Friday, 21 March 2014

Permanent Portfolio Mar 2014 Update

Next month, it'll be the time again to re-balance my own implementation of Permanent Portfolio. I wanted to create a chart showing the performance of my own strategy. However, using Net Asset Value (NAV) of the portfolio can't work as it will keep increasing whenever I increase my investment amount during re-balancing.

After much thought, I feel the best way is to present it in the form of percentage gain/loss over time. The drawback is that additional investment will cause the percentage gain/loss to decrease, as the same absolute gain/loss amount is divided by a larger portfolio value. However, I couldn't think of a better alternative.

Anyway below is the chart updated till 14th March 2014:

I started this strategy around June 2012 and re-balance the portfolio amount every month until Oct 2012, when I decided to just balance once every 6 months, i.e. April and and October every year.

It is close to 2 years now and as shown by the red line above, it is kind of boring. I suppose the strategy will only start to outperform when it goes through a full financial cycle, i.e. stocks drop and gold/bonds rises (hopefully) in value. I'm patiently waiting...

Sunday, 2 March 2014

Market Timing by Decision Moose

A few weeks back, I revisited a website which I had forgotten about. The website advocates investing in any one of the 9 asset classes through ETFs at any one time. The website tells you what and when to buy and switch among the 9 different asset classes. The ETFs are listed on the NYSE and they are:

  1. Cash or Money Market Fund
  2. Long-term zero coupon Treasury Bonds (EDV)
  3. Large cap US Stocks (SPY)
  4. Small cap US Stocks (IWM)
  5. Gold Bullion (GLD)
  6. Europe 350 Stocks (IEV)
  7. Latin America 40 Stocks (ILF)
  8. Japan stocks (EWJ)
  9. Asia Pacific ex-Japan stocks (AXJL)

The historical record of this strategy speaks for itself here. I decided to invest a small amount buying European equity (IEV) after the website recommended a switch on 7th February 2014.

I have to reiterate that for a hassle-free way of investing, buying low cost index funds (ETFs) on a long term basis is the way to go. However, it is very boring process. Hence, I am also trying out different strategies like Unit Trusts (keeping transaction costs to a minimum), Permanent Portfolio, and this Market Timing method by Decision Moose. And maybe five to ten years down the road, will ditch the lowest performing strategies.

Warren Buffet's Annual Letter 2013

In Warren's Buffet's latest Annual Letter to his shareholders, he has an advice for the non-professional investors who are not equipped with the skill to evaluate businesses, and that is to invest in low cost S&P500 index fund (a.k.a. ETF). He also mentioned that in his will, the cash entrusted to a trustee for his wife is to be 90% invested in a S&P500 index fund, and the remaining 10% in short term government bonds.

To the ordinary people who have not started investing, it could not be any simpler to just invest in an index fund, be it the local STI ETF (minimum cost of $320) listed on the Singapore stock exchange or a Vanguard S&P500 ETF (minimum cost of USD100) listed in the New York Stock Exchange. This is ultimately what Warren Buffet is doing also.