New PPer needs guidance.
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- Pointedstick
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Re: New PPer needs guidance.
If your definition of "financial plane crashing" is "portfolio ever declines in value," then I suppose I can see how a YTD 0.5% nominal loss is a plane crash.
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Re: New PPer needs guidance.
Since the start of the year, the portfolio is down what, 0.75% this year?
So, the equivalent of flying along at 30,000 feet and plummeting to 29,775.
So, the equivalent of flying along at 30,000 feet and plummeting to 29,775.
Re: New PPer needs guidance.
Budd is the guy next to you during turbulence saying "wow, this jet airliner, often touted for it's extreme stability in flight, is sure rocking a lot! airliner for the lunch you can't afford to lose, my ass!"MediumTex wrote:If the PP were a 10 hour international flight, budd would be the guy sitting next to you who turns to you every 30 minutes and says: "I'm pretty sure the plane is about to crash."Matthew19 wrote:I'm sorry for the losses but I really don't plan to run. I can appreciate that this is a strange market and while it adjusts the PP will have some short term stagnation. I don't plan to look at it daily or even weekly, I run a business and have a family, I'd rather enjoy life.buddtholomew wrote: Run as far away as fast as possible...I could not be more sincere. This portfolio is not what they make it out to be. This is the 7th day of straight losses...the money you can't affort to lose...my a$$
Re: New PPer needs guidance.
Deep and subtle with the deftest touch.dragoncar wrote: Budd is the guy next to you during turbulence saying "wow, this jet airliner, often touted for it's extreme stability in flight, is sure rocking a lot! airliner for the lunch you can't afford to lose, my ass!"
[claps]
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- sixdollars
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Re: New PPer needs guidance.
I'm imagining the following conversation.iwealth wrote: Since the start of the year, the portfolio is down what, 0.75% this year?
So, the equivalent of flying along at 30,000 feet and plummeting to 29,775.
Budd: "I should never have gotten on this plane flight. I felt fine as we ascended, but now it feels as though we're falling way too fast..."
Me: "Dude, we've only descended like 225 feet."
Budd: "OMG turbulence! I think the plane is crashing!"
Me: "This is normal for a long plane ride - I'd almost find it more strange if we encountered NO turbulence."
Budd: "Hold me, I'm scared."
Me: "Okay, come on in buddy."
Last edited by sixdollars on Fri Jun 05, 2015 6:00 pm, edited 1 time in total.
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- MachineGhost
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Re: New PPer needs guidance.
I really fear this is what will happen to budd when the PP hits that infamous maximum drawdown that I-used-to-mention-but-no-longer-do-due-to-he-who-shall-remain-nameless:
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"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Re: New PPer needs guidance.
I was thinking more of an internal pressure-induced event:MachineGhost wrote: I really fear this is what will happen to budd when the PP hits that infamous maximum drawdown that I-used-to-mention-but-no-longer-do-due-to-he-who-shall-remain-nameless:
I watched "Scanners" for the first time when I was about 12 years old, and in retrospect that was probably not a good idea. It's a disturbing movie.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: New PPer needs guidance.
I didn't expect this thread to end up with exploding heads haha
I'll say this for anyone who feels like they are missing out the stock market gains: the people who are stock heavy aren't selling, and you probably wouldn't be either. When it turns and takes a dump they will give it all back. I did it in 2010-2013 with the gold miners. Huge gains at first, but I never sold and now they are all negative. I would have loved to have had the modest gains of the PP instead of being half right in asset class timing.
I'll say this for anyone who feels like they are missing out the stock market gains: the people who are stock heavy aren't selling, and you probably wouldn't be either. When it turns and takes a dump they will give it all back. I did it in 2010-2013 with the gold miners. Huge gains at first, but I never sold and now they are all negative. I would have loved to have had the modest gains of the PP instead of being half right in asset class timing.
Re: New PPer needs guidance.
Going from some basic PP newbie questions to an exploding head without straying too far off topic and doing it in under 4 pages is pretty impressive.Matthew19 wrote: I didn't expect this thread to end up with exploding heads haha
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: New PPer needs guidance.
Maybe budd has a point. Is the PP positively biased because of the long term bull markets in gold and treasuries? Are we only here because of recency bias? What if these bulls have run their course? How do we know that what has happened in the past will repeat in the future? What if business cycles behave differently or these assets become less valuable or worthless?
Last edited by Reub on Sat Jun 06, 2015 12:16 am, edited 1 time in total.
- Pointedstick
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Re: New PPer needs guidance.
What long-term bull market in gold?Reub wrote: Maybe budd has a point. Is the PP positively biased because of the long term bull markets in gold and treasuries?
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
- CEO Nwabudike Morgan
Re: New PPer needs guidance.
And I would point Reub back to some of the PP basics, like if one asset is falling, another asset MUST be rising, and if you can somehow find proxies for assets associated with all conceivable economic environments, then you will always have at least one winner in your portfolio, and that's enough to protect you.Pointedstick wrote:What long-term bull market in gold?Reub wrote: Maybe budd has a point. Is the PP positively biased because of the long term bull markets in gold and treasuries?
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
- Mark Leavy
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Re: New PPer needs guidance.
Good question Reub (and Budd).
I think you should always question the fundamentals of any system. The problem is in not having a decent metric to evaluate whether the fundamentals are working or not. You can't look at the day to day swings. That is just noise and will drive you crazy. But without something else to look at, you can never be sure that it is all working.
The metric that I have finally settled on is a linear fit of the inflation adjusted returns. Here's the vanilla HBPP over the last 10 years:
[img width=800]http://i57.tinypic.com/2z8ng2w.png[/img]
The linear fit of the inflation adjusted growth rate is 8.45%.
The average (RMS) deviation from that best fit line is 4.88%
The largest deviation from the line (not MaxDD) is 13.5%
Our current deviation from that best fit linear line is 8.58%
So... yes we are down a little bit from average over the last 10 years.
We are still aways a bit from even our worst 10 year slump.
Nothing in this picture makes me think the model is broken.
Think of this post as just an example. You need some metric that can give you an accurate picture of the model performing to plan. Pick whatever you want - but a day/week up/down will not give you the information you are looking for.
Hope this helps.
All the best,
Mark
I think you should always question the fundamentals of any system. The problem is in not having a decent metric to evaluate whether the fundamentals are working or not. You can't look at the day to day swings. That is just noise and will drive you crazy. But without something else to look at, you can never be sure that it is all working.
The metric that I have finally settled on is a linear fit of the inflation adjusted returns. Here's the vanilla HBPP over the last 10 years:
[img width=800]http://i57.tinypic.com/2z8ng2w.png[/img]
The linear fit of the inflation adjusted growth rate is 8.45%.
The average (RMS) deviation from that best fit line is 4.88%
The largest deviation from the line (not MaxDD) is 13.5%
Our current deviation from that best fit linear line is 8.58%
So... yes we are down a little bit from average over the last 10 years.
We are still aways a bit from even our worst 10 year slump.
Nothing in this picture makes me think the model is broken.
Think of this post as just an example. You need some metric that can give you an accurate picture of the model performing to plan. Pick whatever you want - but a day/week up/down will not give you the information you are looking for.
Hope this helps.
All the best,
Mark
Re: New PPer needs guidance.
Mark,Mark Leavy wrote: The metric that I have finally settled on is a linear fit of the inflation adjusted returns. Here's the vanilla HBPP over the last 10 years:
[img width=800]http://i57.tinypic.com/2z8ng2w.png[/img]
The linear fit of the inflation adjusted growth rate is 8.45%.
The average (RMS) deviation from that best fit line is 4.88%
The largest deviation from the line (not MaxDD) is 13.5%
Our current deviation from that best fit linear line is 8.58%
Thanks for sharing that. A couple of questions...
By "inflation adjusted growth rate" you mean, real rate of return, correct? If so, shouldn't that number be something around 4.5% instead of 8.45%?
Your post is similar to Ryan's Melvey's "What's My Benchmark" article here:
http://www.stableinvesting.com/2011/04/ ... hmark.html
Also, I really think we need a quick performance link on the home page of this forum so that we all know what we are talking about when we get into the debate about whether or not the PP's current performance is tracking its historical performance. I get frustrated when I read most 'tracking error' posts because the PP is not supposed to track some other index like the S&P 500 or a 60/40 Bogleheads setup. We should only be comparing it to itself. Only then can we have reasonable discussions about whether or not it is lagging, broken, outperforming, regressing to the mean, etc.
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Re: New PPer needs guidance.
Matthew,
When to sell separates the winners from the losers. I buy penny stocks and have had some success with them (this is the variable part of my portfolio). My goal is for every penny stock to double (of course not all of them do). This is my selling plan. When the stock doubles I will sell half of my holdings. Then when the stock declines 25% from its highest point I sell the remainder of my shares. These are the kind of stocks you date, not marry.
A common refrain I hear is "What if it goes back up after you sell?" Maybe 1 out of 10 might, but most of them will fall further but you have your cash in your hands.
If you had sold on a 25% decline from the stock's high, you would have pocketed some nice profits. It is sickening to watch a stock with nice gains turn red in negative territory. The plan I use above helps to prevent this.
When to sell separates the winners from the losers. I buy penny stocks and have had some success with them (this is the variable part of my portfolio). My goal is for every penny stock to double (of course not all of them do). This is my selling plan. When the stock doubles I will sell half of my holdings. Then when the stock declines 25% from its highest point I sell the remainder of my shares. These are the kind of stocks you date, not marry.
A common refrain I hear is "What if it goes back up after you sell?" Maybe 1 out of 10 might, but most of them will fall further but you have your cash in your hands.
If you had sold on a 25% decline from the stock's high, you would have pocketed some nice profits. It is sickening to watch a stock with nice gains turn red in negative territory. The plan I use above helps to prevent this.
Re: New PPer needs guidance.
What about when 2 assets are falling and the other is overvalued?MediumTex wrote:And I would point Reub back to some of the PP basics, like if one asset is falling, another asset MUST be rising, and if you can somehow find proxies for assets associated with all conceivable economic environments, then you will always have at least one winner in your portfolio, and that's enough to protect you.Pointedstick wrote:What long-term bull market in gold?Reub wrote: Maybe budd has a point. Is the PP positively biased because of the long term bull markets in gold and treasuries?
Re: New PPer needs guidance.
Thank you, Mark! Your posts are always polite and insightful. But do you have a 10 year chart available for the next 10 years?Mark Leavy wrote: Good question Reub (and Budd).
I think you should always question the fundamentals of any system. The problem is in not having a decent metric to evaluate whether the fundamentals are working or not. You can't look at the day to day swings. That is just noise and will drive you crazy. But without something else to look at, you can never be sure that it is all working.
The metric that I have finally settled on is a linear fit of the inflation adjusted returns. Here's the vanilla HBPP over the last 10 years:
[img width=800]http://i57.tinypic.com/2z8ng2w.png[/img]
The linear fit of the inflation adjusted growth rate is 8.45%.
The average (RMS) deviation from that best fit line is 4.88%
The largest deviation from the line (not MaxDD) is 13.5%
Our current deviation from that best fit linear line is 8.58%
So... yes we are down a little bit from average over the last 10 years.
We are still aways a bit from even our worst 10 year slump.
Nothing in this picture makes me think the model is broken.
Think of this post as just an example. You need some metric that can give you an accurate picture of the model performing to plan. Pick whatever you want - but a day/week up/down will not give you the information you are looking for.
Hope this helps.
All the best,
Mark
- MachineGhost
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Re: New PPer needs guidance.
Could you run it again but this time with gold at 20%/cash 30% that I determined was risk parity?Mark Leavy wrote: Think of this post as just an example. You need some metric that can give you an accurate picture of the model performing to plan. Pick whatever you want - but a day/week up/down will not give you the information you are looking for.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
- MachineGhost
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Re: New PPer needs guidance.
Yes, we should have it track the global financial asset portfolio so we can stop worrying about tracking error anxiety.barrett wrote: Also, I really think we need a quick performance link on the home page of this forum so that we all know what we are talking about when we get into the debate about whether or not the PP's current performance is tracking its historical performance. I get frustrated when I read most 'tracking error' posts because the PP is not supposed to track some other index like the S&P 500 or a 60/40 Bogleheads setup. We should only be comparing it to itself. Only then can we have reasonable discussions about whether or not it is lagging, broken, outperforming, regressing to the mean, etc.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Re: New PPer needs guidance.
If you are the type of person that insists on making opinions on whether assets are over/undervalued, passive investing just isn't for you. It doesn't matter how you structure your portfolio (PP, 60/40, etc.), something will always be rising, falling, "overvalued" or "undervalued". The PP is particularly bad for such a person because the individual assets are in fact quite volatile and swing rapidly from highs to lows and vice versa.Reub wrote: What about when 2 assets are falling and the other is overvalued?
Honestly, if you are so concerned, just go to cash for awhile until 1) two assets aren't falling and 2) the other asset doesn't appear overvalued. What do you have to lose? It depends on your age of course, but if you have plenty of investing years left, you still have plenty of time to make gains and in the meantime what's more valuable than peace of mind?
- buddtholomew
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Re: New PPer needs guidance.
Where do we find evidence of these 2 fundamental principles of the portfolio - namely another asset MUST be rising when one or more is falling and you will ALWAYS have one winner that is sufficient to protect you. These are at the core of the PP philosophy. How can you be so sure?MediumTex wrote:And I would point Reub back to some of the PP basics, like if one asset is falling, another asset MUST be rising, and if you can somehow find proxies for assets associated with all conceivable economic environments, then you will always have at least one winner in your portfolio, and that's enough to protect you.Pointedstick wrote:What long-term bull market in gold?Reub wrote: Maybe budd has a point. Is the PP positively biased because of the long term bull markets in gold and treasuries?
I have personally witnessed 1 negative Year and YTD we are negative as well. I don't recall the specifics, but negative years are 2-5 in 40 and now they are becoming more frequent.
Last edited by buddtholomew on Sat Jun 06, 2015 11:31 am, edited 1 time in total.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
Re: New PPer needs guidance.
May be helpful if everyone provides their definition of "protection" first because I'm sure MT's will be different than yours.buddtholomew wrote: Where do we find evidence of these 2 fundamental principles of the portfolio - namely another asset MUST be rising when one or more is falling and you will ALWAYS have one winner that is sufficient to protect you. These are at the core of the PP philosophy. How can you be so sure?
I have personally witnessed 1 negative Year and YTD we are negative as well. I don't recall the specifics, but negative years are 2-5 in 40 and now they are becoming more frequent.
Re: New PPer needs guidance.
+1barrett wrote: I get frustrated when I read most 'tracking error' posts because the PP is not supposed to track some other index like the S&P 500 or a 60/40 Bogleheads setup. We should only be comparing it to itself. Only then can we have reasonable discussions about whether or not it is lagging, broken, outperforming, regressing to the mean, etc.
- MachineGhost
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Re: New PPer needs guidance.
He means that in real terms. Cash certainly won't go up in nominal terms when the other three are declining.buddtholomew wrote: Where do we find evidence of these 2 fundamental principles of the portfolio - namely another asset MUST be rising when one or more is falling and you will ALWAYS have one winner that is sufficient to protect you. These are at the core of the PP philosophy. How can you be so sure?
Look, if you find the vanilla PP too risky the simplest solution to the problem is to increase the cash balance so that the overall portfolio risk is at a level you're comfortable with historically.
If you're arguing that the non-correlation of the assets is breaking down, well, what is the alternative?
Last edited by MachineGhost on Sat Jun 06, 2015 12:35 pm, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Re: New PPer needs guidance.
Budd, The actual number of negative years in real terms is eight so far. This is according to the data in Craig & MT's book. I am also including 2013 (their data only went through 2011). The reason the nominal returns are now more frequently negative is most likely because they are clustered around a lower number due to really low inflation.buddtholomew wrote: I have personally witnessed 1 negative Year and YTD we are negative as well. I don't recall the specifics, but negative years are 2-5 in 40 and now they are becoming more frequent.
For example, if we have 4% - 5% inflation, we would expect much higher nominal returns than we are getting now. The higher nominal returns help to "mask" the down years because even in a down year, you might still be getting an annualized nominal return of 2% or so (think 1999 to 2002).
When looked at from this perspective, the PP is (I would argue) in fact underperforming slightly since the middle of 2013. This is what Mark's graph shows. If it continues to underperform for an extended period, then maybe the approach needs to be rethought.
Your entry point IIRC was early 2013, so a tough time psychologically, but over the long haul it shouldn't matter much.
Last edited by barrett on Sat Jun 06, 2015 2:55 pm, edited 1 time in total.