Mostly Voices [0:00]

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. A different drummer.

Mostly Mary [0:18]

And now, coming to you from dead center on your dial, welcome to Risk Parity Radio, where we explore alternatives and asset allocations for the do-it-yourself investor. Broadcasting to you now from the comfort of his easy chair, here is your host, Frank Vasquez.

Mostly Uncle Frank [0:37]

Thank you, Mary, and welcome to Risk Parity Radio. If you are new here and wonder what we are talking about, you may wish to go back and listen to some of the foundational episodes for this program. Yeah, baby, yeah! And the basic foundational episodes are episodes 1, 3, 5, 7, and 9. Some of our listeners, including Karen and Chris, have identified additional episodes that you may consider foundational. And those are episodes 12, 14, 16, 19, 21, 56, 82, and 184. And you probably should check those out too because we have the finest podcast audience available.

Mostly Mary [1:28]

Top drawer, really top drawer.

Mostly Uncle Frank [1:32]

Along with a host named after a hot dog. Lighten up, Francis. But now onward, episode 323. Today on Risk Parity Radio, it's time for our weekly portfolio reviews of the seven sample portfolios you can find at www.riskparityradio.com on the portfolios page. Boring. And we also have monthly distributions to talk about. I'm putting you to sleep.

Mostly Voices [2:03]

But before I put you to sleep with that, I'm intrigued by this, how you say,

Mostly Uncle Frank [2:07]

emails. And? First off, we have an email from Richard.

Mostly Voices [2:15]

No Peter, no Dick, no Rod.

Mostly Mary [2:18]

And Richard writes, Frank, here are Cliff Asness' comments on the Scott Cederberg paper in case you need to beat a dead horse. Thanks to you and Mary for a fantastic podcast, Richard. What kind of a horse is that?

Mostly Voices [2:33]

I've never seen a horse like that before.

Mostly Uncle Frank [2:37]

Well, thank you for the article from Cliff Asness and the Tommy Boy clip.

Mostly Voices [2:44]

Oh, Richard, I'm so happy. Hold me. Yikes. Which may be even more impressive. Don't run away from your feelings. And I will link to them in the show notes.

Mostly Uncle Frank [2:56]

Yes, it's interesting. I think everybody who knows something like the fastness of AQR and has read Scott Zederberg's paper and really looked at the research has concluded that it really is not something you want to be relying on for your investing. Forget about it. And this is just one of the latest takedowns of the problems inherent with the paper, and Asness goes into some other issues as well. I also ran into an article just today from Banker on Wheels, which is a blog about investing, which takes this thing apart on a point-by-point basis, kind of like what Big Earn did in his article. but does also observe the problem that I saw originally with both of these papers in which they were essentially talking about investing in speculative bonds in speculative currencies as part of the base investment, which of course makes the bond component look terrible. And it's a real reason why a 100% equity portfolio seems to perform so much better than a portfolio with bonds in it, because You should not be buying bonds from Turkey and Argentina and places like that, even if you live there. Not gonna do it.

Mostly Voices [4:14]

Wouldn't be prudent at this juncture.

Mostly Uncle Frank [4:17]

But some of this paper from Cliff Asness is worth reading because he gets straight to the point and doesn't mince any words. And so he writes, In Finance 101 we are taught that in general we should separate the choice of one What is the best return for risk portfolio? And two, what risks should we take? This new paper and many like it confuse the two. If the best return for risk portfolio does not have enough expected return for you, then you lever it within reason. If it has too much risk for you, then you de-lever it with cash. Remarkably, this has been shown to work. That is the straight stuff, O Funkmaster. The above is enough to make 100% equity a silly argument, but it gets worse. And then he goes on. In particular, this only a little new, new paper makes one statement that is just an indefensible whopper. They state, Given the sheer magnitude of U.S. retirement savings, we estimate that Americans could realize trillions of dollars in welfare gains by adopting the all-equity strategy. This is very poor economic reasoning. Forget about it. It's a violation of the same principle supporting my long time rant that there are no sidelines.

Mostly Voices [5:39]

Forget about it.

Mostly Uncle Frank [5:43]

Equities are already 100% owned. If some investors read this new paper and decide to buy more equities, they have to buy those equities from other investors. This can force the price up, and the expected return down, but everyone can't suddenly have double the normal amount of equity dollar return out of thin air.

Mostly Voices [6:03]

Wrong!

Mostly Uncle Frank [6:06]

Claiming there are trillions being left off the table is really just non-economic hype. Are you stupid or something? I've couched everything so far in terms of bonds and stocks, but most of it also applies to liquid alternatives. Alts. Liquid alts, even if diversifying and attractive on their own, can be hard to use to improve a portfolio's top line expected return, not its risk adjusted return, which is easier to do if they take low volatility. Low volatility is a problem unless one can A, lever the new better portfolio containing liquid alts or B, can change other weights in the portfolio. EG funding from bonds, which are also low volatility, can make the low volatility alts useful, but it's still not as useful as if they were high volatility. Of course, why alts cannot be tolerated at more standalone aggressive levels has vexed me at least since 1998. Many effectively say investors shouldn't invest in alternative assets that are marked to market, even if they believe in them. Because they can't take the drawdowns. Even if these drawdowns and recoveries are not related to or even act as a hedge for their portfolio-wide large stock market exposure. We found most can't acknowledge that this rationale is the same as saying this would improve an investor's portfolio, but very occasionally it could make them look unconventionally bad relative to others. So they might give up on it. Therefore, investors should just stand pat with less effective portfolios. Citing that many can't do it is not a valid justification for not trying to change things for the better. It is not our collective job to tell investors keep doing what you will likely earn less for the same risk as it's just oh, so comfortable for you. Rather, it's our job to collectively convince, cajole and clamor for what we believe is right and then help investors stick to it. Too often the observation that doing what's right is hard becomes a self-fulfilling prophecy and an excuse to continue doing what's wrong. Well, one day we'll figure out how to volatility launder high volatility alternatives by not marking them to market and then the problem will be solved. And he goes on from there. But what I liked about that last section was it does echo what we say here and what Emerson said, which is that a foolish consistency is the hobgoblin of little minds adored by little statesmen, philosophers, and divines. And that goes to using alternatives in a portfolio. What Cliff asked us is saying is, well, just because it feels unfamiliar and it hasn't been done before doesn't mean it's not the right thing to do. And you should decide what's the right thing to do with analysis and not it feels bad, so I'm not going to do it or try it. Because investing is not about feelings, at least if it's done properly. Fat, drunk, and stupid is no way to go through life, son. Anyway, I enjoy a Cliff Asness rant often as much as I enjoy some of my own. I want you to be nice. Until it's time to not be nice. He's got a little Dalton in him.

Mostly Voices [9:39]

You're too stupid to have a good time.

Mostly Uncle Frank [9:52]

But you can check more of that out in the show notes, as well as this Banker on Wheels article that I found that I you will probably find interesting if you were looking for more horse flogging of that Cedarburg paper and the methodology therein. Easily, also a different color you've heard tell about.

Mostly Voices [10:11]

And so thank you for your email. Ramming speed.

Mostly Uncle Frank [10:18]

Ramming speed. Second off, we have an email from Andrew.

Mostly Mary [10:52]

And Andrew writes, Frank, I came across this fund, TFPN. Seems very different. It looks as though they follow all trends in all markets. Not sure on your thoughts on this. Looks like it's managed by Jerry Parker, one of the top CTAs. Thanks in advance, Andrew.

Mostly Uncle Frank [11:14]

Well, I'm glad you brought this up, Andrew, because it all goes to the development of ETFs and the availability now to invest in managed futures through ETFs. If you don't know who Jerry Parker is, he is one of the oldest investors in managed futures going all the way back to the 1990s with a legendary group of people called the Turtle Traders that they trained to trade futures and were very successful at that time with that. And so he's run a hedge fund for years. But I first heard about this fund, I think, last summer, last year sometime. I will link to a podcast in the show notes from Top Traders Unplugged where they had Jerry Parker on as a guest, and he sometimes actually hosts that program. But anyway, he's basically thrown in the towel in terms of joining the ETF bandwagon. For the longest time, A lot of these older hedge fund operators held out thinking that they could continue to attract capital by charging a lot of money.

Mostly Voices [12:24]

Because only one thing counts in this life. Just because they were skilled.

Mostly Uncle Frank [12:28]

What the ETF revolution has shown and the introduction of funds like DBMF and KMLM, which are cheap ways to expose oneself to managed futures, is that their old models of charging so much money are obsolete or going obsolete. And so they have to get on the bandwagon and create their own ETFs just to continue to compete. And I thought that that's a very just interesting development just showing how things are getting better for do-it-yourself investors having more asset classes available at reasonable cost now. Now, as for the ETF itself, I'll be interested to see how it works. I mean, it's only been out for less than a year and I haven't tracked it at all. One issue I see with it, though, well, there are two issues that are related. One issue is that he includes equities, stocks, as part of the trend following that he's doing. So there are investments of stocks in this ETF. That causes a problem if you're trying to construct a portfolio because you already have an exposure to stock funds, probably a very large one in most of your portfolios. And so you would have to look at this and say, well, how much of that is exposed to stocks? Because I don't want to duplicate that by buying this fund with part of it exposed to stocks in it. So I think it's going to be a very inconvenient thing to use. as a diversifier because it's going to be less diversified from your stock funds than some other managed futures fund like DBMF or KMLM. The other problem I see with it is that he goes for max numbers of exposures. So he's got something like 500 different things in them, including all kinds of individual stocks. The problem that is going to cause in an ETF form is it's going to kick out more distributions with more things being traded and more transactions going on inside the fund. So I think that that thing is going to end up being tax inefficient when you compare it to other similar managed futures ETFs. I don't know that for sure, but just looking at it is my guess. But still, it's something to watch for the next few years and see how it pans out and compares to these other Managed Futures ETFs. I will also link to their page in the show notes. You can check that out in addition to listening to the podcast I mentioned. But I thought this was a very interesting development when I first heard it, and I'm glad you've raised it again. Yes! And so thank you for your email. Last off. Last off, an email from Drew. Surely you can't be serious. I am serious. And don't call me Shirley. And Drew writes, hi, Uncle Frank.

Mostly Mary [15:40]

In episode 311, you recommended waiting to move into a managed futures fund when you're at or near an all-time high. Doesn't that recommendation imply mean reversion? If so, it seems to me you don't need to wait until at or near an all-time high since I don't see any reason to expect the trend following managed futures ETFs to exhibit mean reversion, like, say, stocks. It's simply following the trend on long and short end. But maybe I'm not thinking about this correctly. I'd love to hear your thoughts, best Drew.

Mostly Uncle Frank [16:15]

Okay, this goes to a general observation I've made that generally pertains to when do you change a portfolio or when is a good time to change a portfolio? For instance, if you're going from an accumulation portfolio to a decumulation portfolio. And one of the criteria for doing that is to try and do it when your current portfolio is at or near an all-time high. Because it's assumed that you wanted to hold that Portfolio you've been holding for some reason, unless it was completely misguided or something like that. But assuming you wanted to hold it and have a good reason for holding it, you felt that it was going to continue to grow over time. And what you're really trying to avoid here is what amateurs do with fund hopping. So if you were to look at your portfolio every year, you would see things that had performed badly the previous year. and you might be tempted to say, oh, why don't I replace that fund with this other fund over here that has performed better? And you can see what's going on there is over time you're just going to end up selling low and buying high if you are fund chasing like that. And so you want to avoid doing things like that. So where does that come in here? So what we were talking about in episode 311, what we've talked about before is taking a couple of our sample portfolios and adding a managed futures component to them at some point in time. And the question becomes, well, should we do that right now or at rebalancing time or at some other time? And I've generally concluded that just changing portfolios on a whim, just because you see something you like better, is not a good idea that you should wait. And so we are following that process with respect to these potential changes which would occur in the Golden Ratio Portfolio and the Levered Golden Ratio Portfolio, which is where we're proposing to add these things. But we are going to wait until we get back to near all-time highs, at least with respect to the asset that we're changing out, if not the entire portfolio. and that hasn't occurred yet. And we've been waiting for over a year, which is fine, because also when we're talking about holding these portfolios, we are talking about many year time frames and thinking about this in terms of five and 10 year periods. So we don't need to be in a hurry to Make a change like this. Now, I can say we have kind of guessed right with respect to these particular assets because they had tremendous 2022s and were kind of Mediocre to down in 2023. So it would have been a bad time to do it anyway. So we got lucky there. Unfortunately, what we're planning on replacing, which are the REITs and REIT funds, have also been kind of mediocre through this whole time. They really didn't recover that much in 2023. So we're still waiting. Now, I think the other way to approach this in real life is simply if you want to add an asset class and you are still contributing to a portfolio, you can just start buying whatever it is you think is missing and leave the other stuff alone. Which is also a convenient way of changing a portfolio over time. It's basically a form of dollar cost averaging, or I should say asset class averaging since you're essentially changing one thing for another or substituting one thing for another. over a period of time. Anyway, this is not a very critical rule, I would say. It is more of a break to prevent me in particular from doing something stupid or getting excited about some new asset or fund or something and wanting to just go out and get it right away. Are you stupid or something? Honestly, as stupid as a stupid does. Because that is a major reason why amateur investors tend to underperform even the assets they're holding. Anyway, hopefully that clarifies things a little bit. And thank you for your email. Now we're going to do something extremely fun. And the extremely fun thing we get to do now are our weekly portfolio reviews of our seven sample portfolios you can find at www.riskparityradio. com And we'll also talk about the monthly distributions for March. And it was another good week out there. Just looking at the markets, the S&P 500 was up 0.95% for the week. The Nasdaq was up 1.74% for the week. Small cap value represented by the fund VIoV was up 1.08% for the week.

Mostly Voices [21:10]

I'm telling you, fellas, you're gonna want that cowbell.

Mostly Uncle Frank [21:13]

Gold was the big winner last week. I love gold. Gold was up 2.28% for the week and is nearing all-time highs again.

Mostly Voices [21:26]

I think you've made your point, Goldfinger. Thank you for the demonstration.

Mostly Uncle Frank [21:30]

Long-term treasury bonds represented by the fund VGLT were up 0.60% for the week. and REITs represented by the fund REET were also up 0.60% for the week. Commodities represented by the fund, PTBC were up 1.6% for the week. Preferred shares represented by the fund PFF were down. Seems like the only thing down last week, they were down 0.71% for the week, but that may also be due to their monthly distribution. And finally, managed futures represented by the fund DBMF were up 1.25% for the week. Now going to these portfolios, first one is this reference portfolio, the All Seasons. It's 30% in stocks and a total stock market fund, 55% in intermediate and long-term treasury bonds, and 15% in gold and commodities. It was up 0.93% for the week. It's up all of 0.95% year to date. It's been too exciting. It is up 2.48% since inception in July 2020. We will be distributing $30 out of it from cash for March. It's accumulated cash and that's at a 4% annualized rate. That'll be $90 year to date and $1,413 since inception in July 2020. Now moving to these bread and butter kind of portfolios. First one's Golden Butterfly. This one's 40% in stocks divided into Total Stock Market Fund and a small cap value fund. It's got 40% in bonds divided into long and short treasuries and 20% in gold. It was up 1.03% for the week. It's up 0.48% year to date and up 21.1% since inception in July 2020. We'll be distributing $42 out of it for March that's at a 5% annualized rate and it's going to come out of The VTI, the Total Stock Market Fund, which has been the best performer recently, that'll be $126 year to date and $1,904 since inception in July 2020. And I should note that these sample portfolios all started out with about $10,000 in them. And it currently has $10,115 in it in addition to all those distributions. Next one is the Golden Ratio Portfolio. This one's 42% in stocks and three funds, 26% in long-term treasuries, 16% in gold, 10% in a REIT fund, and 6% in cash in a money market fund. This one is up 0.97% for the week. It's up 0.83% year to date and up 18.02% since inception in July 2020. For March, we'll be distributing $41 out of it. That's at a 5% annualized rate. The way we manage this portfolio is we always take it out of the cash or money market fund. and then refill that when it's time for annual rebalancing, which will occur in July. So it is the simplest managed of these portfolios for the other ones we take out of the best performer recently. So that will be $122 year to date and $1,874 since inception in July 2020. Next one is our Risk Parity Ultimate. It's kind of a kitchen sink. It's been having a good run recently because it's got 2% in Bitcoin in it, which has essentially doubled in value in the past six months.

Mostly Voices [25:03]

What does Matt Damon say on that Bitcoin commercial? Fortune favors the brave. So it's got 15 funds in it.

Mostly Uncle Frank [25:06]

I'm not going to go through all 15 of those. But for the week, it was up 1.62%. It's up 3.19% year to date and up 10.7% since inception in July 2020. For the month of March, we'll be distributing $37. It'll come out of accumulated cash thrown off by various dividend and income payers. That'll be $110 year to date and $2097 since inception in July 2020. The Bitcoin has now reached about 4% of this portfolio, and so the next time we actually have to sell something to make a distribution, We will be selling some Bitcoin. I'm not sure whether it'll be the Bitcoin or the Ether, but it'll be one of the two.

Mostly Voices [25:51]

My dad said he listened to Matt Damon and lost all his money. Yes, everyone did, but they were brave in doing so.

Mostly Uncle Frank [25:59]

And that is kind of a good example of how you would use something like cryptocurrency in a drawdown portfolio. Don't get greedy.

Mostly Voices [26:06]

We can put that check in a money market mutual fund, then we'll reinvest the earnings into foreign currency accounts with compounding interest, and it's gone.

Mostly Uncle Frank [26:18]

Now moving to our experimental portfolios. These ones have leveraged ETFs in them, and so they are highly volatile.

Mostly Voices [26:26]

You have a gambling problem. Don't try this at home.

Mostly Uncle Frank [26:30]

Look away, I'm hiding. The first one is the Accelerated Permanent Portfolio. This one's 27.5% in a levered bond fund, TMF 25% in A leveraged stock fund, UPRO, 25% in PFF and 22.5% in gold. It was up 1.77% for the week. It's up 2.16% year to date and down 6.38% since inception in July 2020. We'll be distributing $35 out of it from cash for March. That's at a 6% annualized rate. That'll be $106 year to date. and $2,328 since inception in July 2020. Next one is the aggressive 5050. This is our least diversified and most levered of these portfolios and therefore most volatile. That is my least favorite thing to do. It is one third in a levered stock fund, UPRO, one third in a levered bond fund, TMF, and the remaining third in ballast divided into a preferred shares fund and a Intermediate Treasury Bond Fund. It was up 1.62% for the week. It's up 3.35% year to date, down 15.24% since inception in July 2020. We'll be distributing $32 out of it from cash, accumulated cash, for March that's at a 6% annualized rate. It'll be $96 year to date and $2,294 since inception in July 2020. And now moving to our last one, which is a year younger than the other ones. This is the levered golden ratio. It's got 35% in a levered composite fund, NTSX, that is the S&P 500 and treasury bonds, 25% in gold, GLDM, 15% in EREIT, O, 10% each in a levered bond fund, TMF, and a levered small cap fund, TNA, that is finally recovering and the remaining 5% in a managed futures fund, KMLM. It was up 2.09% for the week. It's up 0. 25% year to date and down 13.24% since inception in July 2021. We'll be distributing $30 out of it also from accumulated cash for March that's at a 5% annualized rate. It'll be $91 year to date and $1,258 dollars since inception in July 2021. And that concludes our weekly and monthly reviews. Just a fact, Jack! That's a fact, Jack!

Mostly Voices [29:06]

But now I see our signal is beginning to fade.

Mostly Uncle Frank [29:10]

Just one little announcement for those of you who are attending the Economy Conference or considering doing that on the weekend of March 15th.

Mostly Voices [29:21]

David, if you've ever wondered, wondered what ever became of me, I'm living on the

Mostly Uncle Frank [29:29]

air in Cincinnati. Cincinnati WKRP. I was already scheduled to do a main stage panel presentation, but Diana has also asked me to do a little hour-long breakout session about withdrawal strategies. So we'll be doing that too, I think, on the Saturday.

Mostly Voices [29:52]

Well, Laddie, Frank,

Mostly Uncle Frank [29:56]

And I would be pleased to see you there in Cincinnati if you are coming.

Mostly Voices [30:17]

I told her I would bring some dry erase markers and maybe some gin. This test is to prove that even after one drink, people are not good drivers. Now, this man here, -Hey, us! -Yeah. This man here was affected immediately. Uh, that is normal. That's me and you swap hats. You have obviously built up a superhuman tolerance to alcohol. Yes, it's true. It was once sort of a hobby. Well, there is definitely something wrong with you. You keep drinking. Okay, but I'm not gonna get drunk. Oh, yes, you are, too. You see, he's for Mars, officer. Whiskey does not affect alien beings. In the meantime, if you have comments or questions for me, please send them to frank@riskparityradio.com that email is frank@riskparityradio.

Mostly Uncle Frank [31:24]

com or you can go to the website www.riskparityradio.com and put your message into a contact form and I'll get it that way. If you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, give me some stars, a review, a follow, That would be great. Mm, okay. Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off. Uh, what? It's gone. It's all gone.

Mostly Voices [31:57]

What's all gone? The money in your account. It didn't do too well. It's gone.

Mostly Mary [32:02]

The Risk Parity Radio show is hosted by Frank Vasquez. The content provided is for entertainment and informational purposes only. and does not constitute financial, investment, tax, or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.