Gyroscopic Investing

Pointedstick wrote:

Kshartle wrote: See I think those are easy because they are objective. What the heck is the CPI supposed to represent? Why does the computation method change so often?

It's supposed to measure the change in prices, not the composition or size of the money supply.

I don't know about you all, but the prices I pay for things didn't increase by 4.2% or 8.2% during 2013.

Maybe not the price of gold....but stocks, housing, food, healthcare, education all sure did.

craigr wrote: I posted a summary of this year's results. Looks like around -2.4% for the year:

https://web.archive.org/web/20160324133 ... 3-results/

As I said in the blog, if you check again 2013 returns in morningstar the results are a bit better

MediumTex wrote: Only a 2.4% loss?

Wow.  That really is very impressive, given that based upon the day-to-day posts here it often felt like the wheels had completely fallen off of the PP.

The 2.4% assumes that the portfolio's asset allocation was perfectly even at the start of 2013.  Mine had already drifted by then, was heavier in stocks and lighter in gold.  When I calculated my return, I found that the portfolio was down only 0.6%.

Pretty amazing considering the gold crash.  If this is what the PP does when there's a major downturn in one of the assets, then I am not at all regretting going this route.  Admittedly, I'd be a lot happier if I'd started a few years earlier, though.

My own PP was -1.6%.  It is not pure PP but it's a reasonable facsimile thereof.  I guess I can deal with that performance.  When I see my SP500 index fund gained 32%, that hurts.  Still, I feel the same as Craig. 

Looks like the PP is up +0.3% YTD for 2014, for a projected annualized gain of 113%!

Kshartle wrote:

Pointedstick wrote: I don't know about you all, but the prices I pay for things didn't increase by 4.2% or 8.2% during 2013.

Maybe not the price of gold....but stocks, housing, food, healthcare, education all sure did.

+1

Plus, Amazon increased their free-shipping-minimum from $25 to $35 in 2013

Tortoise wrote:

Kshartle wrote:

Pointedstick wrote: I don't know about you all, but the prices I pay for things didn't increase by 4.2% or 8.2% during 2013.

Maybe not the price of gold....but stocks, housing, food, healthcare, education all sure did.

+1

Plus, Amazon increased their free-shipping-minimum from $25 to $35 in 2013

I think the big mac went up by 6.5% also

Now I realize this is only one sandwich.......but I suspect it doesn't go up while everything else stays the same. Probably all fast food went up by a similar amount unless the special sauce is truly as unique and special as it tastes.

Kshartle wrote: I think the big mac went up by 6.5% also

Now I realize this is only one sandwich.......but I suspect it doesn't go up while everything else stays the same. Probably all fast food went up by a similar amount unless the special sauce is truly as unique and special as it tastes.

Thats called pricing power and is one reason MCD can raise their profits faster than inflation. KO and a lot of other consumer stocks with great brands like PG,CL or UL have this kind of pricing power.

frommi wrote:

Kshartle wrote: I think the big mac went up by 6.5% also

Now I realize this is only one sandwich.......but I suspect it doesn't go up while everything else stays the same. Probably all fast food went up by a similar amount unless the special sauce is truly as unique and special as it tastes.

Thats called pricing power and is one reason MCD can raise their profits faster than inflation. KO and a lot of other consumer stocks with great brands like PG,CL or UL have this kind of pricing power.

You really think they can raise their prices faster than competitors and help profits rather than hurt them?

I also have my 3 yr return: 3.7%.
My 5 year is 7.9%, and that will get a nice boost after this February, when 5 years earlier the market stopped crashing and turned upward.
However, my 5 year portfolio did not begin as a PP.  I converted 4.x years ago.

3.7% for 3 years seems rather anemic.  Has anyone else got a 3 year number?

Kshartle wrote: You really think they can raise their prices faster than competitors and help profits rather than hurt them?

Yes. Do you buy Pepsi instead of Coke because its 3 cent cheaper?

frommi wrote:

Kshartle wrote: You really think they can raise their prices faster than competitors and help profits rather than hurt them?

Yes. Do you buy Pepsi instead of Coke because its 3 cent cheaper?

Sometimes I even buy RC cola for a lot less.

This isn't the point though. My point is McDonalds should be able to charge a premium over other equivilant burgers because of branding, but above that fixed premium they can't raise prices at a faster rate than competitors without losing market share. They can't raise the price of a burger by $2 everytime the competition raises by $1 because at some point their branding premium is all used up. They should already be maximizing it or be very very close...they aren't dumb.

Maybe we can see how the big mac price increase compares to the other burger and fast food joints although I'm not too interested. I know the Whopper jr. went from $1 to $1.20 last year.....a 20% increase after staying at a buck for several years. It's also pitiful now. There is a BK across from my company and we occasionally drop in for a quick getaway at lunch. The "value" burgers seem extremely pitiful now.

Sorry for derailing this thread. 

My €-PP ended in August/September @-5%, after rebalancing 100% into my VP i was up +5% alltogether at the end of the year. 
And i am up YTD in 2014 +0.4% in €.

frommi wrote:

Kshartle wrote: I think the big mac went up by 6.5% also

Now I realize this is only one sandwich....<snip>

Thats called pricing power and is one reason MCD can raise their profits faster than inflation. KO and a lot of other consumer stocks with great brands like PG,CL or UL have this kind of pricing power.

So is buying those stocks a bet on inflation? ( I have some MCD & PG shares left in my vp ).

Kshartle wrote: Maybe not the price of gold....but stocks, housing, food, healthcare, education all sure did.

Hmm..., not in my experience.  Don't know about education.  I think the CPI is probably pretty close to accurate, or at least it seems to bear enough resemblance to reality to be useful.

dualstow wrote: So is buying those stocks a bet on inflation? ( I have some MCD & PG shares left in my vp ).

No. My bet on inflation is via oil stocks. (KO/MCD/PG were flat in the inflation years.)
Without really thinking about it, i have structured my stocks PP like

inflation: (20%) oil stocks (will get to 25% in the next weeks)
rising interest rates: (20%) banks&insurances
flat/declining interest rates: (25%) REITs & Telecom stocks (they profit because of lower interest payments)
prosperity: (rest) tech stocks & consumer stocks

All stocks are undervalued at the moment and pay a nice dividend. I know that volatility will be a lot higher than the PP but i think i can generate >2% alpha per year.
The whole portfolio has a PE<10, EV/EBIT of 7, div yield of 3.8% and growth expectations of >5%. (Thats a lot better than the S&P500)

+ 4 % with my 10 % cash, 20 % gold, 30 % bonds, 40 % stocks portfolio

Saxo's balanced portfolio turned in a similar result (-2.9 %) to the PP.

http://www.tradingfloor.com/posts/globa ... -605844721

You'll recall that it's based on a macro model like the the PP but uses a more complex engineered asset mix.  The most obvious point of difference is that it carries a gold allocation of just 6.25%.

The implications are I think

1. It might not be gold's 'fault' for the PP's performance this year, it might be signalling some macro event thats not yet clear (to me at least), rather than manipulation, profit taking, surging faith in banks and so on thats been touted.

2. If you were diversified this year, you took a knock regardless of how you implemented the diversification.

Of course it could just be that the alternative assets that Saxo chose just happened to correlate to gold this year

Thomas Hoog wrote: + 4 % with my 10 % cash, 20 % gold, 30 % bonds, 40 % stocks portfolio

What are your re-balancing rules with this allocation?

Bean wrote:

Thomas Hoog wrote: + 4 % with my 10 % cash, 20 % gold, 30 % bonds, 40 % stocks portfolio

What are your re-balancing rules with this allocation?

10 % up/downside. Dividend and Interest drops in Cash, so the 0% band Cash will never occur.

gizmo_rat wrote: Saxo's balanced portfolio turned in a similar result (-2.9 %) to the PP.

http://www.tradingfloor.com/posts/globa ... -605844721

You'll recall that it's based on a macro model like the the PP but uses a more complex engineered asset mix.  The most obvious point of difference is that it carries a gold allocation of just 6.25%.

The implications are I think

1. It might not be gold's 'fault' for the PP's performance this year, it might be signalling some macro event thats not yet clear (to me at least), rather than manipulation, profit taking, surging faith in banks and so on thats been touted.

2. If you were diversified this year, you took a knock regardless of how you implemented the diversification.

Of course it could just be that the alternative assets that Saxo chose just happened to correlate to gold this year

ETF replay has the PP for 2013 down -2.0% and Gobal beta down -.88% for the whole year of 2013.  Gobal beta started in May 2013 so since inception it was down -2.9%.

I am following this on paper.  It has 62.5% in income producing bonds.   

modeljc wrote:
ETF replay has the PP for 2013 down -2.0% and Gobal beta down -.88% for the whole year of 2013.  Gobal beta started in May 2013 so since inception it was down -2.9%.

I am following this on paper.  It has 62.5% in income producing bonds. 

Thanks, I stand corrected, the blog post read as if it were the full years results.
The results are still similar enough for me not to stress so much over golds decline.

-3% in 2013 with EUROPEAN PP

Let's see this year. Until now I didn't find any other strategy better. If you have some other good investment ways let me know.

Regards

There results are all pre-dividend too aren't they? Rates/dividends on equal quads come to 1.4% (0.9% cash, 2.8% bond, 1.9% stock, 0% gold)... So PP was down probably less than 1.99%.

Maybe there was some anomalie that made Jan1 entries especially good?... Otherwise I can't understand the hysteria that went on here... Perhaps it is just the pain of "missing out" on being 100% stocks in such a ridiculous year.

jco wrote: There results are all pre-dividend too aren't they? Rates/dividends on equal quads come to 1.4% (0.9% cash, 2.8% bond, 1.9% stock, 0% gold)... So PP was down probably less than 1.99%.

Maybe there was some anomalie that made Jan1 entries especially good?... Otherwise I can't understand the hysteria that went on here... Perhaps it is just the pain of "missing out" on being 100% stocks in such a ridiculous year.

I tried to put into context the "hysteria" I personally felt. Obviously this comment was overlooked or completely ignored.

A reasonable PP investor would agree with your comment if looking at the PP in isolation. When comparing the annual PP returns to a 60/40 SPY/BND allocation, the results are less impressive. The latter returned 14.2% in 2013 for a difference of 16.6%

During the 2008 time frame, the PP returned 1.5% and the 60/40 allocation -22.1% for a net difference of 23.6%

If we praise the PP for its stellar performance in 2008 when compared to a traditional 60/40 allocation, then we should scrutinize the 2013 returns using the same benchmark.