100% defensive stocks vs 60/40

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Logan Roy
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100% defensive stocks vs 60/40

Post by Logan Roy »

Just pondering, but what are the views on managing risk by only investing in defensive sectors (in this case the three classic recession hedges: Consumer Staples, Healthcare and Utilities) vs stocks and bonds?

I've never been particularly keen on Treasuries as diversifiers for stocks, as although they often provide useful volatility dampening, the risk-free rate tends to dictate fair value for stocks, meaning their respective valuations generally move in tandem (Bond Equity Earnings-yield Ratio). So rebalancing between stocks and bonds rarely leads to these particularly efficient portfolios, as earnings yields on each don't tend to diverge greatly.

If anyone knows where I can get longer-term US stocks sector data, I'd be the first to say backtests that don't go back at least 50 years can be interesting, but not particularly useful.

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homebuyer6426
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Re: 100% defensive stocks vs 60/40

Post by homebuyer6426 »

This is similar to what I'm doing. My goal is to shift slowly to 50% total stock market and 50% consumer staples. Consumer staples since 1974 has the track record of having the best returns of any sector, as well as the lowest volatility.

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https://fourpillarfreedom.com/stock-sector-returns/
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invest2bfree
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Re: 100% defensive stocks vs 60/40

Post by invest2bfree »

All these back tests are all looking backwards.

Unfortunately they may or may not pan out in the future.

If it does not pan out then You will constantly second guess your tilt.

This is the reason why you just go with Total Stock Market preferably global.

Then for your fixed income you decide how much risk you want to take.

I choose corporate bonds but some might stick with treasuries.
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Logan Roy
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Re: 100% defensive stocks vs 60/40

Post by Logan Roy »

homebuyer6426 wrote: Fri Sep 02, 2022 7:21 am This is similar to what I'm doing. My goal is to shift slowly to 50% total stock market and 50% consumer staples. Consumer staples since 1974 has the track record of having the best returns of any sector, as well as the lowest volatility.

Image

https://fourpillarfreedom.com/stock-sector-returns/
And since the early 1960s. Staples and Healthcare, with Technology lagging the most. And there is a suggestion that sectors like Staples and Healthcare have been relatively stable, with businesses like Coca Cola and J&J – whereas, at least historically, the environment of Technology's changed quite regularly, and reshuffled all the leaders. So we've gone from businesses like IBM dominating, to Meta. And whether that continues.

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Re: 100% defensive stocks vs 60/40

Post by toddthebod »

There's no free lunch. If there was a sector reliably returning more than Treasury bonds with less risk, don't you think everyone would have moved their money there already?
Backtests without cash flows are meaningless. Returns without dividends are lies.
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Logan Roy
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Re: 100% defensive stocks vs 60/40

Post by Logan Roy »

invest2bfree wrote: Fri Sep 02, 2022 7:56 am All these back tests are all looking backwards.

Unfortunately they may or may not pan out in the future.

If it does not pan out then You will constantly second guess your tilt.

This is the reason why you just go with Total Stock Market preferably global.

Then for your fixed income you decide how much risk you want to take.

I choose corporate bonds but some might stick with treasuries.
I'm the first to say a backtest that doesn't at least include a period of each of the four basic economic environments is a glance. It's test driving a car in one type of weather. But, we do base all of our assumptions on stock and bond market returns, and correlations, on backtests – knowing either could be radically different over the next century.

I think there is a rationale for questioning the usefulness of Treasuries. And for me it's primarily that I don't think you want to be holding debt when the world's created too much of it, and when there's a strong incentive to maintain negative real yields (to inflate away that debt). What's interesting about defensive sectors is they're still currently 'cheaper' than Treasuries (the PE ratio on 10 year bonds would be about 34), you're also less likely to outperform with them over typical 5-10 year periods, in which sectors like technology or cyclicals are often leading things, but where valuations or fundamentals are more dynamic (meaning you're often overpaying for things – not that that hasn't happened with defensives in the past, e.g. the nifty fifty).

I don't believe there's a diversification benefit from corporate bonds that can't be achieved with cash. Meaning, as I think Swensen noted, they're unlikely to make portfolios particularly efficient. It's a watered down equity market risk.
Last edited by Logan Roy on Fri Sep 02, 2022 8:39 am, edited 1 time in total.
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Re: 100% defensive stocks vs 60/40

Post by homebuyer6426 »

Logan Roy wrote: Fri Sep 02, 2022 8:20 am
And since the early 1960s. Staples and Healthcare, with Technology lagging the most. And there is a suggestion that sectors like Staples and Healthcare have been relatively stable, with businesses like Coca Cola and J&J – whereas, at least historically, the environment of Technology's changed quite regularly, and reshuffled all the leaders. So we've gone from businesses like IBM dominating, to Meta. And whether that continues.

Image
Thanks for the longer term data, I had not seen that. Yes, the dot com bubble and the most recent bubble were mainly technology. It loves to look like the best game in town during its runup, but longterm is not that impressive, probably due to being ephemeral and harder to put metrics on. Maybe easier to hype/fake too.

I am comfortable holding FSTA as a big part of my portfolio, it has over 100 stocks and just about all of the companies produce things that people actually need.
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Logan Roy
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Re: 100% defensive stocks vs 60/40

Post by Logan Roy »

toddthebod wrote: Fri Sep 02, 2022 8:27 am There's no free lunch. If there was a sector reliably returning more than Treasury bonds with less risk, don't you think everyone would have moved their money there already?
Diversification can be a free lunch (relative to a view of markets that's incomplete – e.g. only factoring in stocks and bonds). And long-termism may also be premium (being that the market is generally willing to pay a premium for 5 year performance). Part of the reason I'm posing the question is to get an idea of where people stand on this.
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Re: 100% defensive stocks vs 60/40

Post by invest2bfree »

Logan Roy wrote: Fri Sep 02, 2022 8:34 am


I don't believe there's a diversification benefit from corporate bonds that can't be achieved with cash. Meaning, as I think Swensen, they're unlikely to make portfolios particularly efficient. It's a watered down equity market risk.
I invest in individual bonds and not bond funds.

So it is tailored to expire when I will get my Social Security.

I get 6% for the next 23 years, at the end I will get my money back.

As long as the companies I invest in dont go BK, my risk is very minimal.

They cannot cut my interest payment or defer payment.
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Logan Roy
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Re: 100% defensive stocks vs 60/40

Post by Logan Roy »

homebuyer6426 wrote: Fri Sep 02, 2022 8:36 amThanks for the longer term data, I had not seen that. Yes, the dot com bubble and the most recent bubble were mainly technology. It loves to look like the best game in town during its runup, but longterm is not that impressive, probably due to being ephemeral and harder to put metrics on. Maybe easier to hype/fake too.

I am comfortable holding FSTA as a big part of my portfolio, it has over 100 stocks and just about all of the companies produce things that people actually need.
I should say the one thing I've really been paying attention to (re: testing this hypothesis) is Amazon Essentials – Amazon moving more into manufacturing staples and discretionary products. And the prospect of them doing something similar with healthcare and pharmaceuticals.

I think there's clearly vast potential for them to disrupt these sectors, and my experience of their Essentials products so far is that they're well priced and put together (no doubt benefiting from all the data they own, and their ability to run at low margins). And how they're regulated over this. It could be that Staples and Healthcare continue to be great places to invest, but that Amazon absorbs them, as it's absorbed high street retail.

So in this hypothetical, all defensive stocks, portfolio, I think there might well be an argument to have quite a large allocation to Amazon and Apple (as their digital services, as others have noted, could have very defensive, staples-like, characteristics).
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Re: 100% defensive stocks vs 60/40

Post by burritoLover »

You don't reduce risk in equities by concentrating yourself within equities.
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Logan Roy
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Re: 100% defensive stocks vs 60/40

Post by Logan Roy »

invest2bfree wrote: Fri Sep 02, 2022 8:44 am
Logan Roy wrote: Fri Sep 02, 2022 8:34 am


I don't believe there's a diversification benefit from corporate bonds that can't be achieved with cash. Meaning, as I think Swensen, they're unlikely to make portfolios particularly efficient. It's a watered down equity market risk.
I invest in individual bonds and not bond funds.

So it is tailored to expire when I will get my Social Security.

I get 6% for the next 23 years, at the end I will get my money back.

As long as the companies I invest in dont go BK, my risk is very minimal.

They cannot cut my interest payment or defer payment.
Absolutely. I think that can be a good way to add some certainty. Years like this, I'd quite like to have more invested in the debt of good, safe businesses.

I think the risk is obviously this looming potential for inflation to be a bit worse than we're expecting. In the UK, Goldman think it may exceed 20% next year. Not we're any good at forecasting inflation, but there may be very tough environments where you need a portfolio to do something a bit spectacular.
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Re: 100% defensive stocks vs 60/40

Post by Logan Roy »

burritoLover wrote: Fri Sep 02, 2022 8:51 am You don't reduce risk in equities by concentrating yourself within equities.
Of course, the longer the time period, the more you generally do reduce risk that way. The question is whether there might be something that plays out over shorter periods here.
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Re: 100% defensive stocks vs 60/40

Post by KlangFool »

Logan Roy wrote: Fri Sep 02, 2022 6:50 am
Just pondering, but what are the views on managing risk by only investing in defensive sectors (in this case the three classic recession hedges: Consumer Staples, Healthcare and Utilities) vs stocks and bonds?
Logan Roy,

Until Telecom Bust, Telecom stocks were considered as defensive sector. How well did it works out during Telecom Bust?

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Re: 100% defensive stocks vs 60/40

Post by BrooklynInvest »

burritoLover wrote: Fri Sep 02, 2022 8:51 am You don't reduce risk in equities by concentrating yourself within equities.
I'm a boglehead because the best investment advice is very often the simplest by design. Like this.
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Re: 100% defensive stocks vs 60/40

Post by homebuyer6426 »

BrooklynInvest wrote: Fri Sep 02, 2022 9:07 am
burritoLover wrote: Fri Sep 02, 2022 8:51 am You don't reduce risk in equities by concentrating yourself within equities.
I'm a boglehead because the best investment advice is very often the simplest by design. Like this.
Underweighting the riskiest equities from your basket of equities does seem to be a reasonable way to reduce risk. And with sector funds, it's easy to do without overcomplicating your portfolio.

I think there's a danger to overdoing the Boglehead mantra of "simplest is always right."
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Re: 100% defensive stocks vs 60/40

Post by Charles Joseph »

KlangFool wrote: Fri Sep 02, 2022 8:59 am
Logan Roy wrote: Fri Sep 02, 2022 6:50 am
Just pondering, but what are the views on managing risk by only investing in defensive sectors (in this case the three classic recession hedges: Consumer Staples, Healthcare and Utilities) vs stocks and bonds?
Logan Roy,

Until Telecom Bust, Telecom stocks were considered as defensive sector. How well did it works out during Telecom Bust?

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Re: 100% defensive stocks vs 60/40

Post by KlangFool »

Charles Joseph wrote: Fri Sep 02, 2022 9:21 am
KlangFool wrote: Fri Sep 02, 2022 8:59 am
Logan Roy wrote: Fri Sep 02, 2022 6:50 am
Just pondering, but what are the views on managing risk by only investing in defensive sectors (in this case the three classic recession hedges: Consumer Staples, Healthcare and Utilities) vs stocks and bonds?
Logan Roy,

Until Telecom Bust, Telecom stocks were considered as defensive sector. How well did it works out during Telecom Bust?

KlangFool
Somehow I don't see a Big Bust in toothpaste and toilet paper.

Did anyone stop using their phones during the Telecom Bust? Ditto on any recessions?

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Re: 100% defensive stocks vs 60/40

Post by vineviz »

Logan Roy wrote: Fri Sep 02, 2022 8:58 am
burritoLover wrote: Fri Sep 02, 2022 8:51 am You don't reduce risk in equities by concentrating yourself within equities.
Of course, the longer the time period, the more you generally do reduce risk that way.
This is not true, though I think I know why people sometimes think it is.

"Defensive" stocks essentially represent a factor tilt towards quality companies (high profitability + conservative investment), which isn't an inherently terrible tilt but it has historically left other tilts (e.g. value) out for IMHO no good reason.

The problem is that targeting "defensive" stocks means you're taking on an uncompensated idiosyncratic risk (through sector concentration) unnecessarily: there are more diversified portfolios that produce similar factor exposures.

And ignoring bonds as source of diversification seems unnecessarily restrictive.
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Re: 100% defensive stocks vs 60/40

Post by rockstar »

Given much better bond yields today, I struggle not having them in ones portfolio. I get not wanting them when they yield close to zero, but that's not the case anymore.

As for sector concentration, you won't know if you made the right decision until time has passed. The past isn't guaranteed to repeat. The circumstances of the past, low interest rates, isn't the circumstances of the present.
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Re: 100% defensive stocks vs 60/40

Post by MarkRoulo »

Charles Joseph wrote: Fri Sep 02, 2022 9:21 am
KlangFool wrote: Fri Sep 02, 2022 8:59 am
Logan Roy wrote: Fri Sep 02, 2022 6:50 am
Just pondering, but what are the views on managing risk by only investing in defensive sectors (in this case the three classic recession hedges: Consumer Staples, Healthcare and Utilities) vs stocks and bonds?
Logan Roy,

Until Telecom Bust, Telecom stocks were considered as defensive sector. How well did it works out during Telecom Bust?

KlangFool
Somehow I don't see a Big Bust in toothpaste and toilet paper.
You might not see a large drop off in toilet paper and toothpaste usage, but you might see people switching from Charmin and Colgate to generic brands. Profits for the entire sector could easily drop ... by a a lot.

Gillette didn't see a drop in market share, revenue and profits staring around 2012-14 because people shaved less. People just purchased less Gillette products. The same thing can happen to an entire industry if folks get budget conscious and move from the premium brands to budget/house/generic brands.
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Re: 100% defensive stocks vs 60/40

Post by MarkRoulo »

Logan Roy wrote: Fri Sep 02, 2022 6:50 am Just pondering, but what are the views on managing risk by only investing in defensive sectors (in this case the three classic recession hedges: Consumer Staples, Healthcare and Utilities) vs stocks and bonds?
... snip ...
What risk are you trying to reduce?

Defensive sectors got hammered a lot more than Treasury Bonds from 1929 - 1932 [treasuries went UP in real terms] and (probably) a portfolio of 100% defensive stock probably got hammered a lot more than a mix of 60% stocks and 40% Treasury Bonds. Maybe the 100% defensive stocks worked better from 1966 - 1982 (one could check, I have not). But 1929 and 1966 were two different TYPES of risks.

Defensive stocks are not equivalent to bonds :-)
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Re: 100% defensive stocks vs 60/40

Post by toddthebod »

Logan Roy wrote: Fri Sep 02, 2022 8:38 am
toddthebod wrote: Fri Sep 02, 2022 8:27 am There's no free lunch. If there was a sector reliably returning more than Treasury bonds with less risk, don't you think everyone would have moved their money there already?
Diversification can be a free lunch (relative to a view of markets that's incomplete – e.g. only factoring in stocks and bonds).
You are proposing the opposite.
Charles Joseph wrote: Fri Sep 02, 2022 9:21 am
KlangFool wrote: Fri Sep 02, 2022 8:59 am
Logan Roy wrote: Fri Sep 02, 2022 6:50 am
Just pondering, but what are the views on managing risk by only investing in defensive sectors (in this case the three classic recession hedges: Consumer Staples, Healthcare and Utilities) vs stocks and bonds?
Logan Roy,

Until Telecom Bust, Telecom stocks were considered as defensive sector. How well did it works out during Telecom Bust?

KlangFool
Somehow I don't see a Big Bust in toothpaste and toilet paper.
Have you looked at what counts for consumer staples? Coke & Pepsi, Philip Morris and Altria. I don't see an argument for exchanging US treasury bonds for stock in soft drink and cigarette companies, even if they are large and diversified from their flagship products.
Backtests without cash flows are meaningless. Returns without dividends are lies.
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Logan Roy
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Re: 100% defensive stocks vs 60/40

Post by Logan Roy »

vineviz wrote: Fri Sep 02, 2022 9:30 am
Logan Roy wrote: Fri Sep 02, 2022 8:58 am
burritoLover wrote: Fri Sep 02, 2022 8:51 am You don't reduce risk in equities by concentrating yourself within equities.
Of course, the longer the time period, the more you generally do reduce risk that way.
This is not true, though I think I know why people sometimes think it is.

"Defensive" stocks essentially represent a factor tilt towards quality companies (high profitability + conservative investment), which isn't an inherently terrible tilt but it has historically left other tilts (e.g. value) out for IMHO no good reason.

The problem is that targeting "defensive" stocks means you're taking on an uncompensated idiosyncratic risk (through sector concentration) unnecessarily: there are more diversified portfolios that produce similar factor exposures.

And ignoring bonds as source of diversification seems unnecessarily restrictive.
Well although Siegel's chart may be questionable, as we go further back, the big picture would seem to be that long-term volatility probably isn't reduced in a useful way (relative to return) by adding Treasuries. And I'm suggesting that's because treasury yields and stock market earnings yields tend to track each other. So selling stocks to buy bonds, or vice versa, isn't doing much useful over longer periods. And I think the reason gold has tended to be a better diversifier over 20+ years is because it hedges inflation to a similar degree, but its value is a bit more independent.

So I'm suggesting that Treasuries are basically a deflation hedge, and not much more – and when the dollar decoupled from gold, the prospects of positive real returns from Treasuries probably disappeared with it. Re: factors. I'm not a fan – I think all you're really doing is underweighting the less tangible. But my thinking here is the businesses that generate relatively stable earnings through economic cycles. If there were a 'cycle agnostic' factor, perhaps that would fit?

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Last edited by Logan Roy on Fri Sep 02, 2022 10:59 am, edited 1 time in total.
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Re: 100% defensive stocks vs 60/40

Post by nigel_ht »

invest2bfree wrote: Fri Sep 02, 2022 7:56 am All these back tests are all looking backwards.

Unfortunately they may or may not pan out in the future.

If it does not pan out then You will constantly second guess your tilt.

This is the reason why you just go with Total Stock Market preferably global.

Then for your fixed income you decide how much risk you want to take.

I choose corporate bonds but some might stick with treasuries.
VT is a large cap blend tilt which is also tilted toward the tech sector vs the defensive sector tilt.

Its not a bad idea. I'd probably go with a slightly more diversified portfolio in retirement:

https://www.portfoliovisualizer.com/bac ... tion8_2=25
Last edited by nigel_ht on Fri Sep 02, 2022 11:12 am, edited 1 time in total.
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Re: 100% defensive stocks vs 60/40

Post by nigel_ht »

vineviz wrote: Fri Sep 02, 2022 9:30 am
Logan Roy wrote: Fri Sep 02, 2022 8:58 am
burritoLover wrote: Fri Sep 02, 2022 8:51 am You don't reduce risk in equities by concentrating yourself within equities.
Of course, the longer the time period, the more you generally do reduce risk that way.
This is not true, though I think I know why people sometimes think it is.

"Defensive" stocks essentially represent a factor tilt towards quality companies (high profitability + conservative investment), which isn't an inherently terrible tilt but it has historically left other tilts (e.g. value) out for IMHO no good reason.

The problem is that targeting "defensive" stocks means you're taking on an uncompensated idiosyncratic risk (through sector concentration) unnecessarily: there are more diversified portfolios that produce similar factor exposures.

And ignoring bonds as source of diversification seems unnecessarily restrictive.
Yah, but his defensive sector tilts are in sectors under represented in VT/VTI.
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Re: 100% defensive stocks vs 60/40

Post by Logan Roy »

toddthebod wrote: Fri Sep 02, 2022 10:46 am
Logan Roy wrote: Fri Sep 02, 2022 8:38 am
toddthebod wrote: Fri Sep 02, 2022 8:27 am There's no free lunch. If there was a sector reliably returning more than Treasury bonds with less risk, don't you think everyone would have moved their money there already?
Diversification can be a free lunch (relative to a view of markets that's incomplete – e.g. only factoring in stocks and bonds).
You are proposing the opposite.
My defence would be that, by 6 stocks, we've achieved most of the diversification benefit you get from holding 1,000. And by 20, expected risk/return is very close to the market. So if we've already reduced idiosyncratic risk as much as we're likely to (then reduced it further, by stripping out most businesses with unstable earnings), then what you're left with by holding three sectors, at equal weightings, is a possible rebalancing bonus.
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Re: 100% defensive stocks vs 60/40

Post by Logan Roy »

MarkRoulo wrote: Fri Sep 02, 2022 10:40 am
Logan Roy wrote: Fri Sep 02, 2022 6:50 am Just pondering, but what are the views on managing risk by only investing in defensive sectors (in this case the three classic recession hedges: Consumer Staples, Healthcare and Utilities) vs stocks and bonds?
... snip ...
What risk are you trying to reduce?

Defensive sectors got hammered a lot more than Treasury Bonds from 1929 - 1932 [treasuries went UP in real terms] and (probably) a portfolio of 100% defensive stock probably got hammered a lot more than a mix of 60% stocks and 40% Treasury Bonds. Maybe the 100% defensive stocks worked better from 1966 - 1982 (one could check, I have not). But 1929 and 1966 were two different TYPES of risks.

Defensive stocks are not equivalent to bonds :-)
That's why I'd really like to find longer-term estimated data on sector returns, and see how it plays out over a full cycle. This is just me playing around with an idea. And on the other side of that idea, questions about the usefulness of Treasuries as diversifiers, and whether they're likely to become compelling again (as more than Options on deflation/easing, which seem like the least useful things to hedge stocks from).

I think holding only TIPS to diversify stocks makes a lot more sense, as you get the inflation hedging at the short end, and the deflation hedging (with their sensitivity to rates) at the other.
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Re: 100% defensive stocks vs 60/40

Post by vineviz »

nigel_ht wrote: Fri Sep 02, 2022 11:02 am Yah, but his defensive sector tilts are in sectors under represented in VT/VTI.
There's a possibility increasing the weight allocated to those sectors from MCW to something more "balanced" would improve diversification, but that benefit is certainly not maximized by taking the weight of all other sectors down to zero.
Last edited by vineviz on Fri Sep 02, 2022 11:28 am, edited 1 time in total.
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Re: 100% defensive stocks vs 60/40

Post by LilyFleur »

homebuyer6426 wrote: Fri Sep 02, 2022 9:19 am
BrooklynInvest wrote: Fri Sep 02, 2022 9:07 am
burritoLover wrote: Fri Sep 02, 2022 8:51 am You don't reduce risk in equities by concentrating yourself within equities.
I'm a boglehead because the best investment advice is very often the simplest by design. Like this.
Underweighting the riskiest equities from your basket of equities does seem to be a reasonable way to reduce risk. And with sector funds, it's easy to do without overcomplicating your portfolio.

I think there's a danger to overdoing the Boglehead mantra of "simplest is always right."
Perhaps this is why many Bogleheads own SCHD (Schwab US Dividend Equity ETF), which is heavily weighted toward the Consumer Staples sector.

:arrow: I did not mention SCHD to steer this discussion down the dividend rabbit hole. :mrgreen:
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Re: 100% defensive stocks vs 60/40

Post by vineviz »

Logan Roy wrote: Fri Sep 02, 2022 11:09 am
My defence would be that, by 6 stocks, we've achieved most of the diversification benefit you get from holding 1,000.
That defense would be based on a flawed premise (more than one, actually), particularly that volatility is the only relevant measure of risk.
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Re: 100% defensive stocks vs 60/40

Post by vineviz »

Logan Roy wrote: Fri Sep 02, 2022 10:52 am Well although Siegel's chart may be questionable ....
It's not just the chart that we must question. It's the entirely theoretical underpinning of this argument.

It's true, if we define "risk" and "diversification" sufficiently incorrectly we can see why Siegel's theory seems true.

Zvie Bodie, Robert C. Merton, Paul Samuelson, and others have demonstrated this unambiguously and repeatedly.
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Re: 100% defensive stocks vs 60/40

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Re: 100% defensive stocks vs 60/40

Post by MarkRoulo »

Logan Roy wrote: Fri Sep 02, 2022 11:22 am
MarkRoulo wrote: Fri Sep 02, 2022 10:40 am
Logan Roy wrote: Fri Sep 02, 2022 6:50 am Just pondering, but what are the views on managing risk by only investing in defensive sectors (in this case the three classic recession hedges: Consumer Staples, Healthcare and Utilities) vs stocks and bonds?
... snip ...
What risk are you trying to reduce?

Defensive sectors got hammered a lot more than Treasury Bonds from 1929 - 1932 [treasuries went UP in real terms] and (probably) a portfolio of 100% defensive stock probably got hammered a lot more than a mix of 60% stocks and 40% Treasury Bonds. Maybe the 100% defensive stocks worked better from 1966 - 1982 (one could check, I have not). But 1929 and 1966 were two different TYPES of risks.

Defensive stocks are not equivalent to bonds :-)
That's why I'd really like to find longer-term estimated data on sector returns, and see how it plays out over a full cycle. This is just me playing around with an idea. And on the other side of that idea, questions about the usefulness of Treasuries as diversifiers, and whether they're likely to become compelling again (as more than Options on deflation/easing, which seem like the least useful things to hedge stocks from).

I think holding only TIPS to diversify stocks makes a lot more sense, as you get the inflation hedging at the short end, and the deflation hedging (with their sensitivity to rates) at the other.
Sector returns for 1929-32 may be tough to find. This page has some (claimed ... I have not checked myself) examples of peak-to-trough stock prices for various companies (e.g. Gillette, P&G, AT&T, General Mills) during the 1929-32 excitement.

https://www.joshuakennon.com/a-look-at- ... ket-crash/

It is pretty clear that companies that need earnings to survive behave very differently from government bonds (issued by a government that can print money to make payments ...) during this sort of "recession".

If you found stock data that said that P&G+Gillette+General Mills+whatever stock was "just as good" as 60% Stocks + 40% Us Treasuries from 1929 - 1932 would you believe it?
toddthebod
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Re: 100% defensive stocks vs 60/40

Post by toddthebod »

Logan Roy wrote: Fri Sep 02, 2022 11:09 am
toddthebod wrote: Fri Sep 02, 2022 10:46 am
Logan Roy wrote: Fri Sep 02, 2022 8:38 am
toddthebod wrote: Fri Sep 02, 2022 8:27 am There's no free lunch. If there was a sector reliably returning more than Treasury bonds with less risk, don't you think everyone would have moved their money there already?
Diversification can be a free lunch (relative to a view of markets that's incomplete – e.g. only factoring in stocks and bonds).
You are proposing the opposite.
My defence would be that, by 6 stocks, we've achieved most of the diversification benefit you get from holding 1,000. And by 20, expected risk/return is very close to the market. So if we've already reduced idiosyncratic risk as much as we're likely to (then reduced it further, by stripping out most businesses with unstable earnings), then what you're left with by holding three sectors, at equal weightings, is a possible rebalancing bonus.
But you've completely discarded bonds, which, by your own definition, would provide a free lunch.
Backtests without cash flows are meaningless. Returns without dividends are lies.
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Re: 100% defensive stocks vs 60/40

Post by vineviz »

MarkRoulo wrote: Fri Sep 02, 2022 11:45 am
Logan Roy wrote: Fri Sep 02, 2022 11:22 am
MarkRoulo wrote: Fri Sep 02, 2022 10:40 am
Logan Roy wrote: Fri Sep 02, 2022 6:50 am Just pondering, but what are the views on managing risk by only investing in defensive sectors (in this case the three classic recession hedges: Consumer Staples, Healthcare and Utilities) vs stocks and bonds?
... snip ...
What risk are you trying to reduce?

Defensive sectors got hammered a lot more than Treasury Bonds from 1929 - 1932 [treasuries went UP in real terms] and (probably) a portfolio of 100% defensive stock probably got hammered a lot more than a mix of 60% stocks and 40% Treasury Bonds. Maybe the 100% defensive stocks worked better from 1966 - 1982 (one could check, I have not). But 1929 and 1966 were two different TYPES of risks.

Defensive stocks are not equivalent to bonds :-)
That's why I'd really like to find longer-term estimated data on sector returns, and see how it plays out over a full cycle. This is just me playing around with an idea. And on the other side of that idea, questions about the usefulness of Treasuries as diversifiers, and whether they're likely to become compelling again (as more than Options on deflation/easing, which seem like the least useful things to hedge stocks from).

I think holding only TIPS to diversify stocks makes a lot more sense, as you get the inflation hedging at the short end, and the deflation hedging (with their sensitivity to rates) at the other.
Sector returns for 1929-32 may be tough to find. This page has some (claimed ... I have not checked myself) examples of peak-to-trough stock prices for various companies (e.g. Gillette, P&G, AT&T, General Mills) during the 1929-32 excitement.

https://www.joshuakennon.com/a-look-at- ... ket-crash/

It is pretty clear that companies that need earnings to survive behave very differently from government bonds (issued by a government that can print money to make payments ...) during this sort of "recession".

If you found stock data that said that P&G+Gillette+General Mills+whatever stock was "just as good" as 60% Stocks + 40% Us Treasuries from 1929 - 1932 would you believe it?
Ken French's online data library has industry portfolios in addition to factor portfolios.

https://mba.tuck.dartmouth.edu/pages/fa ... brary.html

They are near the bottom of the page.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: 100% defensive stocks vs 60/40

Post by MarkRoulo »

vineviz wrote: Fri Sep 02, 2022 12:18 pm
MarkRoulo wrote: Fri Sep 02, 2022 11:45 am
Logan Roy wrote: Fri Sep 02, 2022 11:22 am
MarkRoulo wrote: Fri Sep 02, 2022 10:40 am
Logan Roy wrote: Fri Sep 02, 2022 6:50 am Just pondering, but what are the views on managing risk by only investing in defensive sectors (in this case the three classic recession hedges: Consumer Staples, Healthcare and Utilities) vs stocks and bonds?
... snip ...
What risk are you trying to reduce?

Defensive sectors got hammered a lot more than Treasury Bonds from 1929 - 1932 [treasuries went UP in real terms] and (probably) a portfolio of 100% defensive stock probably got hammered a lot more than a mix of 60% stocks and 40% Treasury Bonds. Maybe the 100% defensive stocks worked better from 1966 - 1982 (one could check, I have not). But 1929 and 1966 were two different TYPES of risks.

Defensive stocks are not equivalent to bonds :-)
That's why I'd really like to find longer-term estimated data on sector returns, and see how it plays out over a full cycle. This is just me playing around with an idea. And on the other side of that idea, questions about the usefulness of Treasuries as diversifiers, and whether they're likely to become compelling again (as more than Options on deflation/easing, which seem like the least useful things to hedge stocks from).

I think holding only TIPS to diversify stocks makes a lot more sense, as you get the inflation hedging at the short end, and the deflation hedging (with their sensitivity to rates) at the other.
Sector returns for 1929-32 may be tough to find. This page has some (claimed ... I have not checked myself) examples of peak-to-trough stock prices for various companies (e.g. Gillette, P&G, AT&T, General Mills) during the 1929-32 excitement.

https://www.joshuakennon.com/a-look-at- ... ket-crash/

It is pretty clear that companies that need earnings to survive behave very differently from government bonds (issued by a government that can print money to make payments ...) during this sort of "recession".

If you found stock data that said that P&G+Gillette+General Mills+whatever stock was "just as good" as 60% Stocks + 40% Us Treasuries from 1929 - 1932 would you believe it?
Ken French's online data library has industry portfolios in addition to factor portfolios.

https://mba.tuck.dartmouth.edu/pages/fa ... brary.html

They are near the bottom of the page.
Danke.

The "Hshld" entry in the 49 industry portfolios looks ... grim ... from 1929 - 1932.
I'm guessing that Hshld means something such as "Household goods" (?). Monthly
returns starting in Oct-1929:
-32.46
-14.73
+1.13
+10.32
-8.89
-0.19
-1.53
-7.45
-24.57
+5.84
+0.63
-10.53
-4.62
-1.84
-6.15

Maybe this isn't the industry sector that is defensive. Eyeballing the data seems to show that
"Smoke" held up pretty well into 1930 but then started to do poorly. Utilities might be the best
bet.
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Re: 100% defensive stocks vs 60/40

Post by vineviz »

MarkRoulo wrote: Fri Sep 02, 2022 12:38 pm The "Hshld" entry in the 49 industry portfolios looks ... grim ... from 1929 - 1932.
I'm guessing that Hshld means something such as "Household goods" (?).
If you click "Details" next to the set of industry portfolios, the resulting web page will contain a link to a text file that lists the industry classifications with full names.

For instance "HSHLD" is consumer goods:
9 Hshld Consumer Goods
2047-2047 Dog and cat food
2391-2392 Curtains, home furnishings
2510-2519 Household furniture
2590-2599 Misc furniture and fixtures
2840-2843 Soap & other detergents
2844-2844 Perfumes, cosmetics and other toilet preparations
3160-3161 Luggage
3170-3171 Handbags and purses
3172-3172 Personal leather goods, except handbags and purses
3190-3199 Leather goods
3229-3229 Pressed and blown glass
3260-3260 Pottery and related products
3262-3263 China and earthenware table articles
3269-3269 Pottery products
3230-3231 Glass products
3630-3639 Household appliances
3750-3751 Motorcycles, bicycles and parts (Harley & Huffy)
3800-3800 Misc instruments, photo goods & watches
3860-3861 Photographic equipment (Kodak etc, but also Xerox)
3870-3873 Watches, clocks and parts
3910-3911 Jewelry, precious metals
3914-3914 Silverware
3915-3915 Jewelers' findings and materials
3960-3962 Costume jewelry and novelties
3991-3991 Brooms and brushes
3995-3995 Burial caskets
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Charles Joseph
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Re: 100% defensive stocks vs 60/40

Post by Charles Joseph »

MarkRoulo wrote: Fri Sep 02, 2022 10:35 am
Charles Joseph wrote: Fri Sep 02, 2022 9:21 am
KlangFool wrote: Fri Sep 02, 2022 8:59 am
Logan Roy wrote: Fri Sep 02, 2022 6:50 am
Just pondering, but what are the views on managing risk by only investing in defensive sectors (in this case the three classic recession hedges: Consumer Staples, Healthcare and Utilities) vs stocks and bonds?
Logan Roy,

Until Telecom Bust, Telecom stocks were considered as defensive sector. How well did it works out during Telecom Bust?

KlangFool
Somehow I don't see a Big Bust in toothpaste and toilet paper.
You might not see a large drop off in toilet paper and toothpaste usage, but you might see people switching from Charmin and Colgate to generic brands. Profits for the entire sector could easily drop ... by a a lot.

Gillette didn't see a drop in market share, revenue and profits staring around 2012-14 because people shaved less. People just purchased less Gillette products. The same thing can happen to an entire industry if folks get budget conscious and move from the premium brands to budget/house/generic brands.
The consumer staples sector absolutely trounced the S&P 500 during the GFC. But you're correct that brand loyalty fell off sharply during the Great Recession. I took a peek and in 2008 alone 52 percent of consumers either cut back on or totally abandoned the brands of their choice. Fascinating.

I wonder what made the consumer staples sector hold up so strongly.
"What, me worry?"
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Re: 100% defensive stocks vs 60/40

Post by WhiteMaxima »

Time the market and time the market segment is no different. Buy the total stock market.
MarkRoulo
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Re: 100% defensive stocks vs 60/40

Post by MarkRoulo »

Charles Joseph wrote: Fri Sep 02, 2022 1:47 pm
MarkRoulo wrote: Fri Sep 02, 2022 10:35 am
Charles Joseph wrote: Fri Sep 02, 2022 9:21 am
KlangFool wrote: Fri Sep 02, 2022 8:59 am
Logan Roy wrote: Fri Sep 02, 2022 6:50 am
Just pondering, but what are the views on managing risk by only investing in defensive sectors (in this case the three classic recession hedges: Consumer Staples, Healthcare and Utilities) vs stocks and bonds?
Logan Roy,

Until Telecom Bust, Telecom stocks were considered as defensive sector. How well did it works out during Telecom Bust?

KlangFool
Somehow I don't see a Big Bust in toothpaste and toilet paper.
You might not see a large drop off in toilet paper and toothpaste usage, but you might see people switching from Charmin and Colgate to generic brands. Profits for the entire sector could easily drop ... by a a lot.

Gillette didn't see a drop in market share, revenue and profits staring around 2012-14 because people shaved less. People just purchased less Gillette products. The same thing can happen to an entire industry if folks get budget conscious and move from the premium brands to budget/house/generic brands.
The consumer staples sector absolutely trounced the S&P 500 during the GFC. But you're correct that brand loyalty fell off sharply during the Great Recession. I took a peek and in 2008 alone 52 percent of consumers either cut back on or totally abandoned the brands of their choice. Fascinating.

I wonder what made the consumer staples sector hold up so strongly.
I think we need to be careful to not get side-tracked with "defensive stocks" vs the S&P 500.

The OP has raised the question of whether "all defensive" stocks might work better than a 60:40 stock/bond portfolio during a recession.

If bonds are up, the S&P 500 is down 50% and defensive stocks are only down 40% then the defensive stocks (down 40%) did better than the S&P 500 (down 50%), but all defensive stocks still did worse than a 60:40 stock bond portfolio (maybe down 25% - 30%).
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Re: 100% defensive stocks vs 60/40

Post by Parkinglotracer »

If someone could predict the defensive and other market futures they would. We can’t. Let us know how it works out if you figure it out.
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Re: 100% defensive stocks vs 60/40

Post by nigel_ht »

MarkRoulo wrote: Fri Sep 02, 2022 12:38 pm
vineviz wrote: Fri Sep 02, 2022 12:18 pm
MarkRoulo wrote: Fri Sep 02, 2022 11:45 am
Logan Roy wrote: Fri Sep 02, 2022 11:22 am
MarkRoulo wrote: Fri Sep 02, 2022 10:40 am
What risk are you trying to reduce?

Defensive sectors got hammered a lot more than Treasury Bonds from 1929 - 1932 [treasuries went UP in real terms] and (probably) a portfolio of 100% defensive stock probably got hammered a lot more than a mix of 60% stocks and 40% Treasury Bonds. Maybe the 100% defensive stocks worked better from 1966 - 1982 (one could check, I have not). But 1929 and 1966 were two different TYPES of risks.

Defensive stocks are not equivalent to bonds :-)
That's why I'd really like to find longer-term estimated data on sector returns, and see how it plays out over a full cycle. This is just me playing around with an idea. And on the other side of that idea, questions about the usefulness of Treasuries as diversifiers, and whether they're likely to become compelling again (as more than Options on deflation/easing, which seem like the least useful things to hedge stocks from).

I think holding only TIPS to diversify stocks makes a lot more sense, as you get the inflation hedging at the short end, and the deflation hedging (with their sensitivity to rates) at the other.
Sector returns for 1929-32 may be tough to find. This page has some (claimed ... I have not checked myself) examples of peak-to-trough stock prices for various companies (e.g. Gillette, P&G, AT&T, General Mills) during the 1929-32 excitement.

https://www.joshuakennon.com/a-look-at- ... ket-crash/

It is pretty clear that companies that need earnings to survive behave very differently from government bonds (issued by a government that can print money to make payments ...) during this sort of "recession".

If you found stock data that said that P&G+Gillette+General Mills+whatever stock was "just as good" as 60% Stocks + 40% Us Treasuries from 1929 - 1932 would you believe it?
Ken French's online data library has industry portfolios in addition to factor portfolios.

https://mba.tuck.dartmouth.edu/pages/fa ... brary.html

They are near the bottom of the page.
Danke.

The "Hshld" entry in the 49 industry portfolios looks ... grim ... from 1929 - 1932.
I'm guessing that Hshld means something such as "Household goods" (?). Monthly
returns starting in Oct-1929:
-32.46
-14.73
+1.13
+10.32
-8.89
-0.19
-1.53
-7.45
-24.57
+5.84
+0.63
-10.53
-4.62
-1.84
-6.15

Maybe this isn't the industry sector that is defensive. Eyeballing the data seems to show that
"Smoke" held up pretty well into 1930 but then started to do poorly. Utilities might be the best
bet.
The dataset to use is the 10 Industry Portfolio.

1 NoDur Consumer Nondurables -- Food, Tobacco, Textiles, Apparel, Leather, Toys

2 Durbl Consumer Durables -- Cars, TVs, Furniture, Household Appliances

3 Manuf Manufacturing -- Machinery, Trucks, Planes, Chemicals, Off Furn, Paper, Com Printing

4 Enrgy Oil, Gas, and Coal Extraction and Products

5 HiTec Business Equipment -- Computers, Software, and Electronic Equipment

6 Telcm Telephone and Television Transmission

7 Shops Wholesale, Retail, and Some Services (Laundries, Repair Shops)

8 Hlth Healthcare, Medical Equipment, and Drugs

9 Utils Utilities

10 Other Other -- Mines, Constr, BldMt, Trans, Hotels, Bus Serv, Entertainment, Finance


The October 1929 returns for non durable (-10.64) and health (-18.02) were okay. Utilities was the worst (-30.04) followed by Durables (-28.94).

Energy (-10.07) and Telecom (-15.39) did well.

Now why did Utilities suck?

"It is important to remember that it was in 1929 that Dow Jones introduced their utility average. Utility stocks participated in the bull market for two reasons, leverage and a merger mania. Throughout the 1920s, utility stocks were consolidating at a furious pace. Before the 1800s, each city had its own utilities for electricity, gas, water and street railways. During the 1910s and 1920s, not only did all the utilities of a given city often consolidate into a single utility, but utility holding companies began acquiring utilities in different cities. Holding companies, as opposed to operating companies, could use leverage to acquire more and more utilities and operate across state lines, creating large companies whose profits grew rapidly. Samuel Insull epitomized this behavior as he consolidated utilities in Chicago and the surrounding area creating a utility empire which eventually collapsed in the 1930s."

https://www.investmentoffice.com/Observ ... _1929.html

If your defensive sector is booming...it probably stopped being defensive...

Maybe the 12 would work better since Finance is still in other category in the 10 but broken out in 12.

Now in Sept 1931 Health got clobbered. Have to look into why. NonDurable/Consumer Staple still did better. So did Telecom.

1932 staples finally ended up middle of the pack and Energy did well.

Eh...you'd want to run the whole dataset to see how it goes...but just eyeballing it, ignoring utility for the moment, it looks okay.
Last edited by nigel_ht on Fri Sep 02, 2022 2:13 pm, edited 1 time in total.
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Logan Roy
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Re: 100% defensive stocks vs 60/40

Post by Logan Roy »

toddthebod wrote: Fri Sep 02, 2022 12:11 pm
Logan Roy wrote: Fri Sep 02, 2022 11:09 am
toddthebod wrote: Fri Sep 02, 2022 10:46 am
Logan Roy wrote: Fri Sep 02, 2022 8:38 am
toddthebod wrote: Fri Sep 02, 2022 8:27 am There's no free lunch. If there was a sector reliably returning more than Treasury bonds with less risk, don't you think everyone would have moved their money there already?
Diversification can be a free lunch (relative to a view of markets that's incomplete – e.g. only factoring in stocks and bonds).
You are proposing the opposite.
My defence would be that, by 6 stocks, we've achieved most of the diversification benefit you get from holding 1,000. And by 20, expected risk/return is very close to the market. So if we've already reduced idiosyncratic risk as much as we're likely to (then reduced it further, by stripping out most businesses with unstable earnings), then what you're left with by holding three sectors, at equal weightings, is a possible rebalancing bonus.
But you've completely discarded bonds, which, by your own definition, would provide a free lunch.
Well David Swensen was of the opinion corporate bonds added nothing useful to portfolios (and he did his PhD on them). I'm pondering if there's really much of a case for Treasuries. (Swensen certainly believed there was, although they didn't warrant a place in the endowment model.)

So I'm pondering whether Treasuries are empty calories in this free lunch.
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Re: 100% defensive stocks vs 60/40

Post by Beensabu »

Logan Roy wrote: Fri Sep 02, 2022 6:50 am Just pondering, but what are the views on managing risk by only investing in defensive sectors (in this case the three classic recession hedges: Consumer Staples, Healthcare and Utilities) vs stocks and bonds?
I'd say that Healthcare is no longer a defensive sector. Or at least is becoming less and less of one.

It's not just about the sector, it's about the composition of that sector. What are the characteristics that made it a defensive sector in the past, and do they still dominate?
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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Logan Roy
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Re: 100% defensive stocks vs 60/40

Post by Logan Roy »

vineviz wrote: Fri Sep 02, 2022 12:18 pm
MarkRoulo wrote: Fri Sep 02, 2022 11:45 am
Logan Roy wrote: Fri Sep 02, 2022 11:22 am
MarkRoulo wrote: Fri Sep 02, 2022 10:40 am
Logan Roy wrote: Fri Sep 02, 2022 6:50 am Just pondering, but what are the views on managing risk by only investing in defensive sectors (in this case the three classic recession hedges: Consumer Staples, Healthcare and Utilities) vs stocks and bonds?
... snip ...
What risk are you trying to reduce?

Defensive sectors got hammered a lot more than Treasury Bonds from 1929 - 1932 [treasuries went UP in real terms] and (probably) a portfolio of 100% defensive stock probably got hammered a lot more than a mix of 60% stocks and 40% Treasury Bonds. Maybe the 100% defensive stocks worked better from 1966 - 1982 (one could check, I have not). But 1929 and 1966 were two different TYPES of risks.

Defensive stocks are not equivalent to bonds :-)
That's why I'd really like to find longer-term estimated data on sector returns, and see how it plays out over a full cycle. This is just me playing around with an idea. And on the other side of that idea, questions about the usefulness of Treasuries as diversifiers, and whether they're likely to become compelling again (as more than Options on deflation/easing, which seem like the least useful things to hedge stocks from).

I think holding only TIPS to diversify stocks makes a lot more sense, as you get the inflation hedging at the short end, and the deflation hedging (with their sensitivity to rates) at the other.
Sector returns for 1929-32 may be tough to find. This page has some (claimed ... I have not checked myself) examples of peak-to-trough stock prices for various companies (e.g. Gillette, P&G, AT&T, General Mills) during the 1929-32 excitement.

https://www.joshuakennon.com/a-look-at- ... ket-crash/

It is pretty clear that companies that need earnings to survive behave very differently from government bonds (issued by a government that can print money to make payments ...) during this sort of "recession".

If you found stock data that said that P&G+Gillette+General Mills+whatever stock was "just as good" as 60% Stocks + 40% Us Treasuries from 1929 - 1932 would you believe it?
Ken French's online data library has industry portfolios in addition to factor portfolios.

https://mba.tuck.dartmouth.edu/pages/fa ... brary.html

They are near the bottom of the page.
Well I think that's exactly what I've been looking for. Many thanks. I'm going to see if this helps make or break my case, and update hopefully with some Matlab charts.
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Re: 100% defensive stocks vs 60/40

Post by Logan Roy »

vineviz wrote: Fri Sep 02, 2022 11:33 am
Logan Roy wrote: Fri Sep 02, 2022 10:52 am Well although Siegel's chart may be questionable ....
It's not just the chart that we must question. It's the entirely theoretical underpinning of this argument.

It's true, if we define "risk" and "diversification" sufficiently incorrectly we can see why Siegel's theory seems true.

Zvie Bodie, Robert C. Merton, Paul Samuelson, and others have demonstrated this unambiguously and repeatedly.
Well LTCM thought their portfolio was low risk, on account of its equity-market-like Sharpe ratio. Only to discover all the risk had just been shoved further down the tail, and they hadn't devised a good way to quantify what that risk was. And they were staffed with PhDs in financial theory, maths.. We'd presumably run into similar problems assessing the risk of ZDP shares and perpetual bonds, using conventional metrics (if that's what you mean by 'correct'?).

There's a convention of convenience in using bonds to offset the risk of stocks. And at the level of individual assets, where stocks present realistic permanent loss of capital, and Treasuries almost none, the pairing makes sense. But at the market level, I'm not sure the pairing makes a huge amount of sense. For one, bond and equity market valuations have diverged since we've been using QE – meaning one market is likely inefficiently priced against the other. I'm thinking this is somewhat like what Malkiel's done in recent editions of Random Walk – using dividend stocks as bond proxies. I'm interested in how far that thinking can be stretched. I'm surprised such a defensive portfolio has done as it has, over a 17 year period which has largely been dominated by growth stocks and ideal conditions for bonds.
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Re: 100% defensive stocks vs 60/40

Post by vineviz »

Logan Roy wrote: Fri Sep 02, 2022 2:52 pm
Well LTCM thought their portfolio was low risk, on account of its equity-market-like Sharpe ratio.
LTCM was playing a completely different game than we're talking about here, and if you were talking about leveraging your defensive stock portfolio by 25x or 30x I'm pretty sure my primary objection wouldn't be the choice of utility stocks etc. as the base investment.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: 100% defensive stocks vs 60/40

Post by vineviz »

Logan Roy wrote: Fri Sep 02, 2022 2:52 pm
There's a convention of convenience in using bonds to offset the risk of stocks.
It's not just "convenience". The fact that bonds (generally) have fixed payments at fixed dates creates a different set of risk exposures for investors than stocks, which have uncertain future payments at uncertain future dates.

They literally have differing economic exposures.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: 100% defensive stocks vs 60/40

Post by Grt2bOutdoors »

It’s a poor strategy to classify any industry or sector to be immune or impervious to market dislocation or permanent reduction of valuation especially when referring to past performance. As an example, there have been entire industries which either no longer exist or whose importance has been diminished over time. In 2009, all equities fell.

Do you really want to place 50% of your chips on just 3 industries?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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