POLL: How did you overcome the fear of tracking error?

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Henryinroad
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POLL: How did you overcome the fear of tracking error?

Post by Henryinroad » Fri Aug 14, 2020 3:21 am

Long story short, I just established a portfolio strictly following the allocation of PP. 25% eggs put into each asset basket.

Problem is, when I did that, what freaked me out was the recent overvalued price level of TLT and SPY. This just makes me very hesitant to keep going and ignore the market noise.

So, if you were me, how would you handle the situation?
1) Try to use option for hedging against the downside of TLT and SPY
2) Lower the bet in TLT and SPY
3) Stay focus and determined, respect the theory behind PP

REALLY hope to get some advice from you guys. Thank you very much.
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Hal
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Re: POLL: How did you overcome the fear of tracking error?

Post by Hal » Fri Aug 14, 2020 5:12 am

Option 4 :D

Listen to his radio show archives and note where he says that overvalued assets can become even more overvalued.
https://www.youtube.com/channel/UCzu55W ... QIQ/videos
Aussie GoldSmithPP - 25% PMGOLD, 75% VDCO
Henryinroad
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Re: POLL: How did you overcome the fear of tracking error?

Post by Henryinroad » Fri Aug 14, 2020 7:23 am

Hal wrote:
Fri Aug 14, 2020 5:12 am
Option 4 :D

Listen to his radio show archives and note where he says that overvalued assets can become even more overvalued.
https://www.youtube.com/channel/UCzu55W ... QIQ/videos
Note he didnt foresee/ experience negative interest rate when he made those comment about how overvalued assets can become even more overvalued.
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Kriegsspiel
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Re: POLL: How did you overcome the fear of tracking error?

Post by Kriegsspiel » Fri Aug 14, 2020 7:51 am

Henryinroad wrote:
Fri Aug 14, 2020 3:21 am
Long story short, I just established a portfolio strictly following the allocation of PP. 25% eggs put into each asset basket.

Problem is, when I did that, what freaked me out was the recent overvalued price level of TLT and SPY. This just makes me very hesitant to keep going and ignore the market noise.

So, if you were me, how would you handle the situation?
1) Try to use option for hedging against the downside of TLT and SPY
I think options are interesting, they're one of those things I'm planning on getting into. That said, I like the PP for its simplicity. If you want to use options, give yourself some capital and do it outside of the PP instead of trying to fit it in. Keep the PP simple and mechanical and you can forego any mental stress you usually get from having to figure out how to invest.
2) Lower the bet in TLT and SPY
I'd keep it as normal and do any tilting as a VP play.
3) Stay focus and determined, respect the theory behind PP
It seems like you're getting into a white-knuckle mindset when the PP is pretty damn chill. You're a good candidate for the whole PP + VP philosophy. Buy some options or stocks as a VP and do your stressing over them, if you'd like to. Think of it like little experiments you're doing with little downside but big upside, like Taleb's barbell strategy.

Lastly, if you nerd out over on Tyler's site, you'll see that the PP does have some down years, but it gets back on an even keel pretty quick.
I hated all the things I had toiled for under the sun, because I must leave them to the one who comes after me. Who knows whether that person will be wise or foolish? Yet they will have control over all the fruit of my toil into which I have poured my effort and skill under the sun. . . Nothing is better for a man than to eat and drink and enjoy his work.
- Ecclesiastes
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buddtholomew
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Re: POLL: How did you overcome the fear of tracking error?

Post by buddtholomew » Fri Aug 14, 2020 8:16 am

What’s surprising to me is you believe Gold is undervalued or at fair value. Gold is the highest performer in the PP YTD.
Henryinroad
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Re: POLL: How did you overcome the fear of tracking error?

Post by Henryinroad » Fri Aug 14, 2020 8:23 am

Kriegsspiel wrote:
Fri Aug 14, 2020 7:51 am
Henryinroad wrote:
Fri Aug 14, 2020 3:21 am
Long story short, I just established a portfolio strictly following the allocation of PP. 25% eggs put into each asset basket.

Problem is, when I did that, what freaked me out was the recent overvalued price level of TLT and SPY. This just makes me very hesitant to keep going and ignore the market noise.

So, if you were me, how would you handle the situation?
1) Try to use option for hedging against the downside of TLT and SPY
I think options are interesting, they're one of those things I'm planning on getting into. That said, I like the PP for its simplicity. If you want to use options, give yourself some capital and do it outside of the PP instead of trying to fit it in. Keep the PP simple and mechanical and you can forego any mental stress you usually get from having to figure out how to invest.
2) Lower the bet in TLT and SPY
I'd keep it as normal and do any tilting as a VP play.
3) Stay focus and determined, respect the theory behind PP
It seems like you're getting into a white-knuckle mindset when the PP is pretty damn chill. You're a good candidate for the whole PP + VP philosophy. Buy some options or stocks as a VP and do your stressing over them, if you'd like to. Think of it like little experiments you're doing with little downside but big upside, like Taleb's barbell strategy.

Lastly, if you nerd out over on Tyler's site, you'll see that the PP does have some down years, but it gets back on an even keel pretty quick.
Thanks for many good ideas, VP is sth I hvnt thought before, gonna work on that
Henryinroad
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Re: POLL: How did you overcome the fear of tracking error?

Post by Henryinroad » Fri Aug 14, 2020 8:27 am

buddtholomew wrote:
Fri Aug 14, 2020 8:16 am
What’s surprising to me is you believe Gold is undervalued or at fair value. Gold is the highest performer in the PP YTD.
It seems that whether an asset class, like GOLD, is
"undervalued or at fair value" or not ,
is not dependent on its past performance.

It's more relevant to the economy at this moment.

Looks at the dollar index, inflation rate, economy growth, interest rate.
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drumminj
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Re: POLL: How did you overcome the fear of tracking error?

Post by drumminj » Fri Aug 14, 2020 8:28 am

Henryinroad wrote:
Fri Aug 14, 2020 3:21 am
Problem is, when I did that, what freaked me out was the recent overvalued price level of TLT and SPY. This just makes me very hesitant to keep going and ignore the market noise.
How do you know what's overvalued and what's not? Are you smarter than the broad market?

If you think you know better than the market, than the PP probably isn't the right fit for you. Part of sitting well with the PP is accepting you don't know what's going to happen, hence being equally invested in the possible outcomes/economic scenarios.
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sophie
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Re: POLL: How did you overcome the fear of tracking error?

Post by sophie » Fri Aug 14, 2020 8:52 am

Every year (except this one I think) there's a poll asking which asset is predicted to do best in the coming year.

Almost every year the consensus prediction has been proven wrong. I think this year most people would have picked stocks as the best performing asset, and....wrong again!

Henry, I think the Harry B. quote you were looking for is "no asset is so high that it can't go higher". In other words what looks "high" to us still doesn't say anything about future performance.

So I guess the answer to "how do I overcome fear of tracking error" is to avoid checking the portfolio too often and just put yourself in the mindset that your investments are on autopilot and don't need you to pet them or whatever it is you do during a check. And when a rebalance is indicated, deal with it mechanically and just do it without letting your emotions get in the way.
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Re: POLL: How did you overcome the fear of tracking error?

Post by Smith1776 » Fri Aug 14, 2020 4:49 pm

I've come to the conclusion that I must be kind of an odd duck when it comes to tracking error regret. I've literally never felt such regret. It's not like I just have some iron clad will that allows me to resist it. I have legit just never felt it.
Price is what you pay; value is what you get.
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Re: POLL: How did you overcome the fear of tracking error?

Post by Mark Leavy » Fri Aug 14, 2020 4:55 pm

Smith1776 wrote:
Fri Aug 14, 2020 4:49 pm
I've come to the conclusion that I must be kind of an odd duck when it comes to tracking error regret. I've literally never felt such regret. It's not like I just have some iron clad will that allows me to resist it. I have legit just never felt it.
Heartily agree.
Once you've completely internalized what your allocation is supposed to do, it feels great to watch it do it. I get a thrill out of both the ups and downs. I love watching the movements match the theory.
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Re: POLL: How did you overcome the fear of tracking error?

Post by Tortoise » Fri Aug 14, 2020 5:48 pm

The very term “tracking error” never made much sense to me.

If your priority is to track a certain index, then invest in a corresponding index fund.

Otherwise, why even talk about “tracking error”? You’ve chosen to track something else.
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