Bogleheads.org

What happens when they start to rise is unknown Same as usual. High inflation, high yields, modest taxation of nominal 'gains' .... sustained for a number of years and bond holders in net real terms lose -50% to -80%. 1960 - 1981 UK, basic tax rate gilt (treasury) bond holders lost -80% in real ter...

Take money off the table - and put it where? Account for taxes, costs and inflation, and there's no safe investment. Over the 1960's to 1980's period in the UK for instance, whilst inflation spiked at times to north of 15%, taxes on inflation bonds wouldn't have allowed you to keep all of the 15% 'i...

Low/negative correlation only matters if your rebalance strategy extracts incremental return and/or the asset classes have independently satisfactory returns. Applying Robert Lichello's AIM to UK gold prices since 1968 [img_resize=90:16dpssuw]http://images.investorshub.advfn.com/images/uploads/2013...

The Behavior of Gold Under Deflation http://www.nowandfutures.com/d2/BehaviorOfGoldUnderDeflation.pdf Executive Summary · Deflation is defined as falling levels of both economic activity and falling price levels on an absolute basis. The contraction of economic activity is generally preceded by an u...

I found the sort of analysis I have been looking for: http://i51.tinypic.com/280se8h.jpg Source: http://www.resourceinvestor.com/News/2009/6/Pages/Gold-stocks-can-add-returns-without-extra-volatility.aspx According to the above, a 85/15 stock/gold portfolio has provided higher returns with no added...

I would like to see a chart going back longer Try this chart Rule of thumb - change in price equals modified duration multiplied by change in yield. Duration for a undated (and long dated) security (i.e. stocks and gold) is the inverse of the yield, which for stocks = PE. For short dated duration c...

but to isolate gold is missing the bigger picture Indeed. Compare for instance a third each in LTT, 2-year T and gold, with 100% 5-year T from 1974 - 2012 inclusive (i.e. ignoring the first couple of years when gold was in effect IPO'd and 'finding its level') and 8.3% annualised, 9.6% standard dev...

Many if not all of the holdings in a small cap value filtered set would likely be holdings that you wouldn't individually pick. Typically they'll be stocks in out of favour sectors, or that have major company issues. A wide range of such stocks however will have some that rebound strongly, others t...

In many ways I think the blend of LTT and gold was a way of creating a TIPs like investment before they existed. .... I think a blend of 75% TIPS is reasonable, but why not have the gold and LTT in there as well. The more diversification the better right? In more 'normal' times maybe yes as under s...

Greenblatt's model is very similar to the profitability model, though it is an "extreme portfolio" with small amount of holdings that no fund could run on and have a large amount of assets Magic Formula is scalable. Whilst he suggests 20 to 30 stocks for most investors, he doesn't set a 3...

Gold is akin to a undated zero coupon inflation bond. Form a barbell by blending gold 50-50 with long term undated conventional treasury bonds and compare to a 5 year bullet, or a 5 year/gold combination, or a 20 year/5 year T combination and longtermreturns.com Historic Investment Returns (can take...

Take the classic 50/50 stock-bond portfolio. Then peel off half the stock allocation and put it in gold -- voila, the Permanent Portfolio. It's essentially a tradeoff of higher expected portfolio returns for lower portfolio volatility... Or assume 25% stock and for the 75% 'bonds' split equally bet...

1972-2011 Permanent Portfolio 9.7% CAGR 50% Total Stock Market/ 50% Total Bond Market 9.1% CAGR Those figures overstate Harry Browne's 4x25 and understate the 50-50. Also its better to compare averages using the average of multiple time periods rather than between two single time points, otherwise ...

PP : 'for money that you cannot afford to lose.' Define loss? No loss in nominal value might still endure a sizeable real (inflation/purchase power) loss. The PP drew-down -20% in real terms during 2008/9 No loss relative to other alternatives : for all 30 year periods since 1972 the PP relatively ...

Clive I too like 3x ETFs for concentrated risk, in theory . In practice it's a no go due to high ERs and slippage, they don't keep up with the index long-term. I don't know where you're getting those low ERs. M* shows 0.99 for ERX, for example. You only need to hold a third of ERX as you would hold...

Clive I appreciate the XOM idea, it's clever, but not so sure about a) taking on that much idiosyncratic risk, b)mixing equity/commodity exposure in one stock and muddying up the allocation vs knowing exactly how much I've got of each. Separating ccf, gold, stock seems cleaner. Though I guess you c...

What is the difference between: 25% LTT 25% STT 25% gold 25% stocks and 50% ITT 25% gold and 25% stocks over a ten year period rebalanced when ever any component increased or decreased by 15 % : ie gold went to 21.25% or 28.75% of the portfolio. and would it stay the same for different ten year per...

Perhaps VDE, ER .14 According to http://www.hmrc.gov.uk/collective/rep-funds.xls VDE was UK reporting registered from September 2010, which means that capital gains are taxed as capital gains rather than income from a UK investors perspective. So you might utilise yearly capital gains tax exemption...

Perhaps VDE, ER .14 Thanks for the pointer. Re: Bullets/barbells From http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield The US Treasury Yield curve for May 5th 2013 indicates 7 year 1.2% 10 year 1.81% Buy a 10 year 1.81% coupon yield for par $10...

The yield curve is dynamic http://images.investorshub.advfn.com/images/uploads/2013/5/9/llpbeyieldcurve.jpg Shorter dated yields (closest to the front/left in the above image) are more volatile than longer dated. Generally buying near the peak of the steepest part of the yield curve is the best valu...

Harry/Larry compromise: 15% SCV 15% EM 5% CCF 5% Gold 10% Long Treas 50% 5 Yr Treas And the Simba says (1985-present): CAGR = 10.82 SD = 8.16 Sharpe = 0.87 Jebediah, these are the yearly gains for XOM 1972-2012 respectively, try dropping those figures into Simba's spreadsheet 23.53 11.90 -25.53 48....

Did the yield curve invert in 2008? 2008 Stocks -37%, LTT +22%. Apparently a nice inverse correlation where the 25% allocation to LTT gains helped offset the 25% allocation to stock losses. But combine 50-50 LTT 22% gain with T-Bills 2% gain over 2008 = 12% average. 5 year T in 2008 yielded a 13% ga...

Looking to reduce yearly volatility at the expense of longer term gains, whilst providing a more emotionally comfortable ride, might not meet investment objectives. I think that was the stated objective of the PP. muted returns 3% to 4 % real with less deviation Which distils down to what I suggest...

Did it perform poorly in real terms relative to the others in real terms? I get your point, but losing less than others in bad times, gaining less than other during good times, shouldn't be looked at in isolation. Overall lower volatility with less rewards across full cycles is a factor. Looking to...

In real terms, 25% in each of stocks, silver, long bonds, one year bills (1917-1920) -17.4 -7.9 -1.96 -11.7 I think it would have been more instructive to post the PP in real terms over those years next to stocks, and bonds, and stocks and bonds, in real terms over those years. They all did poorly....

Clive posted Stock Total gains (1916-1921) 8.57 -17.45 16.78 19.24 -13.70 9.14 In real terms, 25% in each of stocks, silver, long bonds, one year bills (1917-1920) -17.4 -7.9 -1.96 -11.7 I think it was misleading to post PP gains in real and stock in nominal if that is what this was No it wasn't in...

but my take on it is that the Permanent Portfolio mutual fund PRPFX is modeled after an early version of the portfolio that is slanted toward protection in an inflationary environment What Investors Should Fear in the Permanent Portfolio Another important statistical feature of the PP is that it ne...

The fact is that during the last two Fed induced dislocations of this century (1929 and the 1970's) gold and/or gold proxies (silver, mining shares are the one thing that did perform well and hedged the bad outcomes of the time. It appears to anyone that is not dead that we are now in the throes of...

Around 70% of the FT100 profits are derived from overseas earnings. The FT100 represents around 80% of the total UK market capitalisation. Gilts (treasury bonds) with 5 years remaining to maturity can be bought and held in an ISA (tax exempt). When each rung of a 5 year ladder is held to maturity th...

Roll that timeline back 5 or 6 years and its a different story for gold. 1972 - 2007 8.1% I know what you mean though. 1982 - 2000 gold declined -5.5% annualised real (after inflation) - quite a heavy load to carry :) Pure investing is buying cash flows, not just buying something and hoping it incr...

Would it be accurate to say that since the portfolio has lower volatility, we are taking a hit in return? And the fact that the performance has matched 100% stock is somewhat of a fluke? Over the 1972 to 2012 that many measure the PP performance over, annualised gains : Stocks 9.8% Gold 8.9% 20 Yea...

but my take on it is that the Permanent Portfolio mutual fund PRPFX is modeled after an early version of the portfolio that is slanted toward protection in an inflationary environment What Investors Should Fear in the Permanent Portfolio Another important statistical feature of the PP is that it ne...

- Also, if you compare the above figures from a real (after inflation adjustment) perspective there was a -28% loss from the end of 1976 to the end of 1980. It's actually worse. By my calculations, in inflation adjusted terms a synthesized version of the total bond index would be down 52% from 1940...

...I like to use the Japan anology.... Japanese stocks quadrupled over 1985 to 1990 - somewhat similar to the US roaring 1920's. Their stocks crashed over the 1990's, similar to the 1930's Wall Street Crash (giving back some of the exceptional gains). 2002 to 2012 inclusive, Japanese small cap valu...

Owns real estate for rentals (cash flow) Owns some stocks Owns some relatively complicated hedges against rising LT interest rates Owns land Say you allocate 20% to stocks, 10% to gold, 70% TIPS, but opt to hold the stock and gold exposure via LETF's, perhaps holding 6.6% in 3x small cap value, 3.3...

For the period 1983-2008...about 20 percent of stocks lost nearly all of their value. ... If you excluded the top 10 percent of performers, the return would have been only 6.2 percent. If you exclude the top 25 percent, the return becomes slightly negative at -0.6 percent -- the top 25 percent of p...

Actually I seem to remember rebalancing into equities in March of 09. On another board I posted on 31st March 2009 : At current levels I believe that prices are fair and I'm therefore content to move closer to all-in. Equally however I will be applying downside loss limitation measures against that...

I was a Director of the Dade County Housing Authority which issues bonds so I have experience. ... let's look at the record of the Aggregate Bond Market Index which Vanguard's Total Bond Market fund tracks: YEAR--INFLATION--BOND INDEX 1976-------4.9%--------15.6% 1977-------6.7-----------3.0 1978--...

But I wasn't thinking of leverage, which carries with it increased risk....Not investing more than you own. Many investors utilise leverage without even realising it. Any stock that has debt is a leveraged play - and many stocks have debt (Gearing). Other stocks might have cash, which is a form of ...

say some wild new startup IPO that you believe in based on a great idea That's just an even more extreme version - and accordingly you'd invest less in the riskier holding. If each year 98% was invested safely and earned 2% real, 2% were invested in a IPO, then you end each year at 0% real overall ...

Here is what Taleb said about his current portfolio as of December 2012 in an interview with Motley Fool on 12/15/2012. Selling most of the gold that he bought during the 2008-2009 financial crisis Owns real estate for rentals (cash flow) Owns some stocks Owns some relatively complicated hedges aga...

The more stocks you hold the less impact a single big winner will have on the whole (assuming equal weighted). Whilst the best performer out of a fewer number might not be such an outstanding winner, when that relatively smaller big gain is shared across a fewer total number of stocks the overall b...

The strategy is based on simple idea, the more you tilt the less equity allocation you need to get the same return, that allows one to hold more SAFE (credit risk perspective) bonds To expand upon what Larry said further, based on SImba's backtest spreadsheet data, if you multiply each assets annua...

I've always understood the small-value premium to be driven by a small percentage of "lottery tickets" within the larger group.

Holding individual stocks increases the likelihood of not holding the few stocks that drive the risk premia.

Thanks Blue. I wasn't aware of that characteristic.

Here's a purely arbitrary example of a small cap value filtered stock using http://screener.finance.yahoo.com/newscreener.html and looking for criteria of Market Cap <=500m Price Book Ratio <=1 Return on Equity >=10 P/E <=10 Total Debt/Equity <=1.0 One of the stocks presented from that filter was Em...

If you don't own them all you risk missing out on the big winners. http://www.efficientfrontier.com/ef/900/15st.htm malcolm The more stocks you hold the less impact a single big winner will have on the whole (assuming equal weighted). Whilst the best performer out of a fewer number might not be suc...

R^2 = Pearson * Pearson You can't use both numbers though, they're separate comparisons of how well the model fits. Doesn't that depend upon context? There's no necessity for it to be contained to 100% or less for the combined total. If as a Brit I hold US $ then I have USD/GBP FX risk/reward expos...

From this review http://blogs.cfainstitute.org/investor/2013/04/09/book-review-quantitative-value/ a debt-to-equity ratio less than 50% isn't always a good choice. Whilst relatively low debt can be a safer choice (many company failures arise out of bad debt management), a higher debt ratio at times ...

Thanks Larry.

R^2 = Pearson * Pearson Thanks The 4x25 Permanent Portfolio holds 25% in each of stocks, gold, STT and LTT and rebalances at 35% upper, 15% lower rebalance bands. Is this true? I thought it was rebalance at 21% lower and 29% higher 16% of 25 is 4. As I understand it, its 40% rebalance bands. If any...