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An article about the Japanese Permanent Portfolio
Posted: Sun Feb 07, 2016 5:59 am
by lordmetroid
A nice read to study how an Japanisation of the Economy could effect the Permanent Portfolio.
http://gestaltu.com/2012/09/the-permane ... nese.html/
The article also explores a few more rebalancing mechanism such as moving average and recent volatility. Haven't budd or ghost or someone been discussing this kind of additional rebalancing considerations in past threads?
Re: An article about the Japanese Permanent Portfolio
Posted: Sun Feb 07, 2016 10:11 am
by ochotona
I will reply elsewhere.
Re: An article about the Japanese Permanent Portfolio
Posted: Sun Feb 07, 2016 4:43 pm
by Pet Hog
lordmetroid wrote:
A nice read to study how an Japanisation of the Economy could effect the Permanent Portfolio.
http://gestaltu.com/2012/09/the-permane ... nese.html/
The article also explores a few more rebalancing mechanism such as moving average and recent volatility. Haven't budd or ghost or someone been discussing this kind of additional rebalancing considerations in past threads?
Lordmetroid, thanks for the link. This chart is particularly impressive to me in its linearity:
Chart 8. Simple Permanent Portfolio Japan, Risk Parity, 7% target volatility, 1992 – 2012
[img width=500]
http://1.bp.blogspot.com/-9BImtDY3WI8/U ... P_7%25.png[/img]
I don't think the article deals with real returns, but inflation has been pretty much nonexistent in Japan since 1992 (Japan CPI in Jan 1992 was 98.3; in June 2012 it was 99.6; data from
here). I'd be happy with a 4.5% real annual return over the next 20 years!
Re: An article about the Japanese Permanent Portfolio
Posted: Sun Feb 07, 2016 5:53 pm
by lordmetroid
That image is not the standard 4x25% Permanent Portfolio. That charts shows a portfolio that adjusts the proportions of each assets each month in tandem with rebalancing taking into account the recent volatility of each asset, rebalancing according to volatility rather than capital to try to not let anyone asset dominate.
Adherents to the risk parity philosophy aim to create portfolios where each asset class contributes an equal amount of volatility to the portfolio rather than an equal amount of capital. Chart 5. approximates a risk parity approach using stocks, gold and Treasuries, with a 7% risk target. The T-bill allocation is dynamic where cash expands and contracts in the portfolio in order to keep the portfolio volatility close to our 7% target.
This is the the standard 4x25% Japanese Permanent Portfolio:
Chart 6. Simple Permanent Portfolio Japan
[img width=500]
http://4.bp.blogspot.com/-jLZBJlSnvMI/U ... _Japan.png[/img]
Re: An article about the Japanese Permanent Portfolio
Posted: Sun Feb 07, 2016 6:38 pm
by Pet Hog
That's why I find Chart 8 to be so impressive: smoother growth, smaller drawdowns, and higher CAGR!
Does anyone know how exactly to implement a 7% target risk PP? How is the volatility calculated? It seems that only the percentage of treasury bills was varied in that Japan example; stocks, bonds, and gold were held in equal amounts.
Re: An article about the Japanese Permanent Portfolio
Posted: Sun Feb 07, 2016 6:52 pm
by lordmetroid
Pet Hog wrote:
That's why I find Chart 8 to be so impressive: smoother growth, smaller drawdowns, and higher CAGR!
Does anyone know how exactly to implement a 7% target risk PP? How is the volatility calculated? It seems that only the percentage of treasury bills was varied in that Japan example; stocks, bonds, and gold were held in equal amounts.
Here is what seems to be a white paper:
http://bpgassociates.com/docs/Adaptive- ... Primer.pdf
Though it isn't very explicit and it explains using a 10 asset portfolio. Don't know if the method has been evolved or adapted in some way for a "Permanent Portfolio" kind of Portfolio.
Re: An article about the Japanese Permanent Portfolio
Posted: Sun Feb 07, 2016 8:43 pm
by lordmetroid
And here is one of the researchers Vimeo channel:
https://vimeo.com/user11908185
This kind of methodology is obviously above and beyond what Harry Browne talked about and I have no idea what he would have recommended. As far as I know, this kind of thinking wasn't developed until recently.
This kind of rebalancing method seems so far to have had a positive outcome on the standard deviation. Which makes me very interested because looking at the charts for both the Swedish and Japanese Standard 4x25% Permanent Portfolio allocation, it clearly shows that the portfolio isn't all that permanent and fluctuates a lot more outside of the United States.
Re: An article about the Japanese Permanent Portfolio
Posted: Mon Feb 08, 2016 12:50 am
by dragoncar
Can anyone summarize how the target percentages changed over time?
Re: An article about the Japanese Permanent Portfolio
Posted: Mon Feb 08, 2016 5:31 am
by ochotona
MG could write an explanation, but we might not understand it.
Re: An article about the Japanese Permanent Portfolio
Posted: Mon Feb 08, 2016 8:21 am
by Libertarian666
lordmetroid wrote:
And here is one of the researchers Vimeo channel:
https://vimeo.com/user11908185
This kind of methodology is obviously above and beyond what Harry Browne talked about and I have no idea what he would have recommended. As far as I know, this kind of thinking wasn't developed until recently.
This kind of rebalancing method seems so far to have had a positive outcome on the standard deviation. Which makes me very interested because looking at the charts for both the Swedish and Japanese Standard 4x25% Permanent Portfolio allocation, it clearly shows that the portfolio isn't all that permanent and fluctuates a lot more outside of the United States.
Without doing any research, I'll hazard a guess that HB would have said "That's nice but stick to the 4x25 portfolio".
Re: An article about the Japanese Permanent Portfolio
Posted: Mon Feb 08, 2016 7:13 pm
by lordmetroid
A more comprehensive and up to date White paper on Adaptive Asset Allocation:
http://go.investresolve.com/AAA-2015-Download.html
I registered and downloaded, easy and very nicely described methodology. Makes me want to try it out!
Re: An article about the Japanese Permanent Portfolio
Posted: Mon Feb 08, 2016 7:22 pm
by buddtholomew
Stop It!
Don't snatch defeat from the jaws of victory or something like that.
Re: An article about the Japanese Permanent Portfolio
Posted: Mon Feb 08, 2016 7:49 pm
by ochotona
Well, report back please. If the volatility calculations can't be carried out quickly on a regular spreadsheet every month or every quarter, it may be beyond something a DIY investor wants to bother with.
