The latest video from MadMoneyMachine studios:

Mulch Guy showed up. EPCOT Candy Lady. GURU MediumTex. Quotes. What’s UP with UP? Voiceover class. TOO: FireCalc. Bonus: iPad unboxing.

I ENCOURAGE you to Download this show thru iTunes! But, if you just cannot deal with that then go ahead and Play the new show right now

 

 MMM-176: Things Are Messed UP [58:50m]: Play Now | Play in Popup | Download

Topics in this week’s show include:

• Mulch Guy showed up. Why didn’t we get his phone number?
• How can Candy Lady at EPCOT remain enthusiastic after all these years?
• GURU: MediumTex, world’s most ardent advocate for the Harry Browne Permanent Portfolio. Read MediumTex at Bogleheads.org.
• Harry Browne Quote of the Week
• Wise words from Reagan’s first inaugural.
• Things are Messed UP.
• Voiceover Class. Is everything a scam?
• Have you watched the YouTube videos I put together for IFA? See previous posts here on the blog.
• TOOL: FireCalc to see if you have enough money.
• BONUS SEGMENT: iPad Unboxing.

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• email: feedback AT MadMoneyMachine DOT com
• Hook up with Mad Money Machine at Facebook
• voicemail: 571-366-7121
• Twitter me at Twitter.com/MadMoneyMachine
• Take the MMM Survey

I put the video together for this audio interview with Vanguard Group founder John Bogle. I hope you like it.

Harry Browne’s Permanent Portfolio is so simple. Split your investments into equal parts stocks, bonds, cash, and gold. Is it too simple? Can it be improved yet remain simple? I used Simba’s spreadsheet (from Bogleheads.org) to back-test some alternatives from 1972 through 2009.

First, the original portfolio:

Stocks: VTSMX (Total US Stock Market)
Bonds: VUSTX (Long-term Bond)
Cash: VMPXX (Money Market)
Gold (Kitco 1972-2004, GLD 2004-2009)

yielded the following return vs. risk:

P1 (HBPP):

Compound Annual Growth Rate (CAGR): 9.1%
Standard Deviation (Risk): 8.02%
Sharpe Ratio: 0.46

Next, substitute 2-Year Short Term Treasuries (VFISX) instead of Money Market:

P2 (P1 with 2-yr T-Bills):

CAGR: 9.5%
Standard Deviation (Risk): 8.17%
Sharpe Ratio: 0.50

Alternatively, how about for the “Prosperity” component, i.e., Stocks, we substitute  half US Small-Cap Value and half Emerging Markets for the US Total Stock Market:

P3 (P1 with 12.5% VISVX and 12.5% VEIEX):

CAGR: 10.8%
Standard Deviation (Risk): 8.57%
Sharpe Ratio: 0.64

And finally, combine P2 and P3 to have 2-yr T-Bills, US Small Cap Value, and Emerging Market:

P4 (P2 with 12.5% VISVX and 12.5% VEIEX):

CAGR: 11.3%
Standard Deviation (Risk): 8.65%
Sharpe Ratio: 0.68

And just for comparison I ran “Solver” on Simba’s spreadsheet to find the least risky portfolio that yielded 11.3% of that time span. It came up with the following mix:

VISVX (US Small Cap Value): 13.43%
VEIEX (Emerging Market): 14.30%
PCRIX (Commodities): 5.19%
VFITX (5-Yr T-Bills): 49.31%
VFISX (2-Yr T-Bills): 7.88%
Gold: 9.88%

Which resulted in:

P5 (Solver optimized portfolio):

CAGR: 11.3%
Standard Deviation (Risk): 7.25%
Sharpe Ratio: 0.80

And here is a chart with them all plotted, CAGR vs. Standard Deviaion (Risk):

I’ve played with lots of combinations of back-tested portfolios through many different time periods and one thing is common: substituting VISVX and VEIEX for VTSMX resulted in higher returns and a higher Sharpe Ratio. And short term T-Bills for cash also added nicely.

Note that I only show the Solver optimized portfolio (P5) for reference. I believe it strays too far from the Permanent Portfolio strategy to be safe going forward.

I talked about P4 on MMM-175: The Perfect Portfolio. While I am not yet invested in it, it is the one I am targeting. I do not expect a CAGR of 11.3% for the next 37 years, but if I can get 6% I will be very happy.

It is truly surprising, amazing, astonishing to find out how poorly active managers do when compared to indexes. Watch this video:

Have a look at this video. It points out the importance of long-term data, the irrelevance of even reliable advice, the emphasis of trading by the financial media, and the wisdom of Nobel prize winners regarding investments.

Oh, and don’t miss THE END-ing!

I have had a number of emails from people trying to get into the Harry Browne investment radio show archives. The links at the original site appear to be down, but fortunately Craig at CrawlingRoad blog has a mirror that you can use. I’ve recently listened to all 44 investment shows and am now going through his political shows starting back from 2002. (I have my own personal mirror of those.)

Disney World in Feb. iPhone and earphones. Jakob Fugger. VBR, VWO, TLT, GLD, SHY: The Perfect Portfolio. Tool: My Personal Index. Lego Mindstorms.

I ENCOURAGE you to Download this show thru iTunes! But, if you just cannot deal with that then go ahead and Play the new show right now

 

 MMM-175: The Perfect Portfolio [31:29m]: Play Now | Play in Popup | Download

Topics in this week’s show include:

• Our trip to Disney World
• iPhone volume knob broke off
• Got the new iPhone 3GS. Fast!
• Bought iPhone earphones on eBay for 7 bucks. Not bad!
• GURU: Jakob Fugger “Fugger the Rich”
• Harry Browne’s portfolio recommendations. His book Fail-Safe Investing.
• He talked about TLT, the 20+ yr Treasury Bond fund.
• Here’s the Perfect Portfolio (for me): 13% VBR, 12% VWO, 25% TLT, 25% GLD, 25% SHY.
• TOOL: My Personal Index for Windows. Mac and Linux versions may be coming soon. Version 3 also due.
• Got any Lego Mindstorms suggestions? Email me!

Got Feedback? Try any one of these methods:

• email: feedback AT MadMoneyMachine DOT com
• Hook up with Mad Money Machine at Facebook
• voicemail: 571-366-7121
• Twitter me at Twitter.com/MadMoneyMachine
• Take the MMM Survey

The voice sounds familiar…

Harry Browne. Etymotic ear phones are sturdy. Sortino Ratio. GURU Richard Maybury. Broken Window Fallacy. Hybrid School Bus. Economics of Recycling. BRK/B split 50:1. Bing cashback. No deer. TOOL: Readability.

I ENCOURAGE you to Download this show thru iTunes! But, if you just cannot deal with that then go ahead and Play the new show right now

 

 MMM-174: Money Talk [58:22m]: Play Now | Play in Popup | Download

Topics in this week’s show include:

• A tribute to Harry Browne
• Opening theme by Bob Crosby, Come Back Sweet Papa
• Etymotic ear phones are the most sturdy I’ve found.
• How should I use Facebook?
• How does anyone read the important stuff from Twitter?
• Sortino ratio doesn’t penalize upswings as risk
• My iPad predictions results
• GURU: Richard Maybury. He writes the Early Warning Report. He has a YouTube channel worth watching.
• Harry Browne talks about the Broken Window Fallacy in his 2004-12-05 Money Talk radio show.
• Our county bought a hybrid school bus… to save money.
• The Economics of Recycling
• The Berkshire Hathaway 50:1 stock split.
• Bing Cashback still works. Buy your gold eagle coins now.
• No deer this year.
• TOOL: Readability will help you read web articles
• You gotta watch Fear the Boom and Bust

Got Feedback? Try any one of these methods:

• email: feedback AT MadMoneyMachine DOT com
• Hook up with Mad Money Machine at Facebook
• voicemail: 571-366-7121
• Twitter me at Twitter.com/MadMoneyMachine
• Take the MMM Survey

Just a quick post to review the predictions I made and how well they turned out.

• Name: iPad (Ding!)
• Size: 9.7″ (Ding! I said 10″)
• Form Factor: Basically a large iPod Touch (Ding!)
• Home Button? (Ding!)
• Aluminum back? (Ding!)
• Buttons and holes: headphone (Ding), microphone (Ding), volume (Ding), mute (Ding), sleep (Ding)
• USB port? (Bzzzt!) Only has Apple dock. But that serves to connect to your computer. And it does have adapters for cameras.
• Orientation: (Ding! Both portrait and landscape)
• WiFi (Ding)
• Internet connectivity: (Ding? 3G is optional. Nice surprise that it is easy to get 250MB/mo for $14.95)
• Won’t have a phone (Ding!)
• Software: (“It will be like an iPhone with some iWork apps available for download” DING! DING!) It actually runs iPhone apps like I expected.
• Books: (“They will probably start selling books through iTunes.” DING! DING!)
• GPS and big maps (DING!)
• Cameras: (BZZZZZT!) Not three, not two, not even one camera. Maybe version 2?
• Cost? I said $899 dropping to $699. I assumed it would have a 3G card installed. Their price for 3G? $629 to $829. Plus you want to buy the keyboard, case, and adapters. So I give myself a DING! for the price as well.

So I think I got most everything right. Big misses on cameras and USB port. Bottom line is that the iPad is pretty much exactly what I pictured it to be in my mind. I will own one (or more).