Gyroscopic Investing

I started investing in the PP in mid-2011.  My gains are now equal to those I saw in August, 2012.  In other words, I haven't made any money in the PP in three years.

The caveat is that I've been regularly and aggressively contributing to the PP.  So my early gains in 2011/2012 were small as a percent of my current total portfolio value.  Losses in 2015 are applied to a much higher portfolio value.  Hopefully that makes sense.

Overall, not super happy with this portfolio.  I might try to move out of it by continually rebalancing into stocks but never rebalancing out of stocks until my allocation is more boglehead like.

I appreciate that you are patient and not immediately moving your money around.  That's a good attitude.

Just be warned that if the reason you want to switch is that three down years bothers you, Bogleheads portfolios can do that for a decade or more.  If that's your pressure point, be sure you know what you're getting into and don't be tempted by recency bias.

Tyler wrote: I appreciate that you are patient and not immediately moving your money around.  That's a good attitude.

Just be warned that if the reason you want to switch is that three down years bothers you, Bogleheads portfolios can do that for a decade or more.  If that's your pressure point, be sure you know what you're getting into and don't be tempted by recency bias.

I know that objectively the PP has had a lower Sharpe ratio than, say, 75/25, but subjectively it feels like I'm not getting returns to justify the risks.  For me, it seems that volatility "saturates" -- as long as I'm losing thousands in a day, it doesn't matter much to me exactly how many thousands they are -- I have the same level of anxiety.  If I'm going to be anxious anyways, might as well go with something that I expect to give higher returns in the long run.

I haven't made up my mind, but the "three year negative returns" rule has been tossed around as a time take a critical look at the portfolio.  I know my particular DCA path is different (worse) from a lump-sum B&H PP starting at the same time, but I've been putting this off until the three year mark.

Bingo! Welcome to what I have been feeling all along...too bad I get berated for it. Hopefully you have more success than me.

This is how the last week has played out:

Stocks plunge, gold and treasuries are flat.
Stocks plunge again, gold and treasuries decline.
Stocks rally, gold and treasuries get demolished.

See the pattern? I know...its only a week, blah, blah, blah. Same crap, different day. Been that way since 2011.

The only time the PP will shine is if we encounter SIGNIFICANT inflation and GOLD responds (certainly questionable). Other than that, you are underweight equities and overweight fixed income at historically low yields and it shows. I would be down again today with a 600 point rally if I didn't buy equity on Monday.

Budd, I berate you for complaining about something that you want to change, and have the power to change, but choose not to change for reasons that still nobody understands. For what it's worth, my PP has had similarly lousy performance over the same time period and I feel similar things. The three-year-no-gains line is here. My current line of thinking is to move into a more Desert-like allocation (overweight stocks and underweight gold) during the next stock crash.

That said, this has been a rough year for everyone so far. We may be in one of those periods where everything does poorly or treads water. Even though I haven't made any gains, it's comforting not to be worrying about when the bottom of the market is going to drop out and all hell breaks loose. It feels like we're nearing that point.

It's normal to dislike volatility but also to want higher returns.  Just be sure you're looking at the right numbers and not simply assuming that volatility is always rewarded with higher compound returns.  It's a common misconception.  Copying one of my comments from another thread because it's relevant here:

As an example, the average real return of the PP since 1972 is about 1% less per year than a 60-40 portfolio.  But the compound real return that you'd actually experience in real-life dollars is virtually identical (within the range of fund expense ratio differences).  The 40% less volatility in the PP makes up the difference mathematically.  People like to say "higher risk, higher reward" but that isn't always the case. 

Everyone should reevaluate their plan periodically.  That's a very healthy thing to do.  Just make sure you're being realistic about any direct comparisons. 

Pointedstick wrote: Budd, I berate you for complaining about something that you want to change, and have the power to change, but choose not to change for reasons that still nobody understands. For what it's worth, my PP has had similarly lousy performance over the same time period and I feel similar things. The three-year-no-gains line is here. My current line of thinking is to move into a more Desert-like allocation (overweight stocks and underweight gold) during the next stock crash.

That said, this has been a rough year for everyone so far. We may be in one of those periods where everything does poorly or treads water. Even though I haven't made any gains, it's comforting not to be worrying about when the bottom of the market is going to drop out and all hell breaks loose. It feels like we're nearing that point.

The problem is "everything is not doing poorly", only the PP. You gave up returns from 2011-2015 invested in this allocation while telling everyone how great it was. Now that you realize in 3 years you have no gains, you choose to switch to another portfolio. I'll let dragoncar speak his mind and won't hijack this thread.

buddtholomew wrote: The problem is "everything is not doing poorly", only the PP. You gave up returns from 2011-2015 invested in this allocation while telling everyone how great it was. Now that you realize in 3 years you have no gains, you choose to switch to another portfolio. I'll let dragoncar speak his mind and won't hijack this thread.

Everything has been doing poorly this year; that's what I was referring to. Last year the PP did great. But you're right, and hindsight's a bitch. However, I refuse to dwell on a past I can't change. The portfolio seemed like a great idea and I certainly haven't lost anything--just given up hypothetical gains, which is both different and constant; you're always giving up gains you didn't know at the time you could receive if you had done something different. What's changed is that I've realized is that I can tolerate more volatility than I thought I could and I like stocks more than I thought I did. For many years, I've kept separate stock-heavy portfolios in other accounts that I couldn't make into a PP and the volatility in them hasn't really upset me. I think investing in assets you like and minimizing assets you don't is more important than we've all thought, because the assets you hate are the ones that make you question your plan at the worst possible time, and the ones you love are the ones whose wild rides you're more easily able to tolerate.

What I plan to move into is still pretty PP-like, with more gold than average and a lot of bonds, and, in terms of backtests, not much more volatility at all. And I plan to wait for a while to implement it. I'm not selling right now.

there is never a perfect plan .

when i abandoned the pp idea for my own model within days equty's crapped the bed .

then of course you say gee maybe the permanent portfolio is not such a bad thing .

then you see how easily stocks can roar back and watch the pp get clobbered and i go good choice .

there is never a time what you own will be the answer  .

if low volatility is your goal then realize low volatility is no guarantee of performance .

on the other hand if gains are your criteria then you have to live with the volatility . positive returns though are not guaranteed in either case .

my own preference has always been equity  heavier  since in my investing time frame stock cycles have been shorter than commodity and interest rate cycles .

mathjak107 wrote: if low volatility is your goal then realize low volatility is no guarantee of performance .
...stock cycles have been shorter than commodity and interest rate cycles.

Two excellent points in my opinion.

Pointedstick wrote: I think investing in assets you like and minimizing assets you don't is more important than we've all thought, because the assets you hate are the ones that make you question your plan at the worst possible time, and the ones you love are the ones whose wild rides you're more easily able to tolerate.

Very well said PointedStick.  In my opinion the PP is a "framework".  And as long as each person owns all the asset classes in the portions they’re comfortable with, that’s the best assurance they won’t change course during rough seas.

For example, I’m in the accumulation phase, and I like being overweight is stocks.  So whenever there is a stock market dip, I'm a buyer. 

FYI - On Monday I placed market orders for IJR and IJH shortly after the open, and noticed my broker took a very long time to fill them (like 15min).  I believe there were temporary problems with the exchanges.  They ended up filling near the bottom (I got lucky) and now my IJR position up +32% in 3 days!  The fastest gain I've ever seen in my life! 

buddtholomew wrote: The problem is "everything is not doing poorly", only the PP. You gave up returns from 2011-2015 invested in this allocation while telling everyone how great it was.

From what I've seen (as a lurker for months), PS and others have been very good about being balanced with their opinions and qualifying them.  I've not seen anyone say "the PP is the bestest, no downsides, everyone should allocate this way!".  Instead, I've seen discussions of the tradeoffs, and often acknowledgements of what you're giving up when adopting the PP.

All we can do is choose the portfolio we think best aligns with our goals (growth, preservation, low-volatility, etc) and hope things work out the way we want. But we each individually make our choice.

Pointedstick wrote: I think investing in assets you like and minimizing assets you don't is more important than we've all thought, because the assets you hate are the ones that make you question your plan at the worst possible time, and the ones you love are the ones whose wild rides you're more easily able to tolerate.

Exactly. That's why I don't post "gold is falling, woe is me!" whenever there is a gold bear market. I have no problems continuing my investment strategy even in the face of tremendous volatility in its assets, because it helps me sleep at night not to be so tied to the fortunes of the US government as I would be with any "normal" allocation.

In a zero interest rate environment, without much in the way of action, the PP is not going to produce much of a return.  I've said so before but nobody agreed.  Just a voice in the wilderness.... <sniffle>

buddtholomew wrote:
Stocks plunge, gold and treasuries are flat.
Stocks plunge again, gold and treasuries decline.
Stocks rally, gold and treasuries get demolished.

See the pattern? I know...its only a week, blah, blah, blah. Same crap, different day. Been that way since 2011.

Peak to trough, from 1/1/2011, CAGR of 4.37$, total 22.05%.  I would have taken that return without even thinking over the past 4+ years!

I think a bunch of us are seriously down on gold especially, and with stocks hammered as well, the normal, expected drop in gold ( ) just compounded the losses.

Everything I read, leads me to believe that gold is never perfectly inversely proportional to stocks.  There is a delay.  I can at this point seem to feel something is near:

--The crazy volatility swings
--China problems, including selling a boatload of US treasuries recently
--Continual hammering of gold when it is expected to shine
--Ukraine, ISIS, Greece, EU, etc

Something in the past few months feels like we are nearing some tipping point and there won't be many things left standing.  My assumption/hope is that gold in some fashion shines then, and that it isn't so bad that it doesn't matter.

Cortopassi wrote:

buddtholomew wrote:
Stocks plunge, gold and treasuries are flat.
Stocks plunge again, gold and treasuries decline.
Stocks rally, gold and treasuries get demolished.

See the pattern? I know...its only a week, blah, blah, blah. Same crap, different day. Been that way since 2011.

Peak to trough, from 1/1/2011, CAGR of 4.37$, total 22.05%.  I would have taken that return without even thinking over the past 4+ years!

I think a bunch of us are seriously down on gold especially, and with stocks hammered as well, the normal, expected drop in gold ( ) just compounded the losses.

Everything I read, leads me to believe that gold is never perfectly inversely proportional to stocks.  There is a delay.  I can at this point seem to feel something is near:

--The crazy volatility swings
--China problems, including selling a boatload of US treasuries recently
--Continual hammering of gold when it is expected to shine
--Ukraine, ISIS, Greece, EU, etc

Something in the past few months feels like we are nearing some tipping point and there won't be many things left standing.  My assumption/hope is that gold in some fashion shines then, and that it isn't so bad that it doesn't matter.

I think both of those assumptions will turn out to be true.

Cortopassi wrote:
Peak to trough, from 1/1/2011, CAGR of 4.37$, total 22.05%.  I would have taken that return without even thinking over the past 4+ years!

Funny, I just tried plugging in the last 3 years.  Here's what I got:

Fatal error: Maximum execution time of 30 seconds exceeded in /usr/local/ebs/web/sites/peaktotrough.com/hbpp.cgi on line 1027

Fatal error indeed.

Starting a portfolio and than changing course after three disappointing years is not a very good investment plan.
Any portfolio can have a bad couple of years and when you change now you will buy high/sell low.
Your IPS should protect you from recency bias.

Is it really that strange that the PP has been flat for a couple of years? It had a decade of exceptional returns!
Before that it under-performed a stock/bond portfolio for something like 20 years? 3 years is nothing.
Anyone starting in 2011/2012 did so after the out-performance of the PP. As usual, expected returns were lower going forward.

It's kinda strange to me that right now people are doubting the PP while to me it seems more attractive than it did 3 years ago.

koekebakker wrote:
Any portfolio can have a bad couple of years and when you change now you will buy high/sell low.
Your IPS should protect you from recency bias.

How do you figure?  I would likely be rebalancing into equities the next time they are down and then just letting them become overweight, or if they become overweight from now on just let them stay overweight.  I might also add new contributions to equities (actually I'm kind of doing this as my wife is just starting to invest and she's going for a hands-off target retirement fund -- it's not my money but it does change our combined AA).  I don't plan to dump anything low.

Cortopassi wrote:

buddtholomew wrote:
Stocks plunge, gold and treasuries are flat.
Stocks plunge again, gold and treasuries decline.
Stocks rally, gold and treasuries get demolished.

See the pattern? I know...its only a week, blah, blah, blah. Same crap, different day. Been that way since 2011.

Peak to trough, from 1/1/2011, CAGR of 4.37$, total 22.05%.  I would have taken that return without even thinking over the past 4+ years!

I think a bunch of us are seriously down on gold especially, and with stocks hammered as well, the normal, expected drop in gold ( ) just compounded the losses.

Everything I read, leads me to believe that gold is never perfectly inversely proportional to stocks.  There is a delay.  I can at this point seem to feel something is near:

--The crazy volatility swings
--China problems, including selling a boatload of US treasuries recently
--Continual hammering of gold when it is expected to shine
--Ukraine, ISIS, Greece, EU, etc

Something in the past few months feels like we are nearing some tipping point and there won't be many things left standing.  My assumption/hope is that gold in some fashion shines then, and that it isn't so bad that it doesn't matter.

through the decades whenever i bought gold and actually owned it although i admit i never ever made money on it at any time i always had the vision that some how the time was right for gold .

but nope never happens for me and each time i sold it that vision of that time being right fades with it .

we tend to always have a picture that  shows that we did the right thing and the turning point is very close .

but when we don't own it that thought is not on the radar .

Pointedstick wrote: My current line of thinking is to move into a more Desert-like allocation (overweight stocks and underweight gold) during the next stock crash.

Wow, even Pointedstick is thinking of throwing in the towel on the PP?  I think the bottom is finally in.

I started my PP in May 2012, and I'm up about 6.93%.  Not great, but I'm not complaining because I'm worry-free, and I don't "hate" or "love" any of the assets.  I don't really care enough about them to feel one way or the other, to be honest.

edsanville wrote:

Pointedstick wrote: My current line of thinking is to move into a more Desert-like allocation (overweight stocks and underweight gold) during the next stock crash.

Wow, even Pointedstick is thinking of throwing in the towel on the PP?  I think the bottom is finally in.

That is disheartening, isn't it. I think I'm comfortable with the pp as long as I can keep my stock-heavy vp. Conversely, I feel better about the vp because of the pp core.

no different than when i ran the fidelity insight income model which is 26% stock and the 70/30 growth and income model at the same time . it really was a  45-50% equitymodel at the end of the day

in the end it really was a blend of both and no longer really was either one although i tracked them individually .

mathjak107 wrote: no different than when i ran the fidelity insight income model which is 26% stock and the 70/30 growth and income model at the same time . it really was a  45-50% equitymodel at the end of the day

in the end it really was a blend of both and no longer really was either one although i tracked them individually .

IMO everyone would be so much better off if they looked at their portfolios this way. 

Here's my PP money. Here's my VP money. And I hold a small Desert Portfolio with a dose of Boglehead. So many names when at the end of the day all that matters is your overall asset allocation.

a lot of times what we do is nothing more than a case of the emperors  new clothes .  it makes us feel better but it really is no different from what it actually is when looked at as one .