Golden Butterfly Portfolio

A place to talk about speculative investing ideas for the optional Variable Portfolio

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senecaaa
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Re: Golden Butterfly Portfolio

Post by senecaaa » Thu Dec 26, 2019 3:21 am

Something completely different, but related to the Golden Butterfly Portfolio:

I don't really understand the reason we have short-term treasuries in the portfolio. Similar to cash/bills in the PP. From reading the book about the PP the only reason I can come up with is that it provides liquid assets when we need to rebalance because one of the four (or five) allocations is out of bounds.
Is that it? Or is there more to it?

Short term treasuries in the EU have a negative yield. We have "bank loans" that provide a couple of percent interest (at the cost of not being allowed to use it for a year or two). Can I use that for the GB instead? Or do short-term treasuries provide some special behavior that is essential?

When I repace STT with BILL in PortfolioCharts I do see that the performance goes down a bit. Why is that?
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Re: Golden Butterfly Portfolio

Post by mathjak107 » Thu Dec 26, 2019 3:26 am

with 1/2 the bond budget in LT treasuries and 1/2 in short it also acts as a barbell and overall interest rate sensitivity is tempered .

in rising rates you would get creamed otherwise if you had 2x the amount in LT bonds .

in falling rates short term bond funds that are 1-3 years will do better , in rising rates they will do worse . BIL is very short term.

the short term stuff acts as options would , to buy assets at lower prices but with no expiration date unlike the options
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Re: Golden Butterfly Portfolio

Post by Hal » Thu Dec 26, 2019 9:01 am

senecaaa wrote:
Thu Dec 26, 2019 3:21 am
Short term treasuries in the EU have a negative yield. We have "bank loans" that provide a couple of percent interest (at the cost of not being allowed to use it for a year or two). Can I use that for the GB instead? Or do short-term treasuries provide some special behavior that is essential?
With treasuries you don't run the risk of bail-ins.

https://www.investopedia.com/articles/m ... ilouts.asp

Detailed discussion from "down under"

https://www.youtube.com/watch?v=4DvFoNtfWgM
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Re: Golden Butterfly Portfolio

Post by senecaaa » Fri Dec 27, 2019 4:46 am

Thanks, guys!
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Re: Golden Butterfly Portfolio

Post by rocketdog » Tue Dec 31, 2019 9:51 am

I only keep 60% of my HSA portfolio in the HBPP. I divide up the other 40% by putting 10% each into:
  • Small Cap Value
  • US REIT
  • Foreign Developed Markets
  • Diversified Emerging Markets
Working nicely for me so far.
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Re: Golden Butterfly Portfolio

Post by mathjak107 » Tue Dec 31, 2019 10:00 am

this year anything with the word "buy" worked nicely
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Re: Golden Butterfly Portfolio

Post by vnatale » Tue Feb 18, 2020 6:23 pm

Tyler wrote:
Mon Apr 11, 2016 10:23 pm
sophie wrote: A question Tyler:  what would you use for rebalance bands?
30/10 is a nice round number.  It's more instinct than science, but it seems reasonable. 

Almost four years later......has your instinct remained the same regarding this?

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Golden Butterfly Portfolio

Post by vnatale » Tue Feb 18, 2020 6:31 pm

Kbg wrote:
Wed Apr 20, 2016 10:33 am
It's called negatively and weakly correlated assets. The risk mitigation is organically built in not externally derived. I continue to be dumbfounded at the focus on the PPs individual pieces.

The only thing that makes sense to me is a "factor" tilt of some kind. For someone younger I can easily see altering the stock component up to 30 or 35% by taking from gold/LTTs/both. Of course volatility will go up a bit, but not a ton.

Lastly, the portfolio performance profile is entirely visible in the historical returns...stock market strong bull the PP is not fun. Flat to down the PP is awesome. Hit rinse cycle and repeat. Over very long periods of time the results are comparable but WAY more predictable with the PP.
Am I correct in assuming that nearly four years later you hold to the same analysis? Your analysis seems reasonable to me but just checking to see if you still believe the same.

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Golden Butterfly Portfolio

Post by Kbg » Tue Feb 18, 2020 11:26 pm

vnatale wrote:
Tue Feb 18, 2020 6:31 pm
Kbg wrote:
Wed Apr 20, 2016 10:33 am
It's called negatively and weakly correlated assets. The risk mitigation is organically built in not externally derived. I continue to be dumbfounded at the focus on the PPs individual pieces.

The only thing that makes sense to me is a "factor" tilt of some kind. For someone younger I can easily see altering the stock component up to 30 or 35% by taking from gold/LTTs/both. Of course volatility will go up a bit, but not a ton.

Lastly, the portfolio performance profile is entirely visible in the historical returns...stock market strong bull the PP is not fun. Flat to down the PP is awesome. Hit rinse cycle and repeat. Over very long periods of time the results are comparable but WAY more predictable with the PP.
Am I correct in assuming that nearly four years later you hold to the same analysis? Your analysis seems reasonable to me but just checking to see if you still believe the same.

Vinny
Yes. I do what I call a VP PP...more risk, more growth but based on PP principles.
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Re: Golden Butterfly Portfolio

Post by Hal » Wed Feb 26, 2020 8:06 pm

Smith1776 wrote:
Sun Dec 22, 2019 2:13 pm
This recent turn of conversation has me curious as to how much of the GB's outperformance over the PP is due to the SCV tilt, rather than the fact that it has more equity in an absolute sense (40% vs 25%).

I'd like to research into this more. You'd also have to control for the altered levels of gold, cash and bonds.

My first brief glance at the numbers seems to suggest the balance of GB outperformance over the PP may indeed be because of the tilt, rather than the 40% equity.

However, if that's the case, we go back to the gnarly problem of whether or not the factor premiums will persist.

If indeed a SCV tilted PP closes most of the gap in performance against the GB, it'd make me that much more content with the 4 x 25% allocation.
Just resurrecting the SCV topic. I think this series of three lectures on how ETF's are structured explain the outperformance.

https://www.youtube.com/watch?v=xpk3triMLZQ

https://www.youtube.com/watch?v=Ih7bWOSwECU

https://www.youtube.com/watch?v=0JfGplGv3BA

As always, all comments welcome :)
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Re: Golden Butterfly Portfolio

Post by ppnewbie » Thu Feb 27, 2020 12:46 pm

So I got a little confused - what did Tyler settle on SCV or SCB for 20%.
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Re: Golden Butterfly Portfolio

Post by Tyler » Thu Feb 27, 2020 2:00 pm

ppnewbie wrote:
Thu Feb 27, 2020 12:46 pm
So I got a little confused - what did Tyler settle on SCV or SCB for 20%.
I'm personally using SCV right now. But I've owned SCB in the past and think that also is a good choice. Value has slightly better historical returns but has faded a bit over time, while blend has slightly lower returns but has been more consistent.
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Re: Golden Butterfly Portfolio

Post by ppnewbie » Thu Feb 27, 2020 3:43 pm

On another note. I just checked my GB 401k (which I converted a year ago) and the off kilter gyroscope is still gyrating. Year to Date it's up 14%. Thanks for the reply Tyler.
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Re: Golden Butterfly Portfolio

Post by TrickPony » Thu Mar 05, 2020 1:25 pm

I just noticed that my VBR is down about 14% for the year, about twice as bad as my large cap VTI. This type of market seems like a good test for the "Golden Butterfly". Still marginally up for the year...Yea.
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Re: Golden Butterfly Portfolio

Post by pmward » Thu Mar 05, 2020 1:50 pm

So far in 2020 both small caps and value in general have been exceptionally weak. This drought for both is indeed pretty crazy, and I don't think anyone would be silly for questioning both small caps and value at this point. I think 40% VTI would not be unreasonable at all if anyone does not have faith in SCV going forward. I've also done some looking into ways to use momentum trend here on the other 20% stock bucket...
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Re: Golden Butterfly Portfolio

Post by sophie » Mon Mar 09, 2020 8:33 am

pmward wrote:
Thu Mar 05, 2020 1:50 pm
So far in 2020 both small caps and value in general have been exceptionally weak. This drought for both is indeed pretty crazy, and I don't think anyone would be silly for questioning both small caps and value at this point. I think 40% VTI would not be unreasonable at all if anyone does not have faith in SCV going forward. I've also done some looking into ways to use momentum trend here on the other 20% stock bucket...
Otherwise known as buying high and selling low. This is how you screw up your portfolio returns. The drop in small caps is a buying opportunity, not an indication to sell them. I suspect they are harder hit than large companies by the chaos in Chinese manufacturing.
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Re: Golden Butterfly Portfolio

Post by pmward » Mon Mar 09, 2020 8:54 am

sophie wrote:
Mon Mar 09, 2020 8:33 am
pmward wrote:
Thu Mar 05, 2020 1:50 pm
So far in 2020 both small caps and value in general have been exceptionally weak. This drought for both is indeed pretty crazy, and I don't think anyone would be silly for questioning both small caps and value at this point. I think 40% VTI would not be unreasonable at all if anyone does not have faith in SCV going forward. I've also done some looking into ways to use momentum trend here on the other 20% stock bucket...
Otherwise known as buying high and selling low. This is how you screw up your portfolio returns. The drop in small caps is a buying opportunity, not an indication to sell them. I suspect they are harder hit than large companies by the chaos in Chinese manufacturing.
I'm not making any changes personally. I mainly meant that it wouldn't be unreasonable for someone to give up hope in both small cap and value at this point. But who knows, with all this craziness, value and small caps might finally get a chance to shine once the market starts to rebound. It certainly could be a very good environment for both to shine.
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Re: Golden Butterfly Portfolio

Post by Kevin K. » Thu Mar 12, 2020 7:25 pm

The SCV underperformance vs. TSM is indeed dramatic and has been for years now.

Tyler's comment on his site about the theory behind the GB:

"The large/small barbell works well for this but other options are also fine. The permanence of the value premium is also debatable, but it is not central to the portfolio and other options like small cap blend or a broad international fund also work."

I still think tilting towards prosperity by having 40% equities vs. 25% makes sense. But I must admit I've been thinking that 10% in SCV or SCB might be enough after seeing the SCV crater the overall performance vs. the PP. Of course I'm writing this on a day when stocks, LTT's and gold all tanked in unison so maybe down is up and I'd better not do any tweaking or rebalancing anytime soon.
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Re: Golden Butterfly Portfolio

Post by Tyler » Thu Mar 12, 2020 8:46 pm

Kevin K. wrote:
Thu Mar 12, 2020 7:25 pm
The SCV underperformance vs. TSM is indeed dramatic and has been for years now.
That's true. But if SCV always outperformed TSM nobody would invest in large caps anymore. ;)

I hear ya, though. SCV is certainly painful right now, and there's no way around it. I definitely wouldn't change your AA because of the events of a few weeks or even years, as for all we know SCV will come roaring back and leave TSM in the dust once the recovery starts. But I have no problem with people using days like today to take a hard look at their own risk tolerance and think about what that means to their long-term investing strategy. Just be sure to look at the big picture and not single assets in isolation.

BTW, even I am a little personally conflicted between SCV or SCB in my own portfolio. It has nothing to do with recent performance, though, and you'll see some of that thought process if you re-read this thread. I just philosophically relate to the Browne idea of diversifying investments across economic conditions more than I relate to the factor investing mindset of filtering for the most profitable investments. The former distributes risk, while the latter concentrates it. I absolutely appreciate the cap diversification of a small cap fund when paired with a large cap fund, but I can see both sides on the value premium. Long story short, even a guy like me who invented the GB is willing to tweak ideas to my own needs and preferences when necessary.

So no matter how you invest, my best advice is to pick a reasonably-diversified portfolio you're comfortable sticking with and piling more money into even in times like now. Do that, and in the long run you'll be set for life.
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Re: Golden Butterfly Portfolio

Post by dragoncar » Fri Mar 13, 2020 2:29 am

Kevin K. wrote:
Thu Mar 12, 2020 7:25 pm
The SCV underperformance vs. TSM is indeed dramatic and has been for years now.

Tyler's comment on his site about the theory behind the GB:

"The large/small barbell works well for this but other options are also fine. The permanence of the value premium is also debatable, but it is not central to the portfolio and other options like small cap blend or a broad international fund also work."

I still think tilting towards prosperity by having 40% equities vs. 25% makes sense. But I must admit I've been thinking that 10% in SCV or SCB might be enough after seeing the SCV crater the overall performance vs. the PP. Of course I'm writing this on a day when stocks, LTT's and gold all tanked in unison so maybe down is up and I'd better not do any tweaking or rebalancing anytime soon.
I use SCB instead of SCV and hold SC because, as Tyler pointed out, the barbell gives you something approximating a nice equal-weight in all the boxes of a morningstar-style grid
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Re: Golden Butterfly Portfolio

Post by Kevin K. » Fri Mar 13, 2020 1:56 pm

Thanks Tyler, thanks dragoncar!

I'm not ready to make any changes to the GB and it's always good during times like these to review the careful thought that went into creating it.

As always I'm grateful for the discussion and in times like these especially appreciate your pioneering work Tyler. Harry Browne would be very proud of the multiple ways you've taken his work to the next level and made it available to another generation (or two).
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Re: Golden Butterfly Portfolio

Post by vnatale » Tue Mar 17, 2020 7:48 pm

mathjak107 wrote:
Thu Nov 19, 2015 8:56 am
no one knows what to expect this  time around . these are uncharted times with things right now so i would trust nothing but real time monitoring .

could we have a decade of rising rates back to the historic norms ?  could stocks be dead another 15 years and could gold go no where but down with rising rates ?

all very possible so any spending down plan needs a plan B .  WHICH MEANS Access to another level of just slightly more volatile assets once cash runs low . .

i wouldn't want plan b to have to decide whether to take a beating on gold , stocks or those long term volatile treasury's .

more and more i like what i see when running simulations with the various types of income annuty's as a base . but we are still a bit to young and rates to low for laddering them .

the new fidelity retirement planner has simulations you can add with various annuity types .

if someone is not retiring today or in the short term , this may all go away and resolve . but with the first 5 years of ones retirement being especially crucial  before the cushion of a run up there are no do overs if things do not go as planned  .

i had a very comprehensive consultation with my team at fidelity on monday and gave them lots of homework .  they are running all kinds of simulations for me with various social security points , pulling from  different  types of accounts and using various annuity products . 

we were supposed to meet again  on monday but they needed more time so i will report back .
Regarding the three bolded items...

1) The more things change the more....

2) I don't recall you writing much more here regarding annuities so I'm assuming that you have still not purchased any?

3) I've read every post in this Topic and I don't believe you ever reported back. Do you recall what their recommendations were and if you implemented any of them?

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Golden Butterfly Portfolio

Post by vnatale » Wed Mar 18, 2020 6:25 pm

Cortopassi wrote:
Thu Nov 19, 2015 10:43 am
Golden Butterfly is

    20% Large Cap Blend
    20% Small Cap Value
    20% Long Term Treasuries
    20% Short Term Treasuries
    20% Gold

No emerging markets or any international until we started modifying it.  The mix I listed was from Desert, on page two of this thread:

-------------------------------
25% Gold
25% LTT
50% Equity, split equally between TSM, SCV and EM

This portfolio is essentially a hybrid between Larry's Minimize Fat Tails portfolio and the PP.  And, in case it looks like these returns were merely a result of historical excess returns from equity tilts that have long since disappeared, this mix returned 10% over the last 10 years.  Tilting even smaller, by substituting mid cap blend for TSM, bumped the CAGR to 12.6%.  Your withdrawal rate calculator shows one could have withdrawn more than 7% from this portfolio over the past 40 years. 

-------------------------------
I mentioned that appealed to me because I already have 25% in gold, 25% in TLT, and 25% in TSM.  All I need to do is drop the TSM down to 17% and with those proceeds and cash buy into 17% SCV and 16% EM.  Appealing for the limited # of trades, the small cap and international exposure, and the higher equity exposure, which I have been convinced is a good thing to do.

I understand it will likely come at the expense of higher drawdowns with the int'l and SCV, but I am prepared to live with that. 

Mathjak has convinced me that there is a bit too much tied up in "safe" portions of the PP with the bonds and cash.  And gold even.  If cash was paying 5% like the past, and bonds much higher as well, I don't think I'd even be considering this.  I think it is time to skew a little more on equity...cue massive stock market drop in 3/2/1... :D
Have I yet asked you if you followed through this this? And, if so, how you have since evaluated that decision.

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Golden Butterfly Portfolio

Post by vnatale » Wed Mar 18, 2020 6:33 pm

Reub wrote:
Sun Dec 27, 2015 1:35 pm
Can I nominate this for the thread of the year? One question, Tyler. If the Golden Butterfly outperforms the PP then why aren't you investing in it? Just curious.
Is there some place I can go to see the Forum Awards for the year 2015 to see if this thread DID win the coveted "Thread of the Year" Award?


Vinny
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Re: Golden Butterfly Portfolio

Post by vnatale » Wed Mar 18, 2020 6:55 pm

MachineGhost wrote:
Mon Apr 04, 2016 6:13 pm
Tyler wrote: The thing I like about small cap blend funds (specifically VB -- others may vary) is that when you picture the typical Morningstar 9-segment style box it's basically an inverse of a TSM fund.  It has a few mid caps as well, and when you split the two 50/50 you get a nicely even distribution across all categories that doesn't bet on any one sector. 

12 12 13
08 09 13
12 12 12
That is simply genius!  I wish I had thought of that first instead of size alone.  I dare say this has now superseded the EWMC.  Just need to throw in some MicroCap and you're golden over several factors.
Tyler you really did something to elicit such a response from the oft-critical MachineGhost!

By the way, can anyone tell me what EWMC means?

And, I stop here to say for new people coming to the forum the use of similar abbreviations can be quite confusing and of mysterious meaning to the reader.

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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