Description of Margaritaville Portfolio

The Margaritaville portfolio was proposed by Scott Burns, a popular Dallas Morning News financial columnist. It consists of one part total stock index, one part international stock index, and one part inflation-protected Treasury securities.

Statistics of Margaritaville Portfolio (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Using this definition on our asset we see for example:
  • Looking at the total return, or increase in value of 30.3% in the last 5 years of Margaritaville Portfolio, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (68.2%)
  • During the last 3 years, the total return is 26.7%, which is lower, thus worse than the value of 47.7% from the benchmark.

CAGR:

'Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period. CAGR is not an accounting term, but it is often used to describe some element of the business, for example revenue, units delivered, registered users, etc. CAGR dampens the effect of volatility of periodic returns that can render arithmetic means irrelevant. It is particularly useful to compare growth rates from various data sets of common domain such as revenue growth of companies in the same industry.'

Which means for our asset as example:
  • Looking at the annual performance (CAGR) of 5.4% in the last 5 years of Margaritaville Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (11%)
  • During the last 3 years, the annual performance (CAGR) is 8.2%, which is lower, thus worse than the value of 13.9% from the benchmark.

Volatility:

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Which means for our asset as example:
  • Looking at the 30 days standard deviation of 8.3% in the last 5 years of Margaritaville Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (13.2%)
  • During the last 3 years, the volatility is 7.9%, which is smaller, thus better than the value of 12.4% from the benchmark.

DownVol:

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Which means for our asset as example:
  • Looking at the downside risk of 9.1% in the last 5 years of Margaritaville Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (14.6%)
  • Compared with SPY (14%) in the period of the last 3 years, the downside volatility of 8.9% is smaller, thus better.

Sharpe:

'The Sharpe ratio was developed by Nobel laureate William F. Sharpe, and is used to help investors understand the return of an investment compared to its risk. The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits associated with risk-taking activities. One intuition of this calculation is that a portfolio engaging in 'zero risk' investments, such as the purchase of U.S. Treasury bills (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.'

Using this definition on our asset we see for example:
  • Looking at the Sharpe Ratio of 0.35 in the last 5 years of Margaritaville Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (0.64)
  • Looking at ratio of return and volatility (Sharpe) in of 0.72 in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (0.92).

Sortino:

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Which means for our asset as example:
  • Looking at the downside risk / excess return profile of 0.32 in the last 5 years of Margaritaville Portfolio, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (0.58)
  • Looking at ratio of annual return and downside deviation in of 0.64 in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (0.81).

Ulcer:

'Ulcer Index is a method for measuring investment risk that addresses the real concerns of investors, unlike the widely used standard deviation of return. UI is a measure of the depth and duration of drawdowns in prices from earlier highs. Using Ulcer Index instead of standard deviation can lead to very different conclusions about investment risk and risk-adjusted return, especially when evaluating strategies that seek to avoid major declines in portfolio value (market timing, dynamic asset allocation, hedge funds, etc.). The Ulcer Index was originally developed in 1987. Since then, it has been widely recognized and adopted by the investment community. According to Nelson Freeburg, editor of Formula Research, Ulcer Index is “perhaps the most fully realized statistical portrait of risk there is.'

Applying this definition to our asset in some examples:
  • Looking at the Downside risk index of 4.37 in the last 5 years of Margaritaville Portfolio, we see it is relatively larger, thus better in comparison to the benchmark SPY (3.95 )
  • During the last 3 years, the Ulcer Index is 3.6 , which is lower, thus worse than the value of 4 from the benchmark.

MaxDD:

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (-19.3 days) in the period of the last 5 years, the maximum DrawDown of -14 days of Margaritaville Portfolio is greater, thus better.
  • Looking at maximum drop from peak to valley in of -14 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (-19.3 days).

MaxDuration:

'The Maximum Drawdown Duration is an extension of the Maximum Drawdown. However, this metric does not explain the drawdown in dollars or percentages, rather in days, weeks, or months. It is the length of time the account was in the Max Drawdown. A Max Drawdown measures a retrenchment from when an equity curve reaches a new high. It’s the maximum an account lost during that retrenchment. This method is applied because a valley can’t be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the bottom of the largest trough is recorded.'

Applying this definition to our asset in some examples:
  • The maximum days below previous high over 5 years of Margaritaville Portfolio is 343 days, which is larger, thus worse compared to the benchmark SPY (187 days) in the same period.
  • During the last 3 years, the maximum time in days below previous high water mark is 288 days, which is higher, thus worse than the value of 131 days from the benchmark.

AveDuration:

'The Average Drawdown Duration is an extension of the Maximum Drawdown. However, this metric does not explain the drawdown in dollars or percentages, rather in days, weeks, or months. The Avg Drawdown Duration is the average amount of time an investment has seen between peaks (equity highs), or in other terms the average of time under water of all drawdowns. So in contrast to the Maximum duration it does not measure only one drawdown event but calculates the average of all.'

Which means for our asset as example:
  • The average time in days below previous high water mark over 5 years of Margaritaville Portfolio is 100 days, which is larger, thus worse compared to the benchmark SPY (39 days) in the same period.
  • Looking at average days below previous high in of 72 days in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to SPY (33 days).

Performance of Margaritaville Portfolio (YTD)

Historical returns have been extended using synthetic data.

Allocations of Margaritaville Portfolio
()

Allocations

Returns of Margaritaville Portfolio (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of Margaritaville Portfolio are hypothetical, do not account for slippage, fees or taxes, and are based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.