we've had folks near freaking out at 3-5%.
The results are with rebalancing.goodasgold wrote: But in computing the PP's CAGR, did Faber take into account rebalancing the portfolio when any segment reaches the recommended bands?
Without this calculation, it seems to me that Faber's results would be greatly distorted.
Comment, anyone?
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.frommi wrote:The results are with rebalancing.goodasgold wrote: But in computing the PP's CAGR, did Faber take into account rebalancing the portfolio when any segment reaches the recommended bands?
Without this calculation, it seems to me that Faber's results would be greatly distorted.
Comment, anyone?
Playing around with http://www.peaktotrough.com/hbpp.cgi you get 20% Max-Drawdown for the PP 25/25/25/25 and 23,4% Max-Drawdown with 50/25/25/0.
That is nearly the same Drawdown but 1% higher CAGR.
The EU-PP had a DD of 7.1% on 28-June, so yes it seems to be right.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.
Yeah, maybe just keep 25% in cash so you are ready to pounce on the deal when they occur!MediumTex wrote: It would be nice if you could just wait for one of those huge drawdowns and buy some of those portfolios then.
That may be true, but I am referring to the peaktotrough.com calculator referenced in goodasgold's post. The hard-coded investment classes are US market indices.frommi wrote:The EU-PP had a DD of 7.1% on 28-June, so yes it seems to be right.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.
Etfreplay has a portfolio of GLD,SHY,EDV and VTI at -8.4% DD from top and -6.8% from start of the year.buddtholomew wrote: That may be true, but I am referring to the peaktotrough.com calculator referenced in goodasgold's post. The hard-coded investment classes are US market indices.
I've said it before and I'll say it again. People creaking out at 3-5% drawdowns are doing so because they don't expect it from a portfolio touted as "amazingly stable." It's a matter of expectation, not just the raw drawdown number. So if they expect up front to get a 25% drawdown (ie that is in their plan) then they could be fine. Not that anyone should expect less than a 20% potential DD with the HBPP.annieB wrote: Good for you that you can stand the drawdowns but we've had folks near freaking out at 3-5%.
You are right, and the PP is not the answer to all questions in this regard. I currently have a savings rate of 80%, so every month 80% of fresh cash comes in ready to be deployed in the market or used for unusual expenses. I don`t really have a use for cash lying around, unless i want to be a market timer. In the drawdown phase i think having around 1 year of expenses in cash may be appropriate, but that will never be 25% of all assets for me (except we get a time like 1970-1980 again when cash interest rates are like 10 year t-bond rates or above, that was the time HB invented the portfolio so back then it made perfect sense).dragoncar wrote: As for the no cash portfolios... They don't really exist in the drawdown phase. I think it's important to model both accumulation and drawdown phases because different portfolios may be more optimal in each phase.
Traditional HBPP does not hold EDV for the long-term treasury portion of the portfolio. Use TLT for modeling purposes as EDV will distort DDs when treasuries are declining.frommi wrote:Etfreplay has a portfolio of GLD,SHY,EDV and VTI at -8.4% DD from top and -6.8% from start of the year.buddtholomew wrote: That may be true, but I am referring to the peaktotrough.com calculator referenced in goodasgold's post. The hard-coded investment classes are US market indices.
So you're suggesting something like 4% in cash?frommi wrote: For my numbers, dividends and interest cover 80% of withdrawals, so with 1 year in cash i can cover 5 years of expenses without selling. Don't you think that is enough?
I would say it depends on your numbers. When 120% oder 150% of your dividends cover your expenses whats that extra cash for?dragoncar wrote:So you're suggesting something like 4% in cash?frommi wrote: For my numbers, dividends and interest cover 80% of withdrawals, so with 1 year in cash i can cover 5 years of expenses without selling. Don't you think that is enough?
Well you said 1 year of expenses in cash. My point is that realistically every portfolio has some cash. Some people just don't count it as part of the portfolio.frommi wrote:I would say it depends on your numbers. When 120% oder 150% of your dividends cover your expenses whats that extra cash for?dragoncar wrote:So you're suggesting something like 4% in cash?frommi wrote: For my numbers, dividends and interest cover 80% of withdrawals, so with 1 year in cash i can cover 5 years of expenses without selling. Don't you think that is enough?
On the other hand, when you are in the late phase of your life and you have to consistently sell assets to pay your expenses, it can be better to hold more cash. But that will also reduce the time you can live of the assets in most scenarios (of course not in all!). I hope i don`t ever come to that part, because you have to gamble about the longevity of your life.
I can really only understand holding more cash when you use it as opportunity money, when your assets are in a drawdown phase. But that is currently not part of the PP strategy. I can`t do a backtest where you put your 25% cash into the market when the PP suffers a drawdown of -10% or -15% and look if the results are better than holding no cash. But i doubt it, that would mean that market timing can be done successfull.
Under very bad markets dividends can sink as companies cut them to conserve cash. Interest rates can also collapse at the same time. In that situation someone with little cash may find they now need to sell depressed assets to pay living expenses. That could greatly exacerbate portfolio drawdown and damage.frommi wrote:I would say it depends on your numbers. When 120% oder 150% of your dividends cover your expenses whats that extra cash for?
Give me numbers!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!
I feel your pain. When I got into this portfolio, I expected it to perform similarly to the S&P, but with more stability: Similar highs, less lows. "Even, steady growth."dragoncar wrote:People creaking out at 3-5% drawdowns are doing so because they don't expect it from a portfolio touted as "amazingly stable." It's a matter of expectation, not just the raw drawdown number. So if they expect up front to get a 25% drawdown (ie that is in their plan) then they could be fine. Not that anyone should expect less than a 20% potential DD with the HBPP.annieB wrote: Good for you that you can stand the drawdowns but we've had folks near freaking out at 3-5%.