Prepper Investment Model Portfolio: Aug-Sept-Oct Results 2016

November 23, 2016 By Contributor
by PrepperDoc
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After 19.2% for the previous year, a loss of 3.4% in the preceding quarter
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" It’s time to see how various sectors of the “Prepper Investment Model Portfolio” did in the most recent quarter (Aug-Sept-Oct of 2016). I suggested this index of 11 sectors that are often of importance to survivalist types, in July 2015. Each sector was defined based on a publicly available benchmark, and then weightings adjusted so that the total initial portfolio added up to $1000. Note that the reviews remain one month behind the traditional calendar “quarters” The index is now 1 year and 1 quarter old.


The first usefulness of such an index is that over time, it allows preppers who are stewards investing for their retirement (should a disaster not occur before that time), to see which sectors are truly making, or losing money. Some of the alternatives are more easily traded (e.g, “liquid” such as a mutual fund), while others are less liquid (e.g., a house, or rental property), or have hindrances to trading significant amounts of value (e.g., firearms, where significant trading would require obtaining an FFL). Some can easily be held in a tax-sheltered retirement account, and others are more easily held outright as a possession (e.g., a house). A second use would be simply to help figure out when to buy more of important assets for your own use, such as firearms or housing, although there are many other considerations on those decisions.


Here are the results after the first 3 months of the 2nd year, using data as of the close of business Monday, 10/31/2016 (Halloween!). Presented are the starting (even-weighted) value of each sector’s investment (forced to be the same $) at the beginning of this 3-month period, the resulting holding in those areas after 3 months, and the absolute percentage change (gain or loss) in those 3 months:

GAIN OR LOSS IN PREVIOUS THREE MONTHS:
SECTOR 3-MONTHS AGO INVESTMENT CURRENT VALUE PERCENT CHANGE in 3 months
Domestic Large Cap $108.35 $106.06 -2.1
Domestic Small Cap $108.35 $104.50 -3.6
Foreign Stocks $108.35 $108.27 -0.1
Precious Metals Mining $108.35 $88.80 -18.0
Rental Housing $108.35 $102.49 -5.4
REIT $108.35 $95.96 -11.4
Precious Metals $108.35 $101.00 -6.8
House $108.35 $102.44 -5.5
Firearms $108.35 $108.35 0.00
Ammunition $108.35 $125.30 15.6
Money Market $108.35 $108.42 0.1

If one started with equal amounts of money in each of the eleven categories, the total absolute return for the most recent quarter alone was a loss of 3.4% in those 3 months. These percentage changes and total return are NOT annualized; they are simply the gain or loss for this last 3 months of this portfolio, expressed as a percentage, to one decimal place. As a whole, the index is now valued at $1151.59 ( from $1000, 15 months ago), an absolute return of 15.2% in 15 months. Obviously, most of that gain occurred in the latter half of the first year of the index.


QUARTER BY QUARTER INDEX RESULTS


1st 3 months’ gain: LOSS of 2.5%
2nd 3 month’s gain: 2.2%
3rd 3 month’s gain: 10.6%
4th 3 months gain: 7.7%

2nd year
1st 3 months gain: LOSS of 3.4%


Different sectors performed very differently, as expected. (This is one way the investor makes gains, by taking profits from gaining areas and re-investing in now-cheaper losing areas, known as “re-balancing.”) Winners in the last three months were basically limited to ammunition (and remember the index just looks at one bulk caliber price at one dealer for this sector). Multiple sectors had losses: precious metal mining lost 18%, REIT lost 11%, precious metals lost 6.8% and both housing & rental housing lost a bit more than 5%. In other words, some the incredible gains of the previous two-quarters slipped.


This report is about the index’s performance, not about investing per se, but it is important to point out that, it would be speculation to predict what will happen in the future. To avoid such guesswork, many investment advisers recommend using a mechanistic approach where one simply acquires more of things that are cheaper and sells, or buys less of things that are more pricey. Such an approach has advantages and disadvantages — it eliminates emotion, but it also discards the wise perception potentially gained over time of why a sector went up or down. Perceptions can be faulty of course. (I personally somewhat follow the mechanistic principles taught by a Christian-based investment newsletter group. [2])


Rebalancing: Investors in a portfolio similar to, or including portions of this one may choose to rebalance as often, or as rarely, as they wish. There is no guaranteed best frequency of rebalancing. Common recommendations include once a year. Thus an actual investor might choose to do nothing, while another, more active investor might sell a portion of their holdings in sectors that did better than the overall loss of 2.3%, in order to purchase in sectors that did worse, and return the portfolio to equal-value-weighted balance.. If there are costs incurred by trading, this might change the picture, of course.


Note: The information here is just that… information and since every situation and outcome is different the above information should not be taken as financial advice, without first consulting a qualified financial adviser. See our full disclaimer here.


BUSY WORK: KEEPING THE INDEX ITSELF UP-TO-DATE



The job of the index maker is different from that of the investor. A true index usually is reweighted daily by whatever weighting scheme (e.g, market capitalization, market price, etc) chosen at its outset. This virtual portfolio was defined as equal value in each sector — but I simply cannot revalue it every day, so quarterly will have to do. If we revalue it so that each sector returns to $1151/11 = $104.69, here are how the weightings change. (This information is not that important for you, the investor, but it is important to anyone who wants to check or recompute the index value.)

Sector Number Sector Name New Weighting of Benchmark Data
1 Domestic Large Cap 0.5326363
2 Domestic Small Cap 1.8644642
3 Foreign stocks 3.7766835
4 Precious Metal Miners 4.6017436
5 Rental Housing 0..0008872
6 REIT 3.8517170
7 Precious Metals 0..0677625
8 Housing 0.0004470
9 Firearms 0.0791904
10 Ammunition 0.2829450
11 Money Market 1.1517711

REFERENCES:
[1] Sector definitions:
Domestic large cap stocks, VFIAX, Yesterday’s value can be found at: https://personal.vanguard.com/us/fun...FundIntExt=INT
Domestic small cap stocks, VSMAX. Yesterday’s value can be found at: https://personal.vanguard.com/us/fun...FundIntExt=INT
Foreign stocks, VFWAX. Yesterday’s value can be found at:
https://personal.vanguard.com/us/fun...FundIntExt=INT
Precious metals mining, FSAGX. Yesterday’s value can be found at:
https://quotes.fidelity.com/ftgw/fbc...GX&navBar=true
Rental Housing, defined as ½ of the median sales price of existing homes + the accrued rental income calculated by (Consumer price index: Rent of primary residence [5]) * number of months since last rebalancing). Current median sales price can be found at: https://research.stlouisfed.org/fred.../HOSMEDUSM052N and c urrent rent can be found at: https://research.stlouisfed.org/fred...s/CUUR0000SEHA
REIT (Real Estate Investment Trust), VGSIX, Yesterday’s value can be found at:
https://personal.vanguard.com/us/fun...FundIntExt=INT
Precious metals, Gold spot price + 15 x silver spot price; Spot prices at closing time: http://www.cmi-gold-silver.com/gold-...y-spot-prices/
House, Median sales price of existing homes, St. Louis FED, https://research.stlouisfed.org/fred.../HOSMEDUSM052N
Firearms, Entry level AR-10 rifle on Bud’s Gun Shop, cash price, www.budsgunshop.com
Ammunition, Lowest-priced 1000 rounds of brass-cased bulk AR15 ammo from Lucky Gunner; www.luckygunner.com
Money Market Fund, Vanguard VMMXX, initial investment $90.91 + return calculated as 1 year interest minus expense ratio; https://personal.vanguard.com/us/fun...FundIntExt=INT
[2] Sound Mind Investing, sminow.com I have no financial relationship with this group other than purchasing their newsletter.

Filed Under: Investing "

snip / snip


http://www.thesurvivalistblog.net/category/investing/


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