Gyroscopic Investing

As of today my PP is already up 4% YTD.  While gratifying, it is also a bit scary — are these gains merely temporary?  To see what has happened in the past, I took data from peaktotrough.com and ran some numbers.  Looks like the historical answer is that a 4% monthly gain is not particularly likely to be followed by a loss, but perhaps by a slight underperformance.

Since January 1, 1972, there have been 35 months in which the PP (35/15 bands, dividends reinvested) has gained 4% or more.  Of these, the following month has been negative just 13 times.  The average return of the following month has been +1.05%.  These numbers are skewed a bit by the results from the 1970s, where each of the first 12 instances was followed by a gain in the next.  Considering the numbers from January 1980 onward, there have been 22 months with >4% return; of them, 12 were followed by a negative month; the average return of the subsequent month has been +0.36%.  For comparison, this PP's average monthly return for the entire 516 months since January 1972 has been +0.76%, with gains in 328 months (63.6% of the time).

# months with >4% return / # negative following months (avg. return)
1970s: 13 / 1 (+2.22%)
1980s: 13 / 7 (+0.58%)
1990s: 2 / 1 (-0.19%)
2000s: 6 / 3 (+0.28%)
2010s: 1 / 1 (-0.95%) [not including January 2015]
Total: 35 / 13 (+1.05%)

I also looked at the numbers for the opposite scenario: What happens after a loss of greater than 4%?  There have been only seven such monthly losses in 43 years, five of which were followed by a winning month, with an average return of +1.48%.

Just thought I'd share my findings with you all.

Here here!  To all the haters 2 years ago that scoffed at my portfolio angst, know this:  I will angst whether the PP is up OR down!

Yes, this is why on February first, I am liquidating all of my PP holdings and for the month of February, will replace them with shorts of each asset. For example, an ETF that shorts Gold, an ETF that shorts bonds, an ETF that shorts stocks, and instead of cash, I'll buy Euros. Then in March, after the 4% PP loss occurs, I'll buy back in. 

coinstar wrote: Yes, this is why on February first, I am liquidating all of my PP holdings and for the month of February, will replace them with shorts of each asset. For example, an ETF that shorts Gold, an ETF that shorts bonds, an ETF that shorts stocks, and instead of cash, I'll buy Euros. Then in March, after the 4% PP loss occurs, I'll buy back in. 

Good, except that instead of buying Euros, you should take out a loan. That's the only way to actually short cash as far as I know.

Holding gold is to short cash

murphy_p_t wrote: Holding gold is to short cash

I thought gold was more to hedge vs cash, isn't it?

A loan, like tech said, does feel more like shorting cash than buying gold does in the sense that you're receiving "shares" (dollars in this case) on credit and buying them back later.

dualstow wrote:

murphy_p_t wrote: Holding gold is to short cash

I thought gold was more to hedge vs cash, isn't it?

A loan, like tech said, does feel more like shorting cash than buying gold does in the sense that you're receiving "shares" (dollars in this case) on credit and buying them back later.

I consider my mortgage to be a short long bond. 

We're probably up close to 5% this month times twelve months equals about a 60% yearly return.

Reub wrote: We're probably up close to 5% this month times twelve months equals about a 60% yearly return.

Actually considerably more than that, compounded.
And there's still over a week to go!
(Note: I realize this is silly. )

Libertarian666 wrote:
(Note: I realize this is silly. )

+1