www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

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scottj19707
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www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby scottj19707 » Wed Aug 05, 2015 10:17 am

Josh Brown, who pens The Reformed Broker blog, published an article yesterday featuring a new portfolio (history) analysis tool called "Portfolio Charts" (available online at http://portfoliocharts.com/), which he described as...

"The Coolest Portfolio Tool on the Web": (TheReformedBroker.com/Joshua M. Brown, August 4, 2015): http://thereformedbroker.com/2015/08/04 ... n-the-web/

I did not read the entire article, but only had enough time to scan the screenshot of the tool's output included in the blog post. It looks kind of interesting, at least on the surface. I don't have enough time right now to do a deeper dive, but wanted to share with the group.

If anyone has time to check it out and kick the tires, please add a reply post with your thoughts and comments. Thanks!

Disclosure:

I have no affiliation with the person who developed the tool and the http://www.portfoliocharts.com website.

I subscribe to JB's e-mail newsletter, but have no affiliation with him, his blog, or the investment advisory business he runs with Barry Ritholz.

Obviously, Josh and Barry are trying to make a living doing what they do. I doubt they're members of the BH community, but I guess you never know. Stage presence and a little swagger, as well.

I read quite a bit of the material they both publish. I wouldn't necessarily recommend "going there" unless you've first immersed yourself in the basic/core Bogle and Bogleheads.org philosophy. But if you've done that and feel comfortably grounded, looking around and staying informed and educated, to me, is a good thing.

[This portfolio analysis tool is (maybe) a case in point.]

I find a fair amount of what Brown and Ritholtz write interesting (from a Bogleheads-type POV) and some of it too Wall Streety for my taste. I try to apply judgement, check for reasonableness, differentiate between the good and not-so-good... eat the meat, toss the grizzle.

Either way, even the more active-type WS stuff they talk about is interesting and useful to me from the perspective of seeing and trying to better understand the minds of viewpoints of the people on other end of the investing spectrum. Know thy enemy, I suppose.

And, to boot, the patron saint of the Bogleheads is/has been a frequent guest on CNBC, so I don't look down my nose at Josh Brown for his presence on CNBC, in and of itself. I usually turn the sound on when I see either of the JBs in front of the camera.
“To acquire knowledge, one must study; but to acquire wisdom, one must observe.”-Marilyn vos Savant; “If you can’t explain it simply, you don’t understand it well enough.”-Albert Einstein; VTI/VXUS/BND

Tom1397
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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tom1397 » Wed Aug 05, 2015 11:36 am

It is interesting. Worth having a look.

I wish I could extend the time periods for the projections, add individual stocks/ETFs, use a longer (adjustable) historical time period as the basis.

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matjen
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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby matjen » Thu Aug 06, 2015 3:23 pm

Interesting web site. I have only spent a few minutes on it and there is much to digest. I especially like that it has the Larry Fat Tails Portfolio as an option however I don't think it is really an accurate version since it relies on a chunk of TIPS.

Here is a nice comment he wrote about comparing the Fat Tails-type portfolio to a more equity-heavy portfolio: http://portfoliocharts.com/2015/08/03/how-averages-lie/

Thanks for posting.
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Maynard F. Speer
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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Maynard F. Speer » Sun Aug 09, 2015 11:54 am

Just discovered this myself, and the first thing I did was experiment with a Larry-style/barbelled portfolio

I'm using commodities/reits/cash as an analog for hedge funds .. But a few minutes playing around certainly reinforces the rationale for diversification

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby LadyGeek » Sun Aug 09, 2015 12:56 pm

The majority of the data was pulled from the Bogleheads forum, as noted here: Methodology | Portfolio Charts

Direct link: Simba's backtesting spreadsheet
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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Sat Feb 20, 2016 3:22 pm

Hopefully nobody minds me digging up an old thread, but it seemed most appropriate to post here rather than start a new one. To begin, I’d like to express my thanks to the Advisory Board for permitting me to discuss this openly.

I am the author of PortfolioCharts.com. I’m also a long-time Bogleheads lurker, as is hopefully evident in the things I write. I’ve learned a great deal from the many wise and experienced contributors here, and my goal is simply to give back as much as I have received. Please feel free to let me know if you have any questions, suggestions, or requests.

I posted this here to offer a central spot for future feedback. I’m happy to answer any questions, but I also don’t want to be a distraction. See you around the forums!

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby LadyGeek » Sat Feb 20, 2016 3:35 pm

I confirm that Tyler9000 has received permission from our Advisory Board to post links to his website.
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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby pkcrafter » Sat Feb 20, 2016 8:20 pm

Thanks to Scott, Josh, and Tyler for your efforts.

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siamond
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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby siamond » Sat Feb 20, 2016 11:56 pm

Whoah, this is pretty cool. Now I understand why you scrutinize the Simba spreadsheet, Tyler! :happy

May I suggest one small thing? Instead of having to customize the portfolio for each individual calculator, couldn't we have a single page with all calculators (like the lazy portfolios display), and enter the portfolio once? Would be much appreciated!

In any case, amazing work, congrats!

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Aptenodytes » Sun Feb 21, 2016 9:56 am

This is cool. Some people get value of out of raw numbers. Almost everyone gets added value from good visualizations. These are good.

A few questions and suggestions:

1) The hurricane charts say that the withdrawal/contribution amounts are "automatically adjusted for inflation" which makes me wonder all kinds of things about how you handled the inflation assumptions in these charts. Are you using nominal growth rates from the historical data, in which case each line in the plot represents not just a trajectory of real returns but also of inflation? If that's the case it seems weird and problematic. I find it far easier to think about these projections in real terms across the board. The math is easier, the interpretation is easier. "Keep it real" is my suggestion.

2) Certainly keeping the portfolios persistent, as others have said, is a big deal. Maybe with the Simba spreadsheet I have to make my own graphs, but at least I don't have to enter the portfolios over and over. When I first pulled up the "calculators" page and saw all those thumbnails, I thought "Oh cool I will get to generate all these interesting graphs on my portfolio." I did two of them but then ran out of patience with the re-entering.

3) One thing I like a lot about the Simba spreadsheet is the ease of comparing portfolios. In almost every conceivable use case what an investor wants to know is not just a view of one particular portfolio, but an understanding of the difference between a particular portfolio and relevant benchmarks. With your imagery-intensive approach you probably can't easily compare five portfolios at once, but comparing two would be very important. Really cool would be going beyond simply visualizing the two portfolios, but explicitly visualizing the differences. And focusing on visualizing the differences would probably make it possible to come up with creative ways to compare more than 2 portfolios.

4) You default to the 1972-onward visualizations, and in fact there's no way to change that (though in some output the user can hold a piece of paper over the earlier years' data if they want to). Simba's spreadsheet asks you to choose between 1972- and 1985-, recognizing that the proxies become more sketchy as you go further back in time. If you want to add value to your users, think about things such as: a) offering custom footnotes, based on the portfolios specified, explaining the nature of the proxies used -- someone exploring an EM-heavy portfolio would be really grateful to know about the rather dubious proxies used for early years (those proxies are very reasonable for someone with a low EM percentage); b) letting a user choose the start year, perhaps after reading those footnotes (which should be easy to read in the main output). Portfolio Visualizer lets you pick any start year.

5) You say you offer your tools as "completely free," and the lack of a registration requirement and the lack of ads are extremely well appreciated and add to your credibility. Thanks! If you wanted to carry this spirit even further you could offer Excel or Google Sheets templates that generate graphs that look like yours within a Simba spreadsheet or some other spreadsheet.

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siamond
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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby siamond » Sun Feb 21, 2016 1:24 pm

Aptenodytes wrote:1) The hurricane charts say that the withdrawal/contribution amounts are "automatically adjusted for inflation" which makes me wonder all kinds of things about how you handled the inflation assumptions in these charts. Are you using nominal growth rates from the historical data, in which case each line in the plot represents not just a trajectory of real returns but also of inflation? If that's the case it seems weird and problematic. I find it far easier to think about these projections in real terms across the board. The math is easier, the interpretation is easier. "Keep it real" is my suggestion.

Some of us are used to 'keep it real', others prefer to keep it nominal. Fact is both perspectives have value. Maybe add an option somewhere where we can click to switch the display between real and nominal?

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Tyler9000
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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Sun Feb 21, 2016 1:30 pm

Aptenodytes wrote:This is cool. Some people get value of out of raw numbers. Almost everyone gets added value from good visualizations. These are good.


Thanks!

Addressing your questions one-by-one (I'll just number them rather than quote too much):

1) Yeah, perhaps I can re-phrase the terminology for the Hurricane chart. The most succinct explanation is that all of the calculations are in constant dollars. That affects not only the account balances but also the contributions/withdrawals, so everything is "real". Make sense?

2) (Thanks to Siamond for this recommendation, too) Making every chart at once is a little more complicated than it sounds. I have a tool like that to help me generate all of the lazy portfolio charts, but translating it to a user-friendly format that works on the site will take some effort. That's a common request, however, and it's on my to-do list. For now, one shortcut I'll point out is that you can select the full column of black cells in the asset allocation column and copy/paste between calculators.

3) Making more tools to directly compare differences between portfolios is a really interesting idea. The Envy calculator does that, but I like the idea of applying that same concept to the other charts as well. As a starting point, one thing I'm working on is an easy way to, for example, see all of the Pixel charts for the lazy portfolios on one page. I'll have to think about ways to also apply that to custom portfolios as well. There's definitely an opportunity there, I think.

4) You make very good point about start dates. Four of the calculators allow you to sort start dates one way or another. The Envy chart allows you to explicitly choose a start date. For the Pixel chart, you can just ignore any rows you want. For the Hurricane and Firetime charts, the lines are all color coded by start date. While it isn't precise, ignoring the darkest lines will ignore the oldest start dates. I generally prefer visualizing the entire data set to counter the human instinct to cherry pick a start date, but I do see your point about how some data may be more trustworthy than others. If you can point me to where I can learn more about those specific shortcomings that concern you, it will help me understand the issue so that I can design an appropriate solution.

5) Managing these spreadsheets centrally allows me a bit of quality and rev control I like and also makes them easier to share. But I absolutely love the Simba spreadsheet, and am not at all opposed to contributing to it in some way.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby siamond » Sun Feb 21, 2016 1:40 pm

Tyler9000 wrote:If you can point me to where I can learn more about those specific shortcomings that concern you, it will help me understand the issue so that I can design an appropriate solution.

Tyler, if you squint hard enough, you'll notice in the Data_xx tabs of the Simba spreadsheet that some numbers are in bold. This is the start year of the Vanguard historical returns. Before that, the numbers are 'synthetic', i.e. tracking an index, using a model to derive reasonable numbers, etc. You can find all details in the Data_Sources tab. And yeah, some of those 'synthetic' numbers may not be entirely reliable (as exemplified by the IT/LT bonds challenge you pointed out yourself).

I am not sure if it is truly worth the effort, but I see where Aptenodytes is coming from, suggesting some kind of distinct visual for such 'synthetic' numbers. Although personally, I would put that relatively low on the priority list. The ability to compare (custom) portfolios seems much more important.

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Tyler9000
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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Sun Feb 21, 2016 1:55 pm

siamond wrote:
Tyler9000 wrote:If you can point me to where I can learn more about those specific shortcomings that concern you, it will help me understand the issue so that I can design an appropriate solution.

Tyler, if you squint hard enough, you'll notice in the Data_xx tabs of the Simba spreadsheet that some numbers are in bold. This is the start year of the Vanguard historical returns. Before that, the numbers are 'synthetic', i.e. tracking an index, using a model to derive reasonable numbers, etc. You can find all details in the Data_Sources tab. And yeah, some of those 'synthetic' numbers may not be entirely reliable (as exemplified by the IT/LT bonds challenge you pointed out yourself).


Sure. Understood. The relevant data that tracks the same general index before there was a Vanguard fund around is one of the things I love about the Simba spreadsheet. I consider it a feature, not a bug.

I do appreciate that some assets may have a bit of historical nuance, and one of my goals of the Assets section is to help capture that. For example, I plan to make some kind of note that the gold standard ended in 1971, which may have artificially inflated returns for gold the first few years after that. If there are other things like that with EM or other assets, please let me know. I'd like to make the information as helpful as possible.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby siamond » Sun Feb 21, 2016 5:46 pm

Tyler9000 wrote:5) Managing these spreadsheets centrally allows me a bit of quality and rev control I like and also makes them easier to share. But I absolutely love the Simba spreadsheet, and am not at all opposed to contributing to it in some way.

One possible idea is for you to develop a "Cool Simba" spreadsheet, with all the fancy graphs and tables that you have on your Web site. You could simply copy the "Data_All" tab from the Simba spreadsheet (which now contains ALL the historical returns, 1972+, 1985+ and more), and add other tabs to play your magic. Should be easy enough to maintain. Store it somewhere on Google Drive, and you can update it at will.

This being said, I like the Web version too, with a little bit more work on usability, it will be a great tool.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Sun Feb 21, 2016 6:57 pm

siamond wrote:One possible idea is for you to develop a "Cool Simba" spreadsheet, with all the fancy graphs and tables that you have on your Web site.

Hey -- the Simba spreadsheet is already cool enough as-is! :D I always recommend it to people who ask me for a spreadsheet to play with on their own. Perhaps I'll take a pass at a few fun and simple charts to add and will run it by you some time.

This being said, I like the Web version too, with a little bit more work on usability, it will be a great tool.

Thanks. My primary focus right now is to make the site as useful as it can be, so I appreciate all the feedback. It's a fun hobby and I am enjoying the challenge.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Fat-Tailed Contagion » Sun Feb 21, 2016 7:19 pm

Tyler9000,

Have you had any revelations from observing the data sets and portfolios that you would like to share ?

I'd be interested in what you have learned thus far.

Thank you,

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Mon Feb 22, 2016 12:53 pm

Fat-Tailed Contagion wrote:Have you had any revelations from observing the data sets and portfolios that you would like to share ?

I'd be interested in what you have learned thus far.


Good question.

First, let me make it clear that I’m not an expert and I don’t pretend to have everything figured out. I try to learn something new every day. One of the things that motivates me to create new charts and calculators is to look at things from a new perspective.

That said, the more I play with the data the more I appreciate a few common themes:

1) Many investors vastly underrate the impact of volatility on their portfolios. It’s not just a matter of emotion or “risk tolerance”, either. Compound returns (especially in retirement) are more nuanced and unintuitive than people realize.

2) Averages lie. Over-simplifying the metrics you choose a portfolio by leaves out a lot of important information that you will later wish you had considered.

3) Different portfolios work better for different people. Some people just really dislike certain assets (like gold, long term treasuries, or emerging markets) and there’s nothing wrong with that. There are many good options out there that take a variety of different approaches towards the same goal with similar results, so seek out portfolios that match your personality rather than argue about ones that do not.

4) Modern portfolio theory is really fascinating. The idea that higher returns must also have proportionally higher risk is not necessarily true when you study well-diversified portfolio alternatives. And the common bias that ramping up the percentage of stocks is always "better" is similarly shaky.

5) Not all stocks and bonds are created equal. Investors need to look deeper than the total percentage of stocks and bonds in their portfolio and understand how the specific funds they choose affect overall performance.

At a high level, I can also say that studying performance through an independent lens has made me appreciate asset allocation and diversification even more. Reading books about the underlying theory is one thing, but viewing something like the Pixel chart just clicks with me. Hopefully the visualizations are similarly revealing for others.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Theoretical » Mon Feb 22, 2016 2:37 pm

Something that struck me is that it seems like total international funds provide virtually no increase in return with barely a decrease in standar deviation when paired with total us funds. On the other hand, international small, emerging markets, and international value provided improvements in both categories.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Fat-Tailed Contagion » Mon Feb 22, 2016 7:38 pm

Tyler9000 wrote:
Fat-Tailed Contagion wrote:Have you had any revelations from observing the data sets and portfolios that you would like to share ?

I'd be interested in what you have learned thus far.


Good question.

First, let me make it clear that I’m not an expert and I don’t pretend to have everything figured out. I try to learn something new every day. One of the things that motivates me to create new charts and calculators is to look at things from a new perspective.

That said, the more I play with the data the more I appreciate a few common themes:

1) Many investors vastly underrate the impact of volatility on their portfolios. It’s not just a matter of emotion or “risk tolerance”, either. Compound returns (especially in retirement) are more nuanced and unintuitive than people realize.

2) Averages lie. Over-simplifying the metrics you choose a portfolio by leaves out a lot of important information that you will later wish you had considered.

3) Different portfolios work better for different people. Some people just really dislike certain assets (like gold, long term treasuries, or emerging markets) and there’s nothing wrong with that. There are many good options out there that take a variety of different approaches towards the same goal with similar results, so seek out portfolios that match your personality rather than argue about ones that do not.

4) Modern portfolio theory is really fascinating. The idea that higher returns must also have proportionally higher risk is not necessarily true when you study well-diversified portfolio alternatives. And the common bias that ramping up the percentage of stocks is always "better" is similarly shaky.

5) Not all stocks and bonds are created equal. Investors need to look deeper than the total percentage of stocks and bonds in their portfolio and understand how the specific funds they choose affect overall performance.

At a high level, I can also say that studying performance through an independent lens has made me appreciate asset allocation and diversification even more. Reading books about the underlying theory is one thing, but viewing something like the Pixel chart just clicks with me. Hopefully the visualizations are similarly revealing for others.


Thanks, I have a similar outlook .

What strategy are you trying to execute with your portfolio ?
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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Mon Feb 22, 2016 10:28 pm

Theoretical wrote:Something that struck me is that it seems like total international funds provide virtually no increase in return with barely a decrease in standar deviation when paired with total us funds. On the other hand, international small, emerging markets, and international value provided improvements in both categories.

Yeah, I was similarly surprised by that. Perhaps that speaks to how intertwined the US markets are with the world. You have to dive down a little ways to find the true diversification.

Fat-Tailed Contagion wrote:What strategy are you trying to execute with your portfolio ?

I'm personally a Permanent Portfolio guy. After studying options for a while, I'm also considering shifting a little money around to move towards the "Golden Butterfly" portfolio on the site. It's not a recommendation for anyone else -- just something that I think will work well for me personally. As I mentioned earlier, different people require different portfolios.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Fat-Tailed Contagion » Tue Feb 23, 2016 2:38 am

What strategy are you trying to execute with your portfolio ?[/quote]
I'm personally a Permanent Portfolio guy. After studying options for a while, I'm also considering shifting a little money around to move towards the "Golden Butterfly" portfolio on the site. It's not a recommendation for anyone else -- just something that I think will work well for me personally. As I mentioned earlier, different people require different portfolios.[/quote]

Very cool, thank you.

The golden butterfly looks interesting. I agree with the Treasury diversification play, but that is 60% of the portfolio with very little yield and 40% in US stocks, no INTL ?
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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Fat-Tailed Contagion » Tue Feb 23, 2016 2:39 am

Fat-Tailed Contagion wrote:What strategy are you trying to execute with your portfolio ?

I'm personally a Permanent Portfolio guy. After studying options for a while, I'm also considering shifting a little money around to move towards the "Golden Butterfly" portfolio on the site. It's not a recommendation for anyone else -- just something that I think will work well for me personally. As I mentioned earlier, different people require different portfolios.


Very cool, thank you.

The golden butterfly looks interesting. I agree with the Treasury diversification play, but that is 60% of the portfolio with very little yield.

Are you using physical gold or PME ?

40% in US stocks, no INTL ?
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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Tue Feb 23, 2016 1:28 pm

Fat-Tailed Contagion wrote:Very cool, thank you.

The golden butterfly looks interesting. I agree with the Treasury diversification play, but that is 60% of the portfolio with very little yield.

Are you using physical gold or PME ?

40% in US stocks, no INTL ?


All of the calculators track physical gold, not PME. I personally use IAU.

Like some of the other examples, the Golden Butterfly is a total returns portfolio, not a yield portfolio. IMHO, it's a pretty good example of the non-intuitive side of modern portfolio theory. Some people see an asset like gold that has negligible long-term average real returns and no yield and assume it's a huge drag on a portfolio. But others see the high volatility and low correlation to stocks and can visualize how pairing them together with regular rebalancing can be very profitable while simultaneously reducing overall portfolio volatility. For a simplified working example, read this. Portfolios like the Golden Butterfly or Ivy Portfolio simply build on that same concept with three or more assets for maximum effect.

The goal of the charts is to present the results in a neutral and consistent way so that you can come to your own conclusions. I'm not arguing that any one method is better than another, but simply pointing out that there are different ways to approach the same problem of generating reliable investment returns.

The Permanent Portfolio (that the GB is based on) makes a portfolio-specific argument for investing in your home country for macro reasons that would take too long to explain. You might read some of the work by Harry Browne if you're interested.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Fat-Tailed Contagion » Tue Feb 23, 2016 5:16 pm

Tyler9000 wrote:
Fat-Tailed Contagion wrote:Very cool, thank you.

The golden butterfly looks interesting. I agree with the Treasury diversification play, but that is 60% of the portfolio with very little yield.

Are you using physical gold or PME ?

40% in US stocks, no INTL ?


All of the calculators track physical gold, not PME. I personally use IAU.

Like some of the other examples, the Golden Butterfly is a total returns portfolio, not a yield portfolio. IMHO, it's a pretty good example of the non-intuitive side of modern portfolio theory. Some people see an asset like gold that has negligible long-term average real returns and no yield and assume it's a huge drag on a portfolio. But others see the high volatility and low correlation to stocks and can visualize how pairing them together with regular rebalancing can be very profitable while simultaneously reducing overall portfolio volatility. For a simplified working example, read this. Portfolios like the Golden Butterfly or Ivy Portfolio simply build on that same concept with three or more assets for maximum effect.

The goal of the charts is to present the results in a neutral and consistent way so that you can come to your own conclusions. I'm not arguing that any one method is better than another, but simply pointing out that there are different ways to approach the same problem of generating reliable investment returns.

The Permanent Portfolio (that the GB is based on) makes a portfolio-specific argument for investing in your home country for macro reasons that would take too long to explain. You might read some of the work by Harry Browne if you're interested.


Thank you.

One more question:

How many asset classes are you finding to be the "sweet spot" for diversification purposes before it becomes a drag on the portfolio (ie. di-worsification) ?
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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Tue Feb 23, 2016 6:59 pm

Fat-Tailed Contagion wrote:How many asset classes are you finding to be the "sweet spot" for diversification purposes before it becomes a drag on the portfolio (ie. di-worsification) ?


I'll have to think about that. My initial reaction is that the types of assets matters. Having five different varieties of US stock funds is probably over-thinking it, IMHO -- beneath the quantity of funds the portfolio really isn't truly diversified, and there are simpler ways to accomplish the same thing. But investing in five very different assets (like US stocks, Int'l stocks, Bonds, Commodities, and REITs in the Ivy portfolio) seems reasonable.

There's also the issue of taxes, fees, and rebalancing costs, so the answer may vary by individual.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby cherbob85 » Wed Feb 24, 2016 11:46 am

Hi,

I love your site Tyler. I've been reading through it and find it to be totally useful. I particularly like the PIXEL charts. I probably have a ton of questions, but I'm just starting to put in some of my own asset allocations (currently close to coffeehouse portfolio) and I'm seeing what the results are.

Can you explain what the "Longest Drawdown Period" means?

Thanks,

Bob

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Wed Feb 24, 2016 12:57 pm

Thanks!

cherbob85 wrote:Can you explain what the "Longest Drawdown Period" means?


Longest Drawdown is the longest historical period of negative real CAGR since 1972. Basically, it's longest amount of time that an inflation-adjusted portfolio fell below its initial value before it permanently recovered. Practically speaking, it scans the Pixel chart for the red square farthest to the right.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby siamond » Wed Feb 24, 2016 3:39 pm

Tyler9000 wrote:Longest Drawdown is the longest historical period of negative real CAGR since 1972. Basically, it's longest amount of time that an inflation-adjusted portfolio fell below its initial value before it permanently recovered. Practically speaking, it scans the Pixel chart for the red square farthest to the right.

This is an example where a toggle to switch in nominal dollars would be very useful. Truly rational thinking should probably look at drawdowns the way you just described, in real dollars. Emotional thinking will NOT work like that, most people would look at drawdowns in nominal dollars. It is best exemplified by the bonds history, where nominal drawdowns were very mild, while real drawdowns got terrifying at times (you don't really see that in your charts because of the 1972+ timeframe, but war time drawdowns on bonds are mind-boggling).

As a side note, the v15 version of the Simba spreadsheet now provides historical returns for (US) stocks, bonds and bills since 1871 (derived from Shiller's data). And it's not too hard to get the factors breakdown on the Fama-French Web site (starting in 1927). Can you hear me thinking? :wink:

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby siamond » Wed Feb 24, 2016 4:11 pm

Tyler, another comment (we'll keep you busy for a while! you asked for it!). :)

I was playing with the Envy calculator, which is another very cool idea. Still, I find it a tad misleading when provided without additional context. Over 30 or 40 years, it doesn't take that much of a difference in CAGR to make a significant difference in absolute dollars. Which is why, as a case in point, the very low ERs from Vanguard are very welcome. And yet a difference of 0.1% or 0.2% on this Envy graph doesn't register as significant to the eye.

Still, I understand what you were trying to do, and you should definitely keep those great charts. I would simply suggest to add a third chart on this Web page, the usual growth of $10k chart (compared between the two portfolios). It seems to me that visualizing this classic chart in perspective of your Envy charts would help people to better interpret the results.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Wed Feb 24, 2016 4:53 pm

siamond wrote:As a side note, the v15 version of the Simba spreadsheet now provides historical returns for (US) stocks, bonds and bills since 1871 (derived from Shiller's data). And it's not too hard to get the factors breakdown on the Fama-French Web site (starting in 1927). Can you hear me thinking? :wink:


Yeah, it seems like exploring the Fama-French data could be a mutually beneficial exercise. I'm especially interested if there's a similar source for long-term international data.

Your point about switching some charts to nominal dollars because that's how people evaluate things emotionally makes sense. My counter is that my goal is to make rational evaluation a little easier. ;) You mention war-time bonds, but even more recently than that the nominal returns of stocks in the 1970s are also pretty deceiving in terms of real wealth generation. I find real returns to be generally more useful when comparing long-term options.

You're correct that the scaling of the logarithmic Envy chart does minimize the effect of small differences in return rates to the end results, but the benefit is that the logarithmic scale better illustrates portfolio swings through the entire investment cycle. Maybe I can implement an easy way to toggle between the two. Thanks for the idea.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby siamond » Wed Feb 24, 2016 8:11 pm

Tyler9000 wrote:Your point about switching some charts to nominal dollars because that's how people evaluate things emotionally makes sense. My counter is that my goal is to make rational evaluation a little easier. ;) You mention war-time bonds, but even more recently than that the nominal returns of stocks in the 1970s are also pretty deceiving in terms of real wealth generation. I find real returns to be generally more useful when comparing long-term options.

I struggled with this topic for a while in my own Excel spreadsheets, and concluded that both perspectives (real & nominal) have value. Plus the fact of showing both should make people think about it. And that's the entire point of your excellent Web site, I believe, scratch under the surface of rules of thumb and make people think more in depth.

PS. check your PM inbox about French-Fama and about International returns...

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Thu Feb 25, 2016 11:25 am

siamond wrote:I struggled with this topic for a while in my own Excel spreadsheets, and concluded that both perspectives (real & nominal) have value. Plus the fact of showing both should make people think about it. And that's the entire point of your excellent Web site, I believe, scratch under the surface of rules of thumb and make people think more in depth.


Fair enough. You clearly understand my goals pretty well, and I appreciate you taking the time to articulate yours. I'll see what I can do.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby midnightrun » Thu Feb 25, 2016 4:13 pm

Just wanted to say thanks for putting this out. It's the most interesting financial site I've found in the past few years (since discovering bogleheads and WCI).

I have a slice and dice portfolio that I'd like to keep in perpetuity with a potential increase in bond % as retirement approaches:

20% TSM
10% Mid Cap blend
10% small cap value
10% total international
10% EM
10% Intl Small Cap
10% REIT
20% TBM

I was surprised by backtested benefit of a much lower stock % that incorporates other volatile non-equity assets, such as the Golden Butterfly portfolio. I tried a small tweak of switching 10% of TSM to gold and it reduces SD by ~1.5% without hurting CAGR. Long term treasuries seem to have a similar benefit. Interestingly, safe bonds (TBM, shortterm and intermediate term treasuries, cash, etc) had an expected CAGR/SD tradeoff but the benefit wasn't "greater than the sum of the parts". I dismissed both gold and LTT when building my AA: gold because I wasn't sure of the long term value/benefit and long term treasuries because I agreed with the sentiment of taking risk on the equity side. However, doing a deep dive on this site and portfolio visualizer is making me reconsider. A few questions for you:

1. Perhaps it is a failure on my part, but I couldn't find where the specific source of returns for each class come from. I assume it's the same as Simba's backtesting sheet. Is that correct?

2. Are the returns in portfolio charts from various indexes rather than funds one can actually purchase? When I started looking at potentially adding gold/commodities, it doesn't appear that there are low cost options. Is there a way to modify portfolio charts so one can add the ER for the actual investments are available to see if the drag on returns outweighs the diversity benefit?

3. Not to hijack the thread, but it appears that some of the simple portfolios with lower stock % that include highly uncorrelated assets such as the Golden Butterfly/PP did a great job of cutting the left tail w/ a minimal drag on returns. I appreciate being faced with this type of new information because it makes me reexamine my assumptions. Does anyone have thoughts on whether the backtested returns of these types of portfolios is compelling enough to revisit your AA, or do you think the benefits are highly period dependent (coming off gold standard/bond bull market)?

4. Understanding that past performance is not equal to future returns, does anyone have an ideal CAGR/Standard Dev target range? It seems that most reasonable portfolios have a CAGR from 6-9% and an SD from 8-16%. Not sure if there's an ideal efficient frontier.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby siamond » Thu Feb 25, 2016 4:31 pm

Midnightrun, I can actually answer or comment on some of your questions.

1. Yes. See the Data_Sources tab in the latest Simba spreadsheet. See the wiki page.

2a. Most of the numbers are from Vanguard Investor funds, hence readily available for investors. Some of the early numbers are 'synthetic' (e.g. index) as corresponding funds didn't exist by then. The ERs are included in the returns (i.e. subtracted).

2b/3. Vanguard provides a fund for Precious Metal Miners (VGPMX), which is VERY different from something tracking the price of gold (e.g. an ETF like GLD or IAU). Seems to me that the latter has much better properties (negative correlation). BUT. The history of gold is complicated (dollar/gold parity eliminated in 1971, triggering a big rush skewing the stats, then a giant bubble in the past couple of decades), I would be quite wary of inferring patterns from such trajectory. LTGB isn't as bad, but suffers from similar issues. Two cases where it appears quite risky to assume that the future will rhyme with the past. I've been struggling with the same considerations, and so far, ruled out any AA adjustment in this respect.

4. That's a very personal decision... Personally, I don't define risk as std-deviation, and the efficient frontier stuff leaves me cold!

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Thu Feb 25, 2016 5:30 pm

Hi Midnightrun. Adding to Siamond's reply:

1) If you visit the Assets section (or click on the asset in the lazy portfolio summary), each asset includes information on the specific source data from the Simba spreadsheet. The one asset currently not from the Simba spreadsheet is 10-year treasuries.

2) As Siamond mentions, most of the assets directly track low-cost Vanguard index funds (ER included), and data from other sources is used to fill in the gaps before the Vanguard fund existed. Each asset page includes the relevant Vanguard fund as well as a list of comparable index funds you can buy from a variety of different sources. The ERs for other options may vary.

3) Yes, I believe that the low-stock MPT portfolios are absolutely worth considering. With any portfolio (regardless of stock percentage) you should strive to understand the individual assets and overall strategy and not simply take past returns at face value looking forward. It's important to believe in your portfolio if you plan to actually stay the course. If something interests you but you're unsure as to why it worked, I suggest reading the books and resources linked in the Portfolios section.

As an aside, I personally like gold because of how well it complements stocks from a rebalancing perspective. Also, if you look at the Pixel chart of the PP or GB and ignore the first two or three rows for the run-up after the gold standard ended, it doesn't change the overall outlook at all (this type of analysis is why I love that chart). But others disagree and that's fine. Look at the Ivy Portfolio instead -- same concept, different assets. The Swedroe Min Fat Tails portfolio is also quite nice for a low-stock option.

4) I'm not sure I can answer that for you. I personally like to approach that question from the need side rather than the returns side. Find a conservative portfolio that consistently meets your needs and aligns with your personality, and you'll be a much happier investor in the long run than one who is constantly pushing their luck for higher returns with no real idea of "enough".

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Mon Mar 07, 2016 4:42 pm

midnightrun wrote:4. Understanding that past performance is not equal to future returns, does anyone have an ideal CAGR/Standard Dev target range? It seems that most reasonable portfolios have a CAGR from 6-9% and an SD from 8-16%. Not sure if there's an ideal efficient frontier.


I've been thinking a lot about this question. I still can't give you a precise number, but I have created a new tool to help you answer it for yourself. Read this for an explanation: http://portfoliocharts.com/2016/03/07/t ... investors/

Long story short, it applies efficient frontier thinking to wide diversification rather than single portfolio tweaking and provides a calculator to help you sift through the options. While past performance can't predict future returns, if you study the historical performance of every possible combination of assets in the Simba spreadsheet you can absolutely identify some general bounds. More importantly, it may also inform what types of diverse portfolios would potentially be more desirable for you personally.

Image
Last edited by Tyler9000 on Tue Mar 08, 2016 5:16 pm, edited 1 time in total.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby LadyGeek » Mon Mar 07, 2016 5:10 pm

I downloaded the spreadsheet and tried it in LibreOffice Calc, but nothing appears to be happening.

Can you unprotect the sheet? Perhaps I can see what's broken.
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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Mon Mar 07, 2016 5:46 pm

I don't have any experience with LibreOffice, but I suspect the problem is related to liberal use of array formulas that may not translate properly.

I prefer to keep the core files locked for now, as having the files redistributed in modified form by financial advisers and other professional parties that occasionally contact me asking for the same thing is something I'd like to avoid. I'd love to help and perhaps I'll open them one day, but for now I'm being intentionally careful about it and a simple "no exceptions" rule is just easiest to manage.

That said, I'll look into how to make them more cross-software friendly and will happily send you a copy when I figure it out. Perhaps I'll PM you for pointers.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby siamond » Mon Mar 07, 2016 5:48 pm

Tyler9000 wrote:I've been thinking a lot about this question. I still can't give you a precise number, but I have created a new tool to help you answer it for yourself. Read this for an explanation: http://portfoliocharts.com/2016/03/07/t ... investors/

You are an impressively creative fellow (in addition to being an excellent programmer and communicator). Yet another VERY cool idea.

I played a bit with it, ok, I expected Gold to show it prominently and it did. In this case, I really suspect that the past doesn't predict the future, so I got rid of it (and commodities too) and was stunned to discover that a very simple EM/LTGB 50/50 portfolio exceeded a 8% real return while never dropping by more than 20%. I just couldn't believe it (sorry!), ran the scenario through Simba, and of course, this is correct.

Given the low interest rates nowadays, I have a good deal of doubts about LTGB, eliminated it, and then got an EM/SCV/ITB answer, which was a bit less of a surprise, but still who would have guessed that such a portfolio only dropped by less than 25% in the past (with an impressive return).

A couple of suggestions:
- allow to specify the timeframe? Or maybe allow to run the tool over diverse time periods (say all 30 yrs-long cycles) and average out? As you know, historical returns are disturbingly dependent on starting and stopping points...
- allow more choices for the definition of 'risk'? It was VERY refreshing to see you challenge the Sharpe/volatility metric (can't agree more), but well, we all have our perceptions, and many people DO think in terms of volatility. Personally, for such research, I would have used a total-drawdown (multi-year), but that's just me.
- maybe allow to mandate TSM (or any other choice) to avoid overly 'exotic' recommendations => typing 'y' or 'n' or nothing in the cells?

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Tue Mar 08, 2016 11:34 am

siamond wrote:A couple of suggestions:
- allow to specify the timeframe? Or maybe allow to run the tool over diverse time periods (say all 30 yrs-long cycles) and average out? As you know, historical returns are disturbingly dependent on starting and stopping points...
- allow more choices for the definition of 'risk'? It was VERY refreshing to see you challenge the Sharpe/volatility metric (can't agree more), but well, we all have our perceptions, and many people DO think in terms of volatility. Personally, for such research, I would have used a total-drawdown (multi-year), but that's just me.
- maybe allow to mandate TSM (or any other choice) to avoid overly 'exotic' recommendations => typing 'y' or 'n' or nothing in the cells?


These are all great ideas. I very intentionally decided to keep things simple to get something up and running, but fully plan to expand the features in the future. I particularly like your method for also force including assets.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby yolofitz » Sat Mar 12, 2016 12:40 am

Someone please explain the Hurricane plot. It appears there are 16 lines terminating at the 30 year vertical. Then appears to be one plot line terminating at the 29 year vertical. I'd say more but I'm lost. So holding continuously for 30 yrs could begin 1985 or '84 or '83 or back to '72 creating the 16(?) plot lines. I've said more than I should :?

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby siamond » Sat Mar 12, 2016 10:15 am

yolofitz wrote:Someone please explain the Hurricane plot. It appears there are 16 lines terminating at the 30 year vertical. Then appears to be one plot line terminating at the 29 year vertical. I'd say more but I'm lost. So holding continuously for 30 yrs could begin 1985 or '84 or '83 or back to '72 creating the 16(?) plot lines. I've said more than I should :?

The intent is to show how variable outcomes could be depending on which year the scenario starts. For example, starting in 1972 (before the oil crisis) would have been rather painful, while starting in 1975 (after the oil crisis) would have been pretty rosy - for the same amount of money as a starting point, invested over 30 years. The default assumption (which you can customize) is a retiree starting with $1M, and withdrawing $40k (inflation-adjusted) every year from his 60/40 portfolio.

The historical period being studied is 1972 to 2015, so the starting years 1972 to 1986 allow full 30-years scenarios to be displayed, hence the numerous lines stopping at the 30yrs vertical. Starting years 1987 and beyond make for shorter and shorter lines because we only know the historical returns till 2015 (so far!).

Most of this (very cool) Web site is hammering the message that one should be very wary of historical averages. Depending on the starting year, outcomes can dramatically vary.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby siamond » Sat Mar 12, 2016 10:33 am

Speaking of the Hurricane chart, and reflecting on some of the findings of the Portfolio Finder tool, I plugged 50% SCV and 50% LTGB into the Hurricane chart, this is quite impressive (check the min value compared to a classic 60/40 portfolio). Then, just for fun, I plugged 50% SCV and 50% EM. Give it a try... 60/40 is even better... :beer

PS for Tyler: Min/Max/Med is expected to be displayed, but in truth it is only minimally useful. A percentile table would be more useful imho (lowest 5%, 10%, 25%, 50%, 90% would provide more useful information). Or at least, add 10% & 25% percentile to your Min/Max/Med table.
Last edited by siamond on Sat Mar 12, 2016 11:34 am, edited 1 time in total.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Sat Mar 12, 2016 11:31 am

Siamond sums it up nicely. I'll also point out that the lines are color coded by start year - the lighter the line, the more recently it started.

Although averages are nice for comparison purposes, nobody ever receives the average return every year. The variability and timing of annual returns introduces a degree of portfolio uncertainty that is difficult to intuitively understand, and portfolio choice affects not only the average growth rate but also the uncertainty. The goal of the Hurricane chart is to visualize what portfolio uncertainty really looks like using actual historical returns.

BTW, while the default setting is a retirement scenario (with a negative annual contribution), the Hurricane chart is also great for mapping accumulation. Try setting the start value to your current portfolio balance and then enter your annual amount of new contributions. You may find the range of results enlightening.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Sun Mar 13, 2016 11:56 pm

siamond wrote:maybe allow to mandate TSM (or any other choice) to avoid overly 'exotic' recommendations => typing 'y' or 'n' or nothing in the cells?

FYI -- I updated the Portfolio Finder to include a "Require" option for any asset you choose. It's a fun feature and makes surfing portfolios that much easier. Thanks for the suggestion!

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby cherbob85 » Sat Mar 19, 2016 6:49 pm

Thanks Tyler for creating these interesting calculators.

I have been exploring them for a few weeks now and I always seem to be trying to compare/beat the Golden Butterfly portfolio! Currently I slice/dice a bit more than the GB portfolio. I actually lean more toward the coffehouse portfolio.

I'm interested to hear any arguments for or against the Golden Butterfly portfolio. I particularly like the short draw down period!

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby Tyler9000 » Sat Mar 19, 2016 9:48 pm

cherbob85 wrote:I'm interested to hear any arguments for or against the Golden Butterfly portfolio. I particularly like the short draw down period!

Just a little background -- the Golden Butterfly is the result of a bit of effort on my part to identify a good example of a high return / low volatility portfolio that is stable in all economic environments. It's based on the famously low volatility Permanent Portfolio and tosses in a few ideas from other guys I truly respect like Bill Bernstein and Larry Swedroe. I also had a very tough time beating the performance.

It wasn't until I made the Portfolio Finder that I discovered why improving it was so difficult.

Image

Basically, in the dataset since 1972 the Golden Butterfly sits right on the efficient frontier of all possible combinations of assets. There aren't better options to be found for that level of returns.

Some people don't like the Golden Butterfly because they don't trust gold or long term treasuries or they don't necessarily buy into small cap value. Honestly I have no problem with that. If you play around with the Portfolio Finder, most of the portfolios in the band around 6% returns resemble the Golden Butterfly with two parts stocks, two parts bonds, and some alternative asset like gold or commodities. The final position just depends on which assets you choose for each, and there are many good options.

Other people correctly state that other portfolios will look better than the Golden Butterfly if you study different timeframes. That's why every single chart in the Portfolios section doesn't just study a single timeframe but all possible timeframes -- you can easily see that some portfolios are more start date dependent than others and decide for yourself which one makes you most comfortable.

FWIW, I also think it's important to point out that finding the best portfolio for you does not necessarily mean finding the one with the best absolute numbers. If you insist on holding only the best portfolio, you'll end up changing portfolios every year and will always be disappointed. IMHO, any one of those highlighted portfolios on the chart above are great options. Pick the one you most relate to and just stick with it through thick and thin, and you'll be better off than the vast majority of investors.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby cherbob85 » Sun Mar 20, 2016 9:41 am

Thanks Tyler for your response.

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Re: www.portfoliocharts.com ... "The Coolest Portfolio Tool on the Web"?

Postby c078342 » Mon Mar 21, 2016 6:40 pm

What am I missing here? I'm a big advocate of data and am always interested in crunching numbers but for the life of me, I can't find the link on the site to download actionable applications. I certainly have not read the site in detail, so I (likely) may have missed it, but ....


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