Gyroscopic Investing

Thanks.  Best laugh of the day.

dragoncar wrote: I find bitching is just a regular part of the PP.  It's really 20% stocks, 20% gold, 20% bonds, 20% cash, and 20% bitching.  Bitching is high right now so you probably need to rebalance out of it.

Good one.

I just posted these numbers on the Bonds>"TLT Negative YTD" thread, but thought they might be of interest here, too.  The real yields over the last one, five, and ten years have all been greater than 5%.  This year has been slightly positive.  No cause for concern, yet, in my mind.

Pet Hog wrote: YTD returns (dividends reinvested; Dec 31, 2014 to Apr 30, 2015)
TLT: +0.63%
VTI: +2.27%
IAU: +0.00%
SHY: +0.62%
PP Total: +0.88% (+2.70% annualized)
Inflation: +0.56% (end Dec 2014 to end Mar 2015)
PP real: +0.32% (+0.98% annualized)

YOY returns (dividends reinvested; Apr 30, 2014 to Apr 30, 2015)
TLT: +16.57%
VTI: +12.72%
IAU: –8.48%
SHY: +0.82%
PP Total: +5.41%
Inflation: –0.40% (end Apr 2014 to end Mar 2015)
PP real: +5.81%

Pet Hog wrote: Five-year returns (dividends reinvested; Apr 30, 2010 to Apr 30, 2015)
TLT: +60.28%
VTI: +95.60%
IAU: –0.87%
SHY: +4.31%
PP Total: +39.83% (+6.94% annualized)
Inflation: +8.31% (end Apr 2010 to end Mar 2015; +1.61% annualized)
PP real: +5.33% annualized

Ten-year returns (dividends reinvested; Apr 30, 2005 to Apr 30, 2015)
TLT: +98.82%
VTI: +133.77%
IAU: +163.59%
SHY: +27.34%
PP Total: +105.88% (+7.49% annualized)
Inflation: +21.34% (end Apr 2005 to end Mar 2015; +1.95% annualized)
PP real: +5.54% annualized

I discovered the secret last year.

Don't look.

I resolved to not look for one full year and when I did last February I had WAY more money than I thought I would.

I'm thinking maybe it's a quantum mechanics/Schrodinger's cat thing. Looking at it affects the outcome so just don't do it.

Hmm, now I have to choose between not looking and bitching.
As the saying goes: if you don't look, you can't bitch.

dragoncar wrote:

Cortopassi wrote: I know, I know.  All I am doing is bitching.

I find bitching is just a regular part of the PP.  It's really 20% stocks, 20% gold, 20% bonds, 20% cash, and 20% bitching.  Bitching is high right now so you probably need to rebalance out of it.

Bitching sounds like a bad VP play, should just go 100% PP imo.

Everytime I hear someone complaining about the PP, this excerpt always comes to mind from William Bernstein.

And therein lies the real problem with the TPP: because of its huge tracking error relative to more conventional portfolios, it attracts assets and adherents during crises, then sheds them in better times. There?s nothing wrong with Harry?s portfolio?nothing at all?but there?s everything wrong with his followers, who seem, on average, to chase performance the way dogs chase cars.

madbean wrote: I discovered the secret last year.

Don't look.

I resolved to not look for one full year and when I did last February I had WAY more money than I thought I would.

I'm thinking maybe it's a quantum mechanics/Schrodinger's cat thing. Looking at it affects the outcome so just don't do it.

Two days ago I wouldn't have understood the reference but came upon a reference to Schrodinger's thought experiment a couple of nights ago. Alas, I am old enough so that I may forget who Schrodinger was two days hence!

sixdollars, thanks for the reminder on the Bernstein quote. It is a great one.

And the rout continues...rationalize all you want, but the bottom line is the portfolio is doing absolutely nothing but racking up losses.

buddtholomew wrote: And the rout continues...rationalize all you want, but the bottom line is the portfolio is doing absolutely nothing but racking up losses.

OK, I'll go here...by my tracking YTD

100% SPY: .88% return
PP: .39% return

Seriously...if you are going to freak out about .49% maybe this investing stuff isn't for you.

Kbg wrote:

buddtholomew wrote: And the rout continues...rationalize all you want, but the bottom line is the portfolio is doing absolutely nothing but racking up losses.

OK, I'll go here...by my tracking YTD

100% SPY: .88% return
PP: .39% return

Seriously...if you are going to freak out about .49% maybe this investing stuff isn't for you.

+1

Some of these criticisms border on the ridiculous. The YTD tracking error of PP vs SPY is practically a rounding error. If not the PP, then what? Stocks, bonds, and gold have all had a rough and choppy year so far. Nothing goes up all the time and sometimes everything treads water for a bit. If this kind of stuff bothers you, you should be in all cash or on whatever portfolio makes you feel better even if it may be riskier (100% stocks, 60/40, etc). Or maybe put some of your money towards anti-anxiety medication of counseling or something. All this worrying over nothing is likely far more detrimental to your finances than obsessing that your investment portfolio isn't doing as well as you'd like.

I think the no looking is the best strategy, however, if people are like me, this is all tied into Quicken or some other financial program, so when I enter receipts from stores or other financial info, it is staring me right in the face, every single day, so it is something I need to/have learned to live with.

The optimistic view?  That all assets don't go down simultaneously and rebalancing lets me add to the laggards over the upcoming years.  That's the whole concept, right?

I have no better investment ideas or plans (outside of personal business ventures), so I stick with the PP.

Pointedstick wrote:

Kbg wrote:

buddtholomew wrote: And the rout continues...rationalize all you want, but the bottom line is the portfolio is doing absolutely nothing but racking up losses.

OK, I'll go here...by my tracking YTD

100% SPY: .88% return
PP: .39% return

Seriously...if you are going to freak out about .49% maybe this investing stuff isn't for you.

+1

Some of these criticisms border on the ridiculous. The YTD tracking error of PP vs SPY is practically a rounding error. If not the PP, then what? Stocks, bonds, and gold have all had a rough and choppy year so far. Nothing goes up all the time and sometimes everything treads water for a bit. If this kind of stuff bothers you, you should be in all cash or on whatever portfolio makes you feel better even if it may be riskier (100% stocks, 60/40, etc). Or maybe put some of your money towards anti-anxiety medication of counseling or something. All this worrying over nothing is likely far more detrimental to your finances than obsessing that your investment portfolio isn't doing as well as you'd like.

+2

Under what circumstances does the PP produce a satisfactory return? The portfolio has been lagging a conventional allocation since 2009, correct? If it declines when equities rise and declines when equities fall, what am I missing?

Keep in mind that I am comparing the PP to my BH portfolio. The latter is beating the pants off the PP year after year. Do we need another financial crisis or inflation at 10% for the PP to return to its historical 7-9% nominal return?

buddtholomew wrote: Under what circumstances does the PP produce a satisfactory return? The portfolio has been lagging a conventional allocation since 2009, correct? If it declines when equities rise and declines when equities fall, what am I missing?

Keep in mind that I am comparing the PP to my BH portfolio. The latter is beating the pants off the PP year after year. Do we need another financial crisis or inflation at 10% for the PP to return to its historical 7-9% nominal return?

You can measure a portfolio in many different ways, the two most common being return and risk and/or volatility. If you did ANY homework on PP it should have been quite apparent that for a great majority of the time PP lags a conventional port of stocks and bonds. It should also have been apparent that PP is way less volatile than a conventional stocks and bonds portfolio. So what are we measuring? And I am going to get a bit sarcastic here...are you measuring PP from March 6, 2009 forward? If so, you will be nothing but totally frustrated.

buddtholomew wrote: Under what circumstances does the PP produce a satisfactory return? The portfolio has been lagging a conventional allocation since 2009, correct? If it declines when equities rise and declines when equities fall, what am I missing?

Keep in mind that I am comparing the PP to my BH portfolio. The latter is beating the pants off the PP year after year. Do we need another financial crisis or inflation at 10% for the PP to return to its historical 7-9% nominal return?

Two quick observations. The PP is not designed to beat any other portfolio strategy. It is designed to keep you from losing your shirt when the next asset bubble pops. Secondly the 7-9% figure is the wrong one to look at. The correct figure is 3-5% above inflation which the PP seems to be delivering. The Bogleheads are not well protected from inflation if/when it returns.

But as others have noted, if you are losing sleep over the fact that the PP is not keeping pace with the latest hot asset, then by all means go 100% stocks if that is what you think will work. personally I think that seven years into the hottest bull market since the 1920's is not when I would be looking to overweight stocks in my portfolio.

But that's just me.

buddtholomew wrote: Do we need another financial crisis or inflation at 10% for the PP to return to its historical 7-9% nominal return?

For the PP to return 7-9% nominal on a rolling basis then, yes, we probably need inflation, but closer to the 4% range. I don't have the figures in front of me but I believe that inflation averaged about 4.4% over the last 40 years or so.

Though I don't use Quicken I do have more or less the same issue as Cortopassi. I don't understand how a PP investor does NOT have a pretty good idea how they are doing. The TV at my gym has the financial news on all day with gold, stock & 30-year bond prices ticking by every few minutes. I like reading stuff on this forum and I hear stock and bond numbers on NPR, etc. When stocks tank people talk about it. When gold tanks my wife asks me if we are OK. Low interest rates, Fed updates and so on are always in the news. Some basic math lets you know more or less where you stand even if you don't check balances every two seconds.

Pointedstick wrote: Some of these criticisms border on the ridiculous. The YTD tracking error of PP vs SPY is practically a rounding error. If not the PP, then what? Stocks, bonds, and gold have all had a rough and choppy year so far. Nothing goes up all the time and sometimes everything treads water for a bit. If this kind of stuff bothers you, you should be in all cash or on whatever portfolio makes you feel better even if it may be riskier (100% stocks, 60/40, etc). Or maybe put some of your money towards anti-anxiety medication of counseling or something. All this worrying over nothing is likely far more detrimental to your finances than obsessing that your investment portfolio isn't doing as well as you'd like.

Alright guys, I've finally come around.  You've convinced me to alter my percentages a bit.  I'm going 5x20 Stocks/Bonds/Gold/Cash/Bitching with a momentum-based Xanax VP.  Whenever we cross above the 30-day moving average panic post count, I'm buying more pharmaceutical stock.

In all seriousness, it's critical to recognize that the angst in this thread has fundamentally nothing to do with the PP and everything to do with personal investing psychology and perspective.  No matter how you invest, always measuring "loss" against the most recent high while ignoring every gain as the new normal is a very dangerous psychological game.  Constant jealousy is similarly destructive. If you want to invest at all, you first have to slay those demons or they'll eventually drive you crazy and/or broke trying to trade against them.

barrett wrote: Though I don't use Quicken I do have more or less the same issue as Cortopassi. I don't understand how a PP investor does NOT have a pretty good idea how they are doing. The TV at my gym has the financial news on all day with gold, stock & 30-year bond prices ticking by every few minutes. I like reading stuff on this forum and I hear stock and bond numbers on NPR, etc. When stocks tank people talk about it. When gold tanks my wife asks me if we are OK. Low interest rates, Fed updates and so on are always in the news. Some basic math let's you know more or less where you stand even if you don't check balances every two seconds.

That's easy. I don't go to a gym, I don't listen to NPR, I don't watch or read the mainstream news, and none of my friends, family, or acquaintances are really very interested in finances (maybe that's a wacky outlier).

I find out how individual assets are doing when people bitch and moan here on this forum, mostly. But individual assets are irrelevant. The portfolio as a whole is the only thing that matters. It is truly pointless to look at the individual assets in your portfolio that are doing well and wish you had more of them, or look at the ones that are doing badly and wish you had less of them. You might  as well wish it were raining when the sky is clear or wish it was clear when it's raining.

If it is impossible for you to be content with the PP when stocks are surging, you should probably have a more conventional portfolio, if only because it will be easier to stomach poor performance when everyone else is experiencing it too. I understand the pain, I really do. But the PP simply requires a bit of a contrarian attitude: you underperform when everyone else is getting rich, and you truck merrily along when everyone else is panicking and losing their money.

It's no coincidence that this forum and PP members tend to be more libertarian in outlook than average: if you're free-thinking contrarian in one field, it's probably an overarching personality trait of yours. Without that trait, I can see how the PP would be a very, very challenging portfolio to stomach. If that's not who you are, you should consider abandoning it and adopting a portfolio more attuned to your psychology. Know, however, that once this current bubble pops, you're going to be just as unhappy as everyone else.

Portfolio envy, the bane of the Permanent Portfolio. 

Just because you are seeing stocks rise, folks are forgetting a fantastic attribute to the PP that makes me feel like I am a mad investment scientist.  I always buy whatever asset is below 25% and then when it goes up, I feel like a genius getting something on sale relative to other investments.

Bean wrote: Portfolio envy, the bane of the Permanent Portfolio. 

Just because you are seeing stocks rise, folks are forgetting a fantastic attribute to the PP that makes me feel like I am a mad investment scientist.  I always buy whatever asset is below 25% and then when it goes up, I feel like a genius getting something on sale relative to other investments.

To be fair, it's not as if rebalancing is unique to the PP. Boglehead folk rebalance as well as take advantage of tax loss harvesting by moving between different stock and bond funds. Div growth people "rebalance" their dividends into the entirety of their portfolio or buy new stocks. Even some guy that holds 100% VTI is constantly rebalancing if he reinvests dividends or new money at the current price, high or low.

The real benefit of the PP (IMO) is being market agnostic. A "sleep-well-at-night-no-matter-what-happens" portfolio. If this portfolio brings you stress, then it really has no advantages whatsoever. By design it's very likely to underperform a 60/40 allocation over long periods of time. So what's the point?

I believe the point might be -- with all this QE and low interest rates, are we in a scenario that HB did not anticipate, or where the PP may necessarily not function as expected?

Coming from a history of really only investing in stocks, this was my general understanding of the four areas:

--Stocks generally always go up, with some nasty downturns every, say, 7-10 years
--Bonds (I thought) were supposed to be inversely correlated to stock, they would tend to go up more when stocks went down and vv.
--Cash, which in the not too distant past, could get 5% in a money market, now makes zero.
--Gold, in times of inflation goes up, otherwise stagnant or down.  Inflation, at least the perception of it, is well controlled.

Are we in some Twilight Zone paradigm where it is completely possible that stocks have peaked, bonds are near a peak, cash pays zero and gold is "controlled" so that for the foreseeable future the PP doesn't work very well?  I have no other option to give that is better, however!!!

Being market agnostic is what I wanted, I am not sure with zero interest rates it all works the way he planned?

Just asking.

iwealth wrote:
To be fair, it's not as if rebalancing is unique to the PP. Boglehead folk rebalance as well as take advantage of tax loss harvesting by moving between different stock and bond funds. Div growth people "rebalance" their dividends into the entirety of their portfolio or buy new stocks. Even some guy that holds 100% VTI is constantly rebalancing if he reinvests dividends or new money at the current price, high or low.

The real benefit of the PP (IMO) is being market agnostic. A "sleep-well-at-night-no-matter-what-happens" portfolio. If this portfolio brings you stress, then it really has no advantages whatsoever. By design it's very likely to underperform a 60/40 allocation over long periods of time. So what's the point?

I should have been more specific.  I don't feel like a standard BH portfolio is diverse enough to truly minimize volatility, nor is it well positioned for macro/global economics in the future.  In particular the slow erosion of US currency dominance that has enabled the exportation of inflation.

Of course I could be completely wrong and that is why I still keep a sizable portfolio with a BH allocation.  Strategy Diversification!

Cortopassi wrote: I believe the point might be -- with all this QE and low interest rates, are we in a scenario that HB did not anticipate, or where the PP may necessarily not function as expected?
....
I have no other option to give that is better, however!!!

Maybe. And exactly.

Therefore, much ado about nothing.

Cortopassi wrote: --Stocks generally always go up, with some nasty downturns every, say, 7-10 years

I would not at all say that they always go up. from 1966 to 1973, stock pretty much moved sideways. That's a long time for them to not be going up. 2000-2007 was a net-negative period, with three straight difficult down years. Etc. If stocks "generally always go up", we'd be idiots for not putting all our money in them, with maybe some cash to ride out the panics.

Cortopassi wrote: --Bonds (I thought) were supposed to be inversely correlated to stock, they would tend to go up more when stocks went down and vv.

No, bonds are often correlated with stocks. This is why Boglehead portfolios can do so well; many times both stocks and bonds are going up… of course they can both go down too.

Cortopassi wrote: Are we in some Twilight Zone paradigm where it is completely possible that stocks have peaked, bonds are near a peak, cash pays zero and gold is "controlled" so that for the foreseeable future the PP doesn't work very well?  I have no other option to give that is better, however!!!

Being market agnostic is what I wanted, I am not sure with zero interest rates it all works the way he planned?

Just asking.

It works fine. When all the assets are peaky or manipulated, it's an even better idea to hedge your bets. If stocks and bonds both explode, that money has to go somewhere. If it goes into gold, we're okay. If it goes into cash, everybody's screwed since cash doesn't really rise much (Harry Browne called this condition "tight-money recession") but it'll be over soon. Really nothing survives that condition unscathed.