Gyroscopic Investing

LC475 wrote: The Permanent Portfolio is as sound as ever.  Naysayers are always going to neigh. 

You can't always get what you want, but wild horses couldn't drag me away from the P.P.

How does anyone know that the PP will perform well in the future?

Reub wrote: How does anyone know that the PP will perform well in the future?

The giant asteroid with our name on it could be headed this way right now and wipe us all out in 6 months.
Thus, no one can know anything with absolute certainty about the future.

I hope NASA et al. could warn us of an asteroid 6 months out.

Reub wrote: How does anyone know that the PP will perform well in the future?

We don't know, but history is our guide.  I have my doubts a vanilla PP will always perform, so I advocate smarter diversification in the equity and real parts.  Anticipate the unexpected and expect the unanticipated!

fi50@fi2023 wrote: I hope NASA et al. could warn us of an asteroid 6 months out.

Ok, if they did, then what? Probably nothing good.

FLAGATOR wrote: Hello everyone!

I am new here.
I just recently went all in by investing in the PP on 4/22/15.

As of today I am -7.27 on long term treasuries
                        -0.48 on short term treasuries
                        -1.05 stocks
                        -1.27 gold

I have lost 2.52 % of my investment in just a bit over a month.

I feel like there is really no place to hide and all the components are going down simultaneously.

I did not expect this at all. I am not sure what kind of environment we have in the economy because the data provided by govt are very suspicious. I do not know what to do from here on, but I am certainly racking up losses pretty steeply.

Any comments would be appreciated.

Hi FLAGATOR, I feel your pain. Tyler's charts posted elsewhere on this Forum show that the entry year does make a difference sometimes in how the PP performs for a few years post-entry, and if those three years are so painful to the new investor that they bail, then that's not a good thing.

I have advocated being more adaptive as far as getting into the portfolio. This is what I am doing at present. I guess you could say I'm still transitioning in since October 2014.

For better or worse, I follow the opinions of a market watcher who thinks gold will go below $1000 within the next year, then it will stabilize and head higher. Doomer Harry S. Dent thinks gold could go down to $250 by 2020. People who sell gold will always tell you that gold is going to go up starting tomorrow, so you better buy some today! I'm right now at 10.7% gold, my target allocation is 14%, if it goes below $1000 I'm going to my full target, if it drops to $250-$500 then I'm "all in" with a 25% Classic PP allocation.

After getting hammered with everyone else with long bonds since February 1, I hopped out to shorter bond durations. I swapped long Treasuries for SCHZ, the Schwab total bond ETF. It's much less volatile than TLO or TLT. Yes, it has corporate bonds and some high yield, no I don't think all of the issuers are going to default really soon, and it's diversified. My aim is to wait for TLO to go down another 14%-15%, to $58, then re-enter.

Cash? I have the full cash allocation. Ally Bank, 0.99%. Some I-Bonds at 1%. A bit of paper in the safe.

Stocks? Because I am light on gold, my bonds and stocks were both at 32% instead of 25%. I like to keep the ratio 1:1. 25% of my stocks are non-US. Stocks will go down, but I'll see if they grind higher. I don't plan on selling stocks no matter how bad they get in a correction, I kept all my stocks even in 2008-2009, and rebalanced after the blood was flowing in the streets.

So in summary, I am treating gold and long bonds as special cases, because gold has a very volatile recent history (1975-2011) of extreme ups and downs in real terms, and you don't want to overpay for it. Long bonds have just come off the top of a QE policy driven bull market which has no where left to go but down (with volatility), so why stand in the way of the truck while it races towards you? You know it's coming, you hear the engine; stand aside, just for a while. Maybe as short as a few months. But I acknowledge that is not without risks either... long bonds prices could go back up and stay up for years! No one can predict. I'm just sick of the volatility. I'm choosing to take a sedative for a while.

But truly, once I'm "in" the PP, at at least a 14% gold allocation, and my long bonds are restored, I intend to put it to sleep and go on the regular rebalance plan. It's just a matter of easing in, so one don't feel cheated by fate.

My specific advice to you, take it with a grain of salt:

I agree with others who say not to sell your positions, except if you can harvest tax losses to your advantage. If you feel adventurous, trade some of your long bonds for shorter maturities (the very shortest maturity being cash) and wait for long bonds to go on sale... which may not happen for a long time, or it might happen soon.

Reub wrote: How does anyone know that the PP will perform well in the future?

Because we're smarter than you. 

You can come back in ten years and congratulate us.

It sounds more like blind faith and hubris to me. Questioning the PP is a healthy thing to do. There are no guarantees.

Reub, everyone here is questioning the PP.

There are thousands and thousands of posts questioning it.

I don't think that there is any danger of complacency about the PP on a PP forum.  With that said, though, I'm just not seeing anything in the data to suggest that the portfolio is not functioning within spec.

The PP isn't supposed to involve as much worry as I sometimes sense here.  It's best feature is its safety.  When other portfolios have been shot to pieces, the PP always seems to be the one hanging in there and plowing higher.

MediumTex wrote: Reub, everyone here is questioning the PP.

There are thousands and thousands of posts questioning it.

I don't think that there is any danger of complacency about the PP on a PP forum.  With that said, though, I'm just not seeing anything in the data to suggest that the portfolio is not functioning within spec.

The PP isn't supposed to involve as much worry as I sometimes sense here.  It's best feature is its safety.  When other portfolios have been shot to pieces, the PP always seems to be the one hanging in there and plowing higher.

PP is for probably chosen by people who are already worriers, otherwise they would go with a happy-go-lucky bogleheads 80/20.

For a time, there was some... misleading... hyperbole around the PP.  I think by now, new investors will have much more realistic expectations going forward.

dragoncar wrote:

MediumTex wrote: Reub, everyone here is questioning the PP.

There are thousands and thousands of posts questioning it.

I don't think that there is any danger of complacency about the PP on a PP forum.  With that said, though, I'm just not seeing anything in the data to suggest that the portfolio is not functioning within spec.

The PP isn't supposed to involve as much worry as I sometimes sense here.  It's best feature is its safety.  When other portfolios have been shot to pieces, the PP always seems to be the one hanging in there and plowing higher.

PP is for probably chosen by people who are already worriers, otherwise they would go with a happy-go-lucky bogleheads 80/20.

For a time, there was some... misleading... hyperbole around the PP.  I think by now, new investors will have much more realistic expectations going forward.

I think you're right.

Everyone always suspected that the biggest threat to the PP was a rising stock market, and that's pretty much been the story the last couple of years.

MediumTex wrote: Everyone always suspected that the biggest threat to the PP was a rising stock market, and that's pretty much been the story the last couple of years.

That's utter nonsense!  The PP would be DESTROYED without a rising stock market.

MachineGhost wrote:

MediumTex wrote: Everyone always suspected that the biggest threat to the PP was a rising stock market, and that's pretty much been the story the last couple of years.

That's utter nonsense!  The PP would be DESTROYED without a rising stock market.

What I meant was a rising stock market makes PP investors want to have a higher stock allocation.

What seems to pull investors away from the PP isn't the risk of loss in the PP, it's the perceived missed gains by only having a 25% stock allocation.

MachineGhost wrote:

MediumTex wrote: Everyone always suspected that the biggest threat to the PP was a rising stock market, and that's pretty much been the story the last couple of years.

That's utter nonsense!  The PP would be DESTROYED without a rising stock market.

That may be true, but imagine how much more devastating it would be for a Boglehead portfolio! It's all relative.

A conservative BH portfolio is 50/50. Gold could certainly underperform equities in the above scenario so the results are not conclusive with a flat to lower stock market.

buddtholomew wrote: A conservative BH portfolio is 50/50. Gold could certainly underperform equities in the above scenario so the results are not conclusive with a flat to lower stock market.

True for gold. However I imagine long term treasuries would fare somewhat better than the 50% of the Boglehead portfolio that is in corporate treasuries... assuming low inflation, of course.

Otherwise with high inflation, the theory is gold would be the one offering the protection.

mukramesh wrote:

buddtholomew wrote: A conservative BH portfolio is 50/50. Gold could certainly underperform equities in the above scenario so the results are not conclusive with a flat to lower stock market.

True for gold. However I imagine long term treasuries would fare somewhat better than the 50% of the Boglehead portfolio that is in corporate treasuries... assuming low inflation, of course.

Otherwise with high inflation, the theory is gold would be the one offering the protection.

PP only holds 25% in LTT and 25% in Cash for a blended duration of approximately 9 years. This duration is "roughly" equivalent to the 50% held in IT-bonds. Not sure where the misconception surfaced that BH's hold corporate bonds - generally total bond market index.

mukramesh wrote:

buddtholomew wrote: A conservative BH portfolio is 50/50. Gold could certainly underperform equities in the above scenario so the results are not conclusive with a flat to lower stock market.

True for gold. However I imagine long term treasuries would fare somewhat better than the 50% of the Boglehead portfolio that is in corporate treasuries... assuming low inflation, of course.

Otherwise with high inflation, the theory is gold would be the one offering the protection.

What does the forum think about gold price discovery? Do you guys believe that in general gold price reflects true supply and demand out there? If so why, and if not, why not?

Since gold's peak in 2011, it appears to me that the PP was carried by bonds and equities since then. If gold remains stagnant like it has for the last 3 years, for various obvious and not so obvious reasons, how will the PP perform in rising int rate environment?

FLAGATOR wrote: What does the forum think about gold price discovery? Do you guys believe that in general gold price reflects true supply and demand out there? If so why, and if not, why not?

Since gold's peak in 2011, it appears to me that the PP was carried by bonds and equities since then. If gold remains stagnant like it has for the last 3 years, for various obvious and not so obvious reasons, how will the PP perform in rising int rate environment?

No, its all confidence driven.  The amount of gold discovered is inconsequential compared to the Gold Rush era.  There's a chance mining asteroids could dump a ton of supply, but thats far off in the future.

Gold will be killed in a rising real rate environment as it was for 20-years during the 80's and 90's.

flagator wrote:

mukramesh wrote:

buddtholomew wrote: A conservative BH portfolio is 50/50. Gold could certainly underperform equities in the above scenario so the results are not conclusive with a flat to lower stock market.

True for gold. However I imagine long term treasuries would fare somewhat better than the 50% of the Boglehead portfolio that is in corporate treasuries... assuming low inflation, of course.

Otherwise with high inflation, the theory is gold would be the one offering the protection.

What does the forum think about gold price discovery? Do you guys believe that in general gold price reflects true supply and demand out there? If so why, and if not, why not?

Since gold's peak in 2011, it appears to me that the PP was carried by bonds and equities since then. If gold remains stagnant like it has for the last 3 years, for various obvious and not so obvious reasons, how will the PP perform in rising int rate environment?

In a rising interest rate environment cash may become the leader in the portfolio.

If T-bills are paying 8-10% (or more) it can dampen a lot of losses elsewhere in the portfolio.

People have gotten used to cash doing nothing in the PP, but that is a relatively recent development.

buddtholomew wrote:PP only holds 25% in LTT and 25% in Cash for a blended duration of approximately 9 years. This duration is "roughly" equivalent to the 50% held in IT-bonds. Not sure where the misconception surfaced that BH's hold corporate bonds - generally total bond market index.

Which are, if not majority, significantly made up of corporate bonds.

Xan wrote:

buddtholomew wrote:PP only holds 25% in LTT and 25% in Cash for a blended duration of approximately 9 years. This duration is "roughly" equivalent to the 50% held in IT-bonds. Not sure where the misconception surfaced that BH's hold corporate bonds - generally total bond market index.

Which are, if not majority, significantly made up of corporate bonds.

[img width=800]http://i58.tinypic.com/11afhuq.png[/img]

Xan wrote:

buddtholomew wrote:PP only holds 25% in LTT and 25% in Cash for a blended duration of approximately 9 years. This duration is "roughly" equivalent to the 50% held in IT-bonds. Not sure where the misconception surfaced that BH's hold corporate bonds - generally total bond market index.

Which are, if not majority, significantly made up of corporate bonds.

If you say so.

flagator wrote: What does the forum think about gold price discovery? Do you guys believe that in general gold price reflects true supply and demand out there? If so why, and if not, why not?

At this point, the gold price is driven almost entirely by the COMEX futures price although who's driving the price flips back and forth between COMEX and the LBMA "fix".  See http://www.kitco.com/ind/Skoyles/2013-0 ... rrors.html

The COMEX price has virtually nothing to do with "true supply and demand" but is rather a function of how many speculators are willing to bet long vs. how many are willing to bet short.  Or, more precisely, the total amount of money speculators are willing to bet long vs. the total amount of money speculators are willing to bet short. 

A significant portion of the short bet (which depresses the price) is from less than a handful of traders, widely suspected to be mostly JP Morgan (who is a bullion bank and involved in one way or another in essentially all of the gold ETFs).  Why they would, in their own account (as opposed to their customers' accounts), have a very large short position on gold is kind of a mystery.  If their short position is as large as widely believed, they can effectively dictate the price (reducing their short position makes the price go up, increasing it makes the price go down).  The Hunt brothers attempted to corner the silver market in the late 70s from the long side and were ultimately banned from the market.  However, they never controlled as much of the silver market (from the long side) as JP Morgan is alleged to control of the gold market (from the short side).

Does the price of gold reflect true supply and demand?  Hell no.