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Re: Depressed

Posted: Mon Dec 14, 2015 12:42 pm
by buddtholomew
I have considered options to protect positions, but the other assets in the portfolio should in theory hedge each other. Isn't that the premise of the PP?

Re: Depressed

Posted: Mon Dec 14, 2015 12:56 pm
by AdamA
buddtholomew wrote: Isn't that the premise of the PP?
Yes. 

If you're having a rough time with this year's performance, just keep in mind that every prior down year has been followed by a double-digit (positive) year. 

Re: Depressed

Posted: Mon Dec 14, 2015 1:24 pm
by lordmetroid
Interest rates hikes on the horizon, I can only see the price in bond market to plummet. Although treasuries will gain more dividend I doubt it will compensate for the forthcoming bond bear market. Stocks seems to also enter a bear market and gold has been sinking ever since 2011. Does this spell doom for the permanency of of the permanent portfolio. Will the PP bear market extend and maybe even accelerate in 2016?

I simply see no opportunity for passive investments at this point in time. I can't even buy bonds because the Swedish bonds are also in a bear market.
A month ago I abandoned the permanent portfolio for a dual momentum strategy but I yesterday I liquidated all my positions. Only problem now is that I have no idea when I shall reenter the market.

Re: Depressed

Posted: Mon Dec 14, 2015 1:37 pm
by Austen Heller
Perhaps you need to tighten up your rebalance bands.  Stocks were down 10% a few months back, then popped up near the highs.  Did you harvest any of this volatility?  IMO the 15/35 bands are too wide to capture small swings like we saw in the fall.  Using 20/30 or 22.5/27.5 bands would allow you to get some gains, since the overall returns of the 4 asset classes are predicted to be low going forward.

Re: Depressed

Posted: Mon Dec 14, 2015 2:05 pm
by Mark Leavy
Cortopassi wrote:
I've always been interested in protecting my holdings by buying married puts at the same time.  If you don't know what that term is, please look it up.

-snip-

Has anyone ever effectively implemented this or have any thoughts?

-snip-
I've thought about this a lot.  It seem like a great strategy on the surface.  But if you look at the details of how the PP works, you see that there are really small moments in time when it rescues all of the losses.

Any sort of option clips the highs and the lows.  In general, if you sell or buy options to hedge the PP, they will generate a small return most of the time.  But what happens is that they clip off the large swings that happen when there is a large economic event.  And these gains are what make the PP sustainable in the long run.

So... long story short, I believe that surrounding the PP with options (and I have thought of every way imaginable...) will end up failing you when you need it the most.

The steady stream of cash in selling puts or calls can be nice - until it is not...

Re: Depressed

Posted: Mon Dec 14, 2015 2:32 pm
by Tom
AdamA wrote:
buddtholomew wrote: Isn't that the premise of the PP?
Yes. 

If you're having a rough time with this year's performance, just keep in mind that every prior down year has been followed by a double-digit (positive) year.
I second this.  It seems to me that next year could be a volatile one - and that could be good for the overall PP.  It will also remind many of us struggling why we chose this strategy.  It won't always be that we're lagging or slightly down while others are slightly up.  There will be times when people are freaking out and we're making money.  That is a good feeling - I know it from experience through the financial crisis.  I can deal with the currently lag/losses b/c I've seen the protection it can offer first hand.

Re: Depressed

Posted: Mon Dec 14, 2015 3:39 pm
by Fred
AdamA wrote:
buddtholomew wrote: Isn't that the premise of the PP?
Yes. 

If you're having a rough time with this year's performance, just keep in mind that every prior down year has been followed by a double-digit (positive) year.
Close but no cigar for 2014, according to PeakToTrough any way. But I'll take 9.76% next year.

Image

Re: Depressed

Posted: Mon Dec 14, 2015 3:48 pm
by AdamA
Fred wrote:
Close but no cigar for 2014, according to PeakToTrough any way. But I'll take 9.76% next year.

Image
Round up.

;)

Re: Depressed

Posted: Mon Dec 14, 2015 9:53 pm
by Libertarian666
Option buyers usually get hosed.

Option sellers are the ones who usually make out.

Of course they get massacred once in awhile, so it sort of evens out.

Re: Depressed

Posted: Thu Dec 17, 2015 11:39 am
by buddtholomew
Gold neutralized, PP neutralized.

Re: Depressed

Posted: Thu Dec 17, 2015 11:46 am
by Reub
The sun will come out tomorrow.

Re: Depressed

Posted: Thu Dec 17, 2015 12:27 pm
by buddtholomew
Is anyone on this board approaching a tolerance band and do you intend to rebalance?

Re: Depressed

Posted: Thu Dec 17, 2015 1:41 pm
by Reub
Seriously though, have you considered adding a little more cash to your portfolio to help you sleep better at night?

Re: Depressed

Posted: Thu Dec 17, 2015 1:44 pm
by buddtholomew
I'm swimming in cash, but have purchased gold over and over and over again. Not buying more.

Re: Depressed

Posted: Thu Dec 17, 2015 1:55 pm
by dragoncar
buddtholomew wrote: I'm swimming in cash, but have purchased gold over and over and over again. Not buying more.
F'in gold.  Looks like my 2016 nut will be mostly gold.  Not sure if I should let the allocation stay low, but I just know that will be poor market timing

Re: Depressed

Posted: Thu Dec 17, 2015 2:33 pm
by Reub
buddtholomew wrote: I'm swimming in cash, but have purchased gold over and over and over again. Not buying more.
budd, are you reaching the band in equities? If you need to rebalance but don't want more gold then you might diversify into a different investment vehicle like Vanguard Wellesley. I am also investing using Hedgeable in their highest risk portfolio and am very happy there because they really manage your risk well while allowing most of the upside gains. Even Vanguard Wellington might work if you seek more equity exposure.

Re: Depressed

Posted: Thu Dec 17, 2015 3:19 pm
by barrett
I don't have much new money to throw at the PP so I'll probably just pick up a few gold coins and call it a day.

The bands aren't sacred, budd. If you hate gold, just hold less of it. From what I think I know, you still have lots of good years left and an awesome career.

"Swimming in cash" sounds pretty nice from where I stand. It may yet end up being the least bad asset of 2015!

Re: Depressed

Posted: Thu Dec 17, 2015 4:09 pm
by Reub
You can also rebalance but leave whatever funds are designated towards gold in cash and wait for a relative strength buy signal to deploy it.

Re: Depressed

Posted: Thu Dec 17, 2015 4:17 pm
by barrett
Reub wrote: You can also rebalance but leave whatever funds are designated towards gold in cash and wait for a relative strength buy signal to deploy it.
This is a really good idea for someone who hates an asset. If it goes up from here and adds some value to your portfolio, you are happy. If it goes down further, you feel smart for having waited.

I would just add that at a certain point owning an asset really can't impact a portfolio if one doesn't hold a high enough percentage. The standard advice that a lot of money people seem to throw out about "5% in gold" just seems too low. Or as my grandmother once said, "If you're going to eat beans, eat beans!"

Re: Depressed

Posted: Thu Dec 17, 2015 6:00 pm
by ochotona
The married puts thing is used by Meb Faber's Value and Momentum ETF to protect against market declines. I called up Cambria and talked to the man himself about it!

Just FYI for you people who are getting depressed over gold, I'm now executing a slow buy program for 2016, with an acceleration factor as the price goes lower. Buy 1 oz a quarter based on oversold technicals, if below $900/oz then 2 oz a quarter, if below $800/oz then 3 oz per quarter, etc., until my budget is used up.

Re: Depressed

Posted: Thu Dec 17, 2015 9:56 pm
by dualstow
buddtholomew wrote: Is anyone on this board approaching a tolerance band and do you intend to rebalance?
Things are so zig zaggy that it would be untrue so say I'm approaching a band, really. But, Stocks and Bonds are both at 27%. Gold is at 20%. I thought I could wait for 15%, but if it drops much further, coinciding with new cash coming in this January, I will most definitely be rebalancing.

I would like to do a coin at a time like Ochotona, but I get a much better deal if I buy 10 at a time. That's a lot of money (which is why I almost never buy physical gold!)

Re: Depressed

Posted: Fri Dec 18, 2015 12:50 pm
by Libertarian666
ochotona wrote: The married puts thing is used by Meb Faber's Value and Momentum ETF to protect against market declines. I called up Cambria and talked to the man himself about it!

Just FYI for you people who are getting depressed over gold, I'm now executing a slow buy program for 2016, with an acceleration factor as the price goes lower. Buy 1 oz a quarter based on oversold technicals, if below $900/oz then 2 oz a quarter, if below $800/oz then 3 oz per quarter, etc., until my budget is used up.
When it gets down to zero, then I'll really load up!

Re: Depressed

Posted: Fri Dec 18, 2015 3:15 pm
by dualstow
Feeling better about the pp today, Budd?
I shouldn't even ask, b/c it's so ephemeral, but still.

S&P down 1.78%
Dow down > 2%

TLT up .56%
GTU up 1.12%

Re: Depressed

Posted: Fri Dec 18, 2015 3:52 pm
by Professor Disorientation
My PP was up .01 today when the market took a mild beating. I know a lot of people are uncomfortable about gold. But the way I see it is that the asset class that is despised today will be prized tomorrow.

Michael

Re: Depressed

Posted: Fri Dec 18, 2015 4:22 pm
by Kbg
dualstow wrote: Feeling better about the pp today, Budd?
I shouldn't even ask, b/c it's so ephemeral, but still.

S&P down 1.78%
Dow down > 2%

TLT up .56%
GTU up 1.12%
Budd will only feel half as good about this as he would feel bad about the opposite according to behavioral scientists...he's just screwed both ways going. :-)

On a more serious note, buying puts on a PP makes absolutely no sense to me. If you are truly bearish then just sell outright and don't forget to figure out when you are going to get back in before you get out. What IS a good idea assuming your account is big enough to make it worth it is to rebalance by selling puts (buy rebalance) and calls (sell rebalance). This also assumes you are holding the ETF versions of all this stuff so it is feasible.

The thing to absolutely never forget about options as a hedge is that you have to get both the direction and the timing right or it is almost without fail a money losing adventure.  Selling puts and calls as a way to buy and sell is a very good thing to do. Basically, free money for something you were going to do anyway.