How I Did

While I’m sitting around waiting for the COVID train wreck to come to fruition I was reviewing my performance in Personal Capital over the past year. In 2109 I made a deliberate choice to “risk off”, meaning I changed my asset allocation considerably to a less concentrated allocation to stocks. Personal Capital doesn’t capture all of my holdings. For example BTC is not represented and I have a 401K which PC can’t access, so the analysis isn’t perfect. BTC and the 401K tend to further reduce my actual volatility, but I’ll use the tools I have to consider my asset allocation performance compared to other portfolios. To do that in Personal Capital I choose under “Investing”, “Performance” and choose a 1 year time frame.


I think the “Blended” portfolio is a comparison of my portfolio against the stock Personal Capital efficient frontier asset allocation for my given risk choice. Oct 25 is the day I changed my risk profile, sold equities and bought bonds and gold and BTC and opened an actively traded Roth. I compare my change in risk across all the available asset classes in this tool. Notice how my particular portfolio has a trend line that flattens out after Oct 25. The blended portfolio apparently has a greater relative risk compared to mine. The 2 portfolios meet on Feb 19.

On Feb 19 the VIX looks like this

So in a low volatility environment (VIX<15) my portfolio acts like the blended. Note what happened yesterday

My portfolio has diverged from the blended and out performed the blended by >1.5% based on a 1 year (or year over year) return, in the face of monster volatility

This is exactly the performance I’d hoped to achieve. In times of monster volatility my portfolio performs quite well. This is an end of business cycle time, post 12 years of expansion and it “was” time to take your profits, when the market “was” up. On Oct 24 the day before the day I derisked, my return was 12.62%. On Feb 19 my return was 14%. Today my YoY is 5.47% v 3.89%. So in performance terms I’ve lost 8.5% while the blended has lost 9.92% on a YoY basis. That’s 142 basis points out performance or I’ve beat blended by 16.7%. A man has to have some solace when the world is crashing. Actually a 5.47% positive return YoY can hardly be called a crash. I’m still worth more YoY this year than I was last year and that includes the money I spent as income to live on, plus the money I spent on Roth conversion, quaintly referred to a “sequence of return risk”

Compared to US stocks my portfolio outperformed 12.62% to 8.31% before derisking. In other words my portfolio was ahead of 100% US equities by 51% before I derisked and ahead by 12.8% the day after I derisked. This is the evidence proper non correlated diversity pays. As of today following a 135 point gain on the S&P, I’m still ahead by 5.47% v 3.57% or 53% on a YoY basis.

Foreign Stocks

This is an extremely interesting comparison

On a 366 day basis my portfolio outperformed every other category except BONDS! Stick that in your pipe and smoke it when you are sneering at bonds. Last year would have been a hell of a year to be long exclusively long BONDS. Actually it was my switch to a greater % of bonds that improved my overall performance. You see on this chart why I am down on Foreign as a major asset allocation. I do own about 10% international stock. Most days I wish I didn’t, but it keeps me on the efficient frontier. I’ll leave you with this image of Foreign

You can think about this chart next time some dumbassed bogglehead starts quacking about owning “foreign”. Tell me about how this diversified your portfolio? My account is up 7.22% compared to – 8.14%

My advice is yes you can correctly time the market, in the face of asymmetric risk. You can see in the “all stock” portfolio there was monster upside all the way till there was monster downside. Why do you want to own that kind of risk when you can own some much more rational level of risk? What is it Bernstein says?

It’s the wrong time to trade when the VIX is 51. VIX 51 is a good time to horde cash. This market is not done falling. The US hit over 1037 COVID cases this morning with 28 deaths and only 8 recovered. In my state in the last 12 hours the cases doubled from 14 to 28. We are walking into a virus buzz saw. The government has adopted a buy and hold passive strategy. Let the buzz saw hit and wait and see what parts remain. After all parts is parts ain’t they? Korea OTOH is managing their risk actively, and winning. In case your denial is still intact, understand today is March 11. It’s not even St Paddy’s day. Harvard, the home of Man’s Best Medical School, cancelled all “in person” classes for the rest of the semester.

Oh ya life goes on long after the thrill of living is gone… Let it Rock, Let it Roll…

may as well enjoy the ride.

17 Replies to “How I Did”

  1. Regarding bonds. I have a chunk of SHY and IEF. My concern is that bonds are in as big a bubble as stocks. At what point do we pare bonds just as we would pare equities due to extreme valuation ? Ideally after equities get to a reasonable post bear level, rebalance, but is there a likely scenario where equities have not bottomed but bonds fall (tick up in interest rates) ? It doesn’t take a big move up in rates from these levels to hit bonds. Gold is looking better and better to me.

    1. What motive is there to tick up interest rates? Inflation as of this morning dropped. So that’s your answer. The economy CAN NOT tolerate increasing interest rates and if they do eventually increase sell sell sell. It’s always buy low, sell high. Strict buy and hold is a stupid idea. I think the idea of rebalancing is excellent. It forces you to sell something high and buy something low in a mechanical way that keeps the human brain out of the decision loop. My decision to derisk was based on this idea. The market had accelerated to <100% above the long term mean trend. The market therefore MUST mean revert. Each move up and each bit of financial engineering designed to move the market up results in a higher and higher accelerating risk in terms of mean reversion. So I simply sold at a 12.5% gain booked the profit and rebalanced into gold and bonds which then have gone up when stocks crashed. If I had waited to get every last dollar on the rise to 14% each higher point held a higher and higher risk, so took my gain out of the middle rather than try to time the end. I didn't sell everything, just some, and then after more gains, some more, turning that excess profit into diversity and reducing my overall risk. Playing this is not black and white but shades of gray. Study a monte carlo of a 60/40 portfolio vs a 40/60 portfolio. What you will find is there isn't a whole lot of difference. So if you go from 60/40 to 40/60 and the market goes up, you go up just a little less. If the market crashes however you go down less at 40/60 and it takes less time to get back to zero. So at a market top 40/60 is a better choice than 60/40.

      After a severe crash however 60/40 is a better choice. It's then when stocks tend to outperform. So the risk is asymetric and unstable both at the top and at the bottom and how you choose to position (40/60 v 60/40) is a function of where you are in the cycle. I would never go 0/100 or 100/0. In the 0/100 case you own way too little risk and in the 100/0 way too much. It's better to oscillate around the mean more risk when just after a crash, less risk when the market is long in the tooth.

  2. There is certainly not a risk of rising rates at the moment. I am just trying to wrap my head around zero interest rates. At some point bonds will/are in as big or bigger bubble than equities. The morons running the show sure have screwed things up.

    I had to chuckle at the “parts is parts” comment. When I was at the chemical plant, we used to say that when trying to repair a unit using whatever parts we had available in inventory. Parts is parts, oil is oil, spec is spec !

    1. Like I said use some mechanical means to off load profit. If the bond goes up 10% sell 2%, goes up another 10% sell another 2% or something like that. Keep the bonds in a pretax or no tax acct so selling doesn’t generate taxes. Fidelity lets you trade ETF’s for free so no taxes no fees = no impediment to taking some off. If you get too freaked, sell 25% or half. You can always buy it back.

  3. Sound advice. Still can’t wrap my head around negative interest rates. It’s just so unnatural/illogical. Just have to act as a robot and rebalance. Take care and keep the articles coming – really enjoy the read.

  4. We’re in different career/life stages so I still can’t be too down on my portfolio (I still suspect my allocation will do pretty ok over the next few decades), but a well deserved kudos to you and a best of luck in the months ahead. Once again proving you are a voice well worth listening to.

    1. Doc

      Tnx I expect my portfolio to last over many decades as well. I just offer a point of view based on many decades since I’ve been investing since about 1975. We may not get out of it this time. China may not get out of it this time. Europe may not get out of it this time. I doubt pumping money is going to work since the infrastructure is busted. Japan the world’s third largest economy and a clear first world country has been pumping money since 1990 and it hasn’t worked for them. Look at a chart of the Nikkei 225 back to 1980 and imagine you were dollar cost averaging into the post 1990 market peak. If you invested heavily in stocks you would have a -1.5% yearly return inflation adjusted, dividend reinvested over 30 years. That means if you were Japanese and DCA’d into the N 225 you were buying a failing asset. In this country the S&P, inflation adjusted, dividends reinvested over the past 20 years has returned less than 3% annually. Today’s entrance into recession will likely preclude that 3% from growing for another decade or two, if it doesn’t start a further decline like Japans. The risk is real. Japan’s baby boom gen is 20 years ahead of our baby boom gen. Just because some dumbassed bogglehead says it will come back, doesn’t mean it WILL come back. I hope it comes back as I’m still planning on 30 years until my wife passes, but I’m under no illusion. The best insurance is a highly diversified non correlated portfolio a long career and good savings habits. If you save half for 30 years and make 2% over inflation you’ll be OK. You’ll have a paid off life and a paid off low leverage retirement. A graphical view of retirement planning

      Also consider more pictures of risk

  5. Hey Gasem,

    It’s been a crazy time. Ofcourse I am the worst market timer. But I hedged. I pull 1/3 of my capital too early, then a third now and leaving a third for doomsday.

    Oh well. I can always go back to work. No shame in that when you invest badly like I do.

    Hope you are doing well by the way. I am glad I got some supplies since Costco is silly busy now.

    But you know Gasem. I agree that 80%+ equities is unnecessary for retirees but I am a out of other options. Even RE is terrible where I live.

    I have to do a brainless portfolio bc I don’t think I could ever manage what you handle.

    1. I’m actually sitting here contemplating going to cash. Probably won’t do it, but it’s crossed my mind. I’m really only down 7% so I still have 93% of my dough. Not too bad, but I’ve never seen a 260 point drop on the S&P before. That’s almost the twice the next largest drop. Glad you hedged!

  6. You asked a couple of posts ago about how some of us were doing. I turned 48 in February, and at one time I was under the hopeful delusion (full-on drinking the Kool-Aid?)that I could pack it in by 50 because I hit 33x spend in assets last year. I de-risked starting in August last year because I was thinking that things were (and had been) frothy. I went from 100% equities to 60/30/10 equities/bonds/cash, mostly from thinking that I have 2.5 years “to go”. Cash is at CIT at 1.74%, which was better than short term yield at the time (and now as well, although I wonder what will happen with the next rate cuts…). After thinking more about it over the ensuing 5 months, and after reading a lot, including here, I went even further and adjusted on January 1 to 35/50/10/5 equities/bonds/cash/gold. I couldn’t bring myself to go full Dalio even though I read a lot about it, but my mix is close except for the commodities.

    I am still up YOY, even as I sit here looking at my dashboard. Mix in my 401k was 40/60 FXIAX/VBTLX on January 1 (we have limited options), and it is now 35.75/64.25. FIDO says I’m up 11.67% in this account YOY, and down 5% YTD.

    IAU is break even since January 1. SCHB is down 8.19% YTD. SCHR is up 4.36%, and SCHQ is up 14.63%. I’m down 4.26% total (all accounts) exclusive of savings/contributions for the year, which is half of what I’d been if I’d still been 100% FXIAX/SCHB. I’m still up YOY.

    Now I’m just trying to figure out how much further we have to fall because some individual company valuations now look, well, normal-ish for a change, and I have 6 figures of cash. I’m definitely going to wait until the COVID-19 mess (both panic and reality of 2nd/3rd/4th order effects) clear up, which may take a while. Also, I do not plan to quit working, and if I get laid off, I should be ok for a while.

    1. MAN! You hit it out of the park! Congrats. I wouldn’t do any reallocation till the volatility settles down unless you decide to make more cash. See my response to ED here For me I’m down just under 1% yoy. I did a Monte Carlo on my present allocation and my likelihood of success at the present higher cash allocation is 10000 out of 10000, aka 100%

      1. To be honest, I probably got lucky with the timing for once, but it seemed like madness to keep buying the index, which more or less was propped up by the same 30ish companies while the others were being brought along for the ride. I was going to rebalance quarterly, but I may amend my strategy to see how this shakes out.

        I am still worried about bond funds (not the individual bonds themselves). I don’t think that the government will default, and there isn’t a lot of BBB+ and lower in VBTLX. What concerns me is the unforseen effects of indexing and people (including me) blindly dumping money into bond ETFs. What happens when everyone tries to pull their money out of the ETF at the same time if indeed this gets worse and people need cash? If you own the ETF, you do not own a bond; you own a derivative of aggregate bonds. Bonds may not be correlated with stocks, but these are not bonds. I am willing to accept that I may be thinking about this in a way that is completely wrong, and maybe this is not an issue, but I did not buy them at auction at Treasury Direct.

        1. You I think are correct in your analysis but it goes deeper than I can get into in a reply. Basically funds force the market into 2 pieces. A liquid piece and an il-liquid piece. The “liquid piece” of a “fund equivalent” ie the stock that make up the index trades on the market as individual shares. The illiquid piece does not trade and exists as an aggregated bundle of stocks all glued together. It sits in buy and hold accounts that are totally insensitive to price. Money just keeps marching in month after month and the bundle is bought at any price. The illiquid piece has a binary basis. You send some money to vanguard and vanguard buys the market at any price. The buy switch is on and the sell switch is off. You stop buying or start selling and the buy switch is of and the sell switch is on at any price. This predicts a yearly “sell switch on” in the third quarter as people RMD and otherwise there is no risk management. If half the market is illiquid what is the bid? This adds huge volatility that otherwise wouldn’t exist. I think that is what we saw with a 230 point drop followed by a 230 point gain in 2 days That effectively is the expression of volatility. Suddenly your S&P 500 bet with its efficient frontier return risk profile goes from 11% return/15% risk to a Deeply negative return and a a multiple standard deviation change in risk. The S&P suddenly acts like Bitcoin. So what do you own? A portfolio of stocks or a portfolio of Bitcoin? Apparently people just held and in fact bought, ie buy the dip. This means the market is ENTIRELY DEPENDENT on whether the buy or sell switch at vanguard is turned off or turned on, and that switch is controlled by human fear and nothing else. There is no risk management. Valuations don’t mean anything, just the herd decision to buy or sell. That is the market of today. That paradigm extends across all asset classes and even into treasuries themselves. The 10 year has 2 ownership classes. One class is used as trading collateral and the other is held in portfolios. Class 1 which is called the “Run” commands an different price than class 2 called “”the non Run” even though they are the exact same security. The price spread is determined by the environment in which the asset exists, a market environment or a portfolio environment. That spread is measurable and is usually 14 basis points or so. Last week it went to 50 bp. When Lehman failed it reached 60. 14 to 50 is almost a quadruple change. This explosion of volatility happened in every volatility measure across all asset classes stocks bonds gold commodities credit currencies. This is bad. It means every asset class is looking more like bitcoin. The government controls money supply and about half of one interest rate. If they lower the rate but the market forces the rate up because of increased volatility, the bullet turns into a BB and you’re on your own There is a line from the the song night they drove old dixie down “I don’t mind choppin wood and I don’t care if the money’s no good” The minute people understand the money’s no good what do you think will happen?

          1. I just read an article a bank in midtown was completely cleared out of $100 bills Wonder when the sell switch turns on

          2. Right. I do not think all assets will go to zero regardless of class, but there is certainly an issue when people start losing their jobs. This is what I was really meaning when I posted the comment to the Mike Bury video you had a couple of months ago (sorry for not articulating it as well as above).

            Related/unrelated – recently Joe Rogan had Michael Osterholm (UMN) on his podcast. It is on youtube and easily searchable; I watched it yesterday evening instead of going to a cancelled hockey game. You probably already had thought of the repercussions of COVID-19, but it is worth passing along to others who are not quite as informed. Osterholm thinks 3 months (not a coronavirus “blizzard”, but a coronavirus “winter”) just for the disease to run its course. 2nd/3rd/4th order effects haven’t even been considered by most people. (He also gets into some CWD/prion and Lyme disease discussions that are interesting as far as the possible root causes). I work for a company that sells products into the food industry globally. Because of the situation in China, it is difficult to get 20′ shipping containers because they are all there. They have not been sent with the goods they usually carry to the USA and the EU. MSC just sent 2 of the largest ships they have to return some containers to Long Beach and Rotterdam. It takes 3 weeks each to/from Shanghai (or wherever), so you are likely looking at a 2 month lag minimum for shipping. I have a colleague in Hong Kong, and he said on Tuesday that people are just now (8 weeks later) getting back out and back to work.

            Also, thanks for your blog. It always gives me something to think about.

          3. I think it’s going to be more than a winter. The assumption is there is no lasting disability after you get infected since that is the flu experience, but this virus causes ARDS which is a whole nuther smoke. Hong Kong reports 20-30% respiratory disability in those that managed to recover.


            Also Hong Kong being an Island and a relatively small very civic minded population managed to blunt the worst sequellae Our curve will look much different than Hong Kong’s

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