madsinger monthly report (July 2018)

[madsinger]

Here is a big fat collection of portfolios, with their July 2018 returns, 2018 YTD return, and annualized returns since 1999, 2008, 2013 and 2015 (19 years 7 months, 10 years 7 months, 5 years 7 months, 3 years 7 months). I broke them into four categories, roughly corresponding to 100/0, 80/20, 60/40, 40/60 stock/bond portfolios, sorted by 10 year Total Return. The 3 fund is 50/30/20 Total Stock/Total Int'l/Total Bond. The s&d is 10 each of VFINX, VIVAX, NAESX, VISVX, VGSIX, 25 VGTSX, 5 VINEX, 20 VBMFX. The coffeehouse is a 60/40 described at The Coffeehouse Investor. The Newsletter portfolios are from a newsletter following Vanguard funds. William Bernstein's "Sheltered Sam" is an all stock portfolio which is 20% VFINX, 25% VIVAX, 5% NAESX, 15% VISVX, 10% VGSIX, 3% VGPMX, 5% each VEURX, VPACX, VEIEX, and 7% VTRIX. The madsinger portfolio is my real-world portfolio, roughly 50/6/11/33 stock/REIT/Gold/bond. The madsingerPP portfolio is the "permanent portfolio" portion of my portfolio consisting of 25% each of stock, long bond, cash, gold.

-Brad.

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                                   CAGR    CAGR    CAGR    CAGR
                   July    YTD     since   since   since   since
                   2018    2018    2015    2013    2008    1999
VFINX              3.70%   6.38%  11.25%  15.15%   8.53%   6.22%
Sheltered Sam      2.92%   2.72%   8.83%  11.62%   6.72%   7.90%
Hot Hands          1.51%   5.63%   4.47%  10.52%   3.84%  10.69%
                  
Newsletter G       3.31%   6.00%  10.75%  14.66%   8.14%   9.95%
Newsletter G-IND   3.04%   5.20%  10.12%  13.64%   7.77%   7.24%
s&d                1.98%   1.66%   7.20%   9.25%   6.17%   7.49%
3 fund             2.44%   2.63%   7.85%   9.73%   6.04%   6.18%
LS G               2.38%   2.70%   7.84%  10.00%   5.69%   5.68%

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Newsletter CG      3.34%   5.30%   9.75%  13.15%   7.73%   8.37%
Wellington         3.39%   2.17%   7.64%  10.10%   7.29%   7.61%
STAR               2.12%   3.01%   7.52%   9.26%   6.59%   6.91%
coffeehouse        1.62%   1.61%   5.84%   8.01%   6.42%   7.07%
LS MG              1.83%   1.90%   6.39%   8.02%   5.30%   5.51%
                  
Newsletter Inc     3.37%   4.20%   8.15%  10.48%   7.28%   6.31%
Wellesley          2.09%  -0.15%   5.32%   6.49%   6.69%   6.70%
LS CG              1.21%   1.06%   4.86%   5.97%   4.59%   5.07%
                  
madsinger          0.98%   1.27%   5.74%   7.77%   5.46%   
madsinger PP       0.10%  -0.79%   3.51%         

[madsinger]

July was a strong, positive month for stocks. US stocks up over 3%, but ranging from 1.8% for small caps, to 4.7% for US Value index. International up 2% to 3% as well. Total bonds were flat, with short gaining, and longs losing. Gold down for the fourth straight month.

As a note, the Sheltered Sam portfolio listed above has a 3% stake in Vanguard's "Precious Metals and Mining Fund" (down -3% for the month). That fund has announced big changes, taking it away from these stocks. I'll continue to use this fund in this portfolio for the rest of the year, but I'm considering either switching to IAU as a proxy for gold, or for removing the allocation entirely. William Bernstein (who proposed this portfolio in his book "Four Pillars of Investing"), as I recall, is not a big fan of holding gold.

The permanent portfolio was up for the month, thanks to the strong return from stocks. Long bonds and gold continue to struggle for the year.

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          STOCK  LONG BOND    CASH   GOLD   PORTFOLIO
January   5.69%   -3.23%     0.10%   3.28%    1.48%
February -3.72%   -2.92%     0.10%  -2.01%   -2.17%
March    -2.52%    2.79%     0.11%   0.55%    0.16%
April     0.37%   -2.00%     0.10%  -0.86%   -0.61%
May       2.41%    1.86%     0.12%  -1.27%    0.79%
June      0.58%    0.63%     0.08%  -3.53%   -0.52%
July      3.66%   -1.30%     0.10%  -2.30%    0.10%
               
YTD       6.21%   -4.16%     0.70%  -6.12%   -0.79%

[ReformedSpender]

Great to see Wellesley making some ground back (was down nearly 3% in April).

Madsinger position in gold may start to perform well here imo. Looks like it wants to move higher

[madsinger]

And a personal tribute to Neal Hudson, username: investor, who was always a supporter of these posts and who I had the opportunity to message with off and on over the past few years. statsguy announced his passing recently. It's a good reminder to me that these cold charts and anonymous postings on the board do not capture the humanity that exists behind our screens. I will miss him and his posts. So, to him, I will add:

Wellington and Wellesley are showing their consistent, strong returns.

-Brad.

[madsinger]

Great to see Wellesley making some ground back (was down nearly 3% in April).

Madsinger position in gold may start to perform well here imo. Looks like it wants to move higher

To be honest, I'm not really "rooting" for a rise in Gold prices. It's more like, if the price of gold rises, I hope it will help my portfolio, since the reason I am holding gold in this portfolio is that it has a low correlation to the other assets I hold. I am not surprised at all that it is not moving in sync with the rest of the assets --- that's the point!

That said, I should note that I rebalanced my portfolio in the end of July, triggered by my allocation to gold dropping below its "range". I sold the overweighted US stocks and REITs, and bought gold (IAU), and some small additions to cash, bonds, and international stocks to get everything back to my desired allocation. I sheepishly admit that since starting this allocation, I have only purchased gold and never sold it when rebalancing, conceding that it has trailed the other asset classes at each rebalancing move.

-Brad.

[Richard1580]

Interesting. Until I read this post I had never heard of "Hot Hands." After reading up on it, I can see the appeal. However, while the Hot Hands' CAGR is far superior to everything else when you calculate from 1999, its performance is both erratic and often anemic since then. VFINX (S&P 500) on the other hand, outperformed every other portfolio in each of the other test periods.

I think I will just stick to my S&P 500/Total Stock Market index funds.

[ResearchMed]

Interesting. Until I read this post I had never heard of "Hot Hands." After reading up on it, I can see the appeal. However, while the Hot Hands' CAGR is far superior to everything else when you calculate from 1999, its performance is both erratic and often anemic since then. VFINX (S&P 500) on the other hand, outperformed every other portfolio in each of the other test periods.

I think I will just stick to my S&P 500/Total Stock Market index funds.

To be fair to the person (Dan Wiener) who has the "original" (??) Hot Hands portfolio, I don't think Madsinger is following it exactly, because he doesn't subscribe to the Newsletter.
I know that at least recently, there was a mis-match, and I suspect there might have been others, but I'm not sure.

Dan Wiener has a very specific definition for the array of eligible funds to be used for selection.

I've subscribed again recently, when there was an ultra-low offer (something like $49, which I'd never seen before), so I'll try to find an update. But I'm not sure if he updates it in every monthly newsletter.

Also, it turned out in the past, as Dan Wiener noted, that the "October Hot Hands" portfolio was in fact better in terms of total performance, but it had more years where it was not the best (or some other "non-best" measure; again, I'll try to look it up).

So I'm not sure if the recent loss of performance is accurate or not.

But aside from the HH reporting, Madsinger has done a real service in faithfully posting these comparisons for a long time. It's nice to get the historical comparisons, of course, but also very informative to get the running tallies each month, and get a feel as time goes along.

Thanks again, Brad!


RM

Note: For those who think about subscribing, there seems to be an occasional and recurring "special offer" that can be $89 or $99/yr, sometimes for one year, sometimes if for two years. There really should *not* be a need to pay the regular price if one doesn't need to "subscribe *now*" or if one can "miss" some issues between subscriptions.
(They DO refund money if one requests it, per the terms offered.)
We gained quite a bit "from the articles" when I first started handling the investments, and a few of the recommended funds (Vanguard and non-Vanguard) have continued to do well.

[madsinger]

As ResearchMed pointed out, I do not subscribe, so I have gone by either what I "thought" the HH fund would be, or someone who has subscribed has privately told me. Because the "official" fund is described in the Newsletter, I do not feel comfortable "publishing" it publicly. That said, RM did tell me that the 2017 fund I used, "Small Cap Value Fund" was not the correct one, but rather "Tax Managed Small Cap" was the one named in the Newsletter. These funds returned 11.83% and 13.23% respectively last year. I did not see this as all that significant.

However, if people would like me to, I would be happy to update the charts with the "official" funds, if someone would tell me what they were. The following is the list of HH funds I have used over the years:

1999 Growth Index
2000 Cap Opp
2001 Small Cap Value
2002 Selected Value
2003 Global Equity
2004 Int'l Explorer
2005 Int'l Explorer
2006 Int'l Explorer
2007 Int'l Explorer
2008 Growth Equity
2009 Dividend Growth
2010 Capital Value
2011 Small Cap Growth
2012 Equity Income
2013 Capital Value
2014 Explorer
2015 Primecap CORE
2016 Int'l Explorer
2017 Small Cap Value

I don't feel posting this list is divulging "proprietary" information, as there is nothing "actionable" about this list. If there are any subscribers out there who would like to check this list of Hot Hands funds, and point out any discrepancies, I'd be happy to update the chart.

Thanks!
-Brad.

[ResearchMed]

As ResearchMed pointed out, I do not subscribe, so I have gone by either what I "thought" the HH fund would be, or someone who has subscribed has privately told me. Because the "official" fund is described in the Newsletter, I do not feel comfortable "publishing" it publicly. That said, RM did tell me that the 2017 fund I used, "Small Cap Value Fund" was not the correct one, but rather "Tax Managed Small Cap" was the one named in the Newsletter. These funds returned 11.83% and 13.23% respectively last year. I did not see this as all that significant.

However, if people would like me to, I would be happy to update the charts with the "official" funds, if someone would tell me what they were. The following is the list of HH funds I have used over the years:

1999 Growth Index
2000 Cap Opp
2001 Small Cap Value
2002 Selected Value
2003 Global Equity
2004 Int'l Explorer
2005 Int'l Explorer
2006 Int'l Explorer
2007 Int'l Explorer
2008 Growth Equity
2009 Dividend Growth
2010 Capital Value
2011 Small Cap Growth
2012 Equity Income
2013 Capital Value
2014 Explorer
2015 Primecap CORE
2016 Int'l Explorer
2017 Small Cap Value

I don't feel posting this list is divulging "proprietary" information, as there is nothing "actionable" about this list. If there are any subscribers out there who would like to check this list of Hot Hands funds, and point out any discrepancies, I'd be happy to update the chart.

Thanks!
-Brad.

While my subscription is still active, I'll try to find that for you later today, if no one else already did so.

I agree that the "appropriate thing *not* to do" is to post the *current* fund, given that this is proprietary and useful information that he sells as part of his newsletter subscription.

RM

[Richard1580]

We may be talking apples and oranges here, but for S&G's I went back and applied the hot hand theory to Vanguard's mutual funds since 2010. I ignored bonds and precious metals as outliers and just concentrated on stock and mixed funds.

If I started with $1M at the end of 2008 and invested in the hottest fund from the *previous* year, I would have $1,358,000 at the end of 2016. If I had the foresight to invest in the hottest fund each year, I would have $9,611,000.

I think I will just stick to a 50/10/40 split (US/Intl/Bond). It lets me sleep easier.