4 ms·

Do we really need a paper for something that takes 5 seconds to backtest? https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePe

Do we really need a paper for something that takes 5 seconds to backtest? https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=1&timePeriod=4&startYear=1972&firstMonth=1&endYear=2019&lastMonth=12&calendarAligned=true&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&benchmark=VFINX&asset1=LongTreasury&allocation1_1=100&asset2=IntermediateTreasury&allocation2_2=100&asset3=ShortTreasury&allocation3_3=100&total1=100&total2=100&total3=100 https://www.portfoliovisualizer.com/backtest-asset-class-all...

RichardHeart 7y ago
GLOBAL stocks. You linked to the Vanguard 500 index which is US only companies.
- wcoenen 7y ago
  I tried to use ishares MSCI ACWI as the benchmark, but apparently that only goes back to 2009. (Not that the paper is trying to do something like that. It is more about the performance problems of individual stocks. It is not claiming that treasuries outperform a stock market index.)
- H8crilA 7y ago
  I leave it as an exercise to you to select "global stocks" as one of the tested portfolios ...
freddie_mercury 7y ago
Your backtest doesn't address anything that the paper covers and seems completely unrelated. It feel like you read the headline on HN and assumed you knew what the paper was about. Here's the beginning of the abstract, which only takes four or five seconds to read: "The majority of common stocks that have appeared in the Center for Research in Security Prices (CRSP) database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing 4% of listed companies explain the net gain for the entire US stock market since 1926, as other stocks collectively matched Treasury bills." What part of that does your 5 second backtest show?
- H8crilA 7y ago
  Touché. I did think it's about the asset class as a whole and didn't bother reading the article because it looked like something as useful as a "are we in a recession" clickbait. But that isn't surprising either, on a long enough timeline everyone's survival rate drops to zero (hence most individual stocks die, eventually). Also, stock returns are Pareto distributed, which means that a small fraction represents the majority of the gains (hence there will always be massive outperformers that dominate the space). Nothing surprising here.
pascalxus 7y ago
It's a cool tool, thanks for sharing. I've been looking for something like this.
pascalxus 7y ago
Quick question: why are long term treasuries returning 7.8% say for 2010 to 2019? I thought those treasuries were in the 3-5% range?
- H8crilA 7y ago
  Because yields compress and realize gains ahead of time. Imagine someone issues a risk free 10% bond for 1 year, you buy it for 90 and it will pay 100 in a year. Next, imagine that the rate compresses to 5% within a week. The bond trades at ~95. You can sell it for a ~5% gain realized within a week. Yields have been collapsing since 1981 (Volker inflation arrest): https://www.multpl.com/10-year-treasury-rate https://www.multpl.com/10-year-treasury-rate BTW: a similar thing happened to stocks, but with far more volatility: https://www.multpl.com/shiller-pe https://www.multpl.com/shiller-pe

RichardHeart 7y ago

GLOBAL stocks. You linked to the Vanguard 500 index which is US only companies.

wcoenen 7y ago
I tried to use ishares MSCI ACWI as the benchmark, but apparently that only goes back to 2009. (Not that the paper is trying to do something like that. It is more about the performance problems of individual stocks. It is not claiming that treasuries outperform a stock market index.)
H8crilA 7y ago
I leave it as an exercise to you to select "global stocks" as one of the tested portfolios ...

freddie_mercury 7y ago

Your backtest doesn't address anything that the paper covers and seems completely unrelated. It feel like you read the headline on HN and assumed you knew what the paper was about. Here's the beginning of the abstract, which only takes four or five seconds to read: "The majority of common stocks that have appeared in the Center for Research in Security Prices (CRSP) database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing 4% of listed companies explain the net gain for the entire US stock market since 1926, as other stocks collectively matched Treasury bills." What part of that does your 5 second backtest show?

H8crilA 7y ago
Touché. I did think it's about the asset class as a whole and didn't bother reading the article because it looked like something as useful as a "are we in a recession" clickbait. But that isn't surprising either, on a long enough timeline everyone's survival rate drops to zero (hence most individual stocks die, eventually). Also, stock returns are Pareto distributed, which means that a small fraction represents the majority of the gains (hence there will always be massive outperformers that dominate the space). Nothing surprising here.

pascalxus 7y ago

It's a cool tool, thanks for sharing. I've been looking for something like this.

pascalxus 7y ago

Quick question: why are long term treasuries returning 7.8% say for 2010 to 2019? I thought those treasuries were in the 3-5% range?

H8crilA 7y ago
Because yields compress and realize gains ahead of time. Imagine someone issues a risk free 10% bond for 1 year, you buy it for 90 and it will pay 100 in a year. Next, imagine that the rate compresses to 5% within a week. The bond trades at ~95. You can sell it for a ~5% gain realized within a week. Yields have been collapsing since 1981 (Volker inflation arrest): https://www.multpl.com/10-year-treasury-rate https://www.multpl.com/10-year-treasury-rate BTW: a similar thing happened to stocks, but with far more volatility: https://www.multpl.com/shiller-pe https://www.multpl.com/shiller-pe