Gyroscopic Investing

The article seems to be entirely about a single 30-year period. This guy badly needs to visit Tyler's site.

It's true and is exactly why I go with a leveraged PP.

Xan wrote:The article seems to be entirely about a single 30-year period. This guy badly needs to visit Tyler's site.

The stagflationary 70's didn't happen for everyone. Essentially, the Baby Boomers have been driving the market consistently upwards into Overvaluation Nirvana since 401K funds became practical in 1989. The problem is the normal investing horizon is far too short to prioritize tank-like safety ala the PP to reach investment goals, unless you're already got a high paying job that makes saving have more than a marginal future impact or you already have a lot of financial assets.

As a Gen Xer, I'm very acutely aware of the irreparable damage that the absolutely spoiled Baby Boomers have done and continue to do to the U.S. economy and political system. Their greedy gains over the past 27 years is my permanent loss of capital risk. It's a very dangerous time right now as we zoom closer and closer to The Great Unwinding.

I really don't know what is going to happen to the "all weather" concept, but when you have 50% of the portfolio returning cash-like returns but with orders of a magnitude more risk, it doesn't really make rational sense to be in anything other than cash and gold. Short term gains are irrelevant because its how much you ultimately keep and not make in the interim while everyone is still partying it up. Recall, the PP had a -25% maximum drawdown in 1981 on "Fight Inflation" ballyhoo and the situation is now far beyond that in terms of destructive potential.

Did I just talk myself out of the PP again? I guess the real problem at this point is there's just not enough assets to invest in that are priced to deliver long-term returns to justify taking the risk. It's very frustrating.

MangoMan wrote:Written by Burn's colleague Andrew Hallam, the article give kudos to Craigr and MT [although refers to Craig as Greg] on their 'excellent' book and the PP concept, but then shows how return suffers in the name of stability.

https://assetbuilder.com/knowledge-cent ... go-haywire

Yeah, good ol' Greg Rowland. Damn financial writers and their lack of attention to detail. If stocks repeat their performance from 1987 to present (or 1982 to present) for the next 30 years, then, yes, a heavy bet on stocks will have delivered a superior return. But the PP isn't built on the hope that the economy will grow evenly and forever. In fact apathy seems to be the best emotion for a PP'er.

As usual, no reference to real returns. In real terms the PP has had 28 winning years and 13 losing years since 1975 (the latest date that everyone seems to agree on as a fair starting point for gold). So roughly one year in three is a down year. What attracts most of us, I think, is that it has tended to not stay down for long periods.

Agree with MG that assets are pricey but for me that's all the more reason to diversify across asset classes. The PP is for stability and moderate real growth. I don't think it's a coincidence that Harry Browne's #1 rule is that "Your career provides your wealth." And number two is, "Don't assume you can replace your wealth."

Work hard, save and take a balanced approach with your investments. Everything else is just tweaking around the edges. Now, if you'll all excuse me, I have to go obsess about my portfolio.

MG,

I have one small quibble on your DD stats for 1981...the hellaciously good returns the two years before. What was the max intraday DD not counting 1981?

I'm not sure it's really fair to compare the returns of a 60/40 portfolio (without cash) to the PP when cash is yielding around zero. Has anyone run numbers on a 33.3/33.3/33.3 PP without cash (maybe there is an existing thread on this forum about this)? I'm also curious about what the optimal re-balancing bands would be for that.

Xan wrote:The article seems to be entirely about a single 30-year period. This guy badly needs to visit Tyler's site.

No kidding. Picking a single particularly favorable start date to "prove" a financial point is so passé.

jason wrote:I'm not sure it's really fair to compare the returns of a 60/40 portfolio (without cash) to the PP when cash is yielding around zero. Has anyone run numbers on a 33.3/33.3/33.3 PP without cash (maybe there is an existing thread on this forum about this)? I'm also curious about what the optimal re-balancing bands would be for that.

From 2005 to yesterday using ETFs...9.63 CAGR/-19.47 Max DD

MachineGhost wrote:

Xan wrote: As a Gen Xer, I'm very acutely aware of the irreparable damage that the absolutely spoiled Baby Boomers have done and continue to do to the U.S. economy and political system. Their greedy gains over the past 27 years is my permanent loss of capital risk.

Well, since you're not greedy for gains like we were everything should be all right then.

Kbg wrote:

jason wrote:I'm not sure it's really fair to compare the returns of a 60/40 portfolio (without cash) to the PP when cash is yielding around zero. Has anyone run numbers on a 33.3/33.3/33.3 PP without cash (maybe there is an existing thread on this forum about this)? I'm also curious about what the optimal re-balancing bands would be for that.

From 2005 to yesterday using ETFs...9.63 CAGR/-19.47 Max DD

Thanks! Where did you get that figure? How does it compare to a regular PP with cash? What re-balance rules did you use? I'd be interested to see it going all the way back to 1972. It can be done with peaktrough, but re-balancing options are limited. Perhaps 43/23 or 40/20 would work well?

MachineGhost wrote: As a Gen Xer, I'm very acutely aware of the irreparable damage that the absolutely spoiled Baby Boomers have done and continue to do to the U.S. economy and political system. Their greedy gains over the past 27 years is my permanent loss of capital risk.

Well, since you're not greedy for gains like we were everything should be all right then.

curlew wrote:

MachineGhost wrote: As a Gen Xer, I'm very acutely aware of the irreparable damage that the absolutely spoiled Baby Boomers have done and continue to do to the U.S. economy and political system. Their greedy gains over the past 27 years is my permanent loss of capital risk.

Well, since you're not greedy for gains like we were everything should be all right then.

+1000

MachineGhost wrote:

Xan wrote:The article seems to be entirely about a single 30-year period. This guy badly needs to visit Tyler's site.

The stagflationary 70's didn't happen for everyone. Essentially, the Baby Boomers have been driving the market consistently upwards into Overvaluation Nirvana since 401K funds became practical in 1989. The problem is the normal investing horizon is far too short to prioritize tank-like safety ala the PP to reach investment goals, unless you're already got a high paying job that makes saving have more than a marginal future impact or you already have a lot of financial assets.

As a Gen Xer, I'm very acutely aware of the irreparable damage that the absolutely spoiled Baby Boomers have done and continue to do to the U.S. economy and political system. Their greedy gains over the past 27 years is my permanent loss of capital risk. It's a very dangerous time right now as we zoom closer and closer to The Great Unwinding.

I really don't know what is going to happen to the "all weather" concept, but when you have 50% of the portfolio returning cash-like returns but with orders of a magnitude more risk, it doesn't really make rational sense to be in anything other than cash and gold. Short term gains are irrelevant because its how much you ultimately keep and not make in the interim while everyone is still partying it up. Recall, the PP had a -25% maximum drawdown in 1981 on "Fight Inflation" ballyhoo and the situation is now far beyond that in terms of destructive potential.

Did I just talk myself out of the PP again? I guess the real problem at this point is there's just not enough assets to invest in that are priced to deliver long-term returns to justify taking the risk. It's very frustrating.

You're a GenXer? I thought you were at least 75!

jason wrote:

Kbg wrote:

jason wrote:I'm not sure it's really fair to compare the returns of a 60/40 portfolio (without cash) to the PP when cash is yielding around zero. Has anyone run numbers on a 33.3/33.3/33.3 PP without cash (maybe there is an existing thread on this forum about this)? I'm also curious about what the optimal re-balancing bands would be for that.

From 2005 to yesterday using ETFs...9.63 CAGR/-19.47 Max DD

Thanks! Where did you get that figure? How does it compare to a regular PP with cash? What re-balance rules did you use? I'd be interested to see it going all the way back to 1972. It can be done with peaktrough, but re-balancing options are limited. Perhaps 43/23 or 40/20 would work well?

The rebalance is HB's annual recommendation vice bands. I used Amibroker and Norgate data for the backtest with TLT, SPY and GLD as the ETFs.

Regular 4x25 adding SHY is 7.77/-13.98

barrett wrote:

MangoMan wrote:Written by Burn's colleague Andrew Hallam, the article give kudos to Craigr and MT [although refers to Craig as Greg]
...

Yeah, good ol' Greg Rowland...

I miss visiting that site, Gerlwng Road.

Reub wrote:

MachineGhost wrote: ...
As a Gen Xer, I'm very acutely aware of the irreparable damage that the absolutely spoiled Baby Boomers have done...

You're a GenXer? I thought you were at least 75!

I thought I had him pegged at 60.

The comparison of the 60/40 returns to the 25x4 PP indeed isn't fair, because the owner of the 60/40 needs to hold cash. How much isn't clear, but most would recommend a sizeable enough chunk that it's a significant fraction of the stock/bond portfolio. Similarly, the 60/40 owner has to decide when to liquidate volatile assets during the drawdown phase.

Let's assume that our hypothetical Boglehead retiree holds 5 years expenses in cash, which is a common recommendation, and 20 years expenses in the 60/40 investment, as opposed to our hypothetical PP owner who simply holds 25 years expenses in the 25x4 PP. The actual Boglehead portfolio, then, is 20% cash, 48% stocks, and 32% bonds.

Using an extremely oversimplified but time-saving method of calculating returns, i.e. the ETFreplay with no rebalancing (sorry guys), here's the returns comparison from 1/3/2007 to today:

Boglehead 20/48/32: total return 63.1%, volatility 9.0%
PP 25x4: total return 82.5%, volatility 8.4%

Admittedly a time horizon that works especially well for the PP, but you get the picture. The lack of rebalancing actually stacks the deck in favor of the 60/40, since the PP benefits more than stock/bond portfolios from rebalancing.

Between overall performance and the cash management aspect, I can't find much to like about the 60/40.

P.S. MG I also would never have guessed you were under 40.

MG I also would never have guessed you were under 40.

Gen X birth years start in the early to mid '1960s, so he might not be under 40.

Then Methusala must be a GenXer too.

sophie wrote:The comparison of the 60/40 returns to the 25x4 PP indeed isn't fair, because the owner of the 60/40 needs to hold cash. How much isn't clear, but most would recommend a sizeable enough chunk that it's a significant fraction of the stock/bond portfolio. Similarly, the 60/40 owner has to decide when to liquidate volatile assets during the drawdown phase.

Let's assume that our hypothetical Boglehead retiree holds 5 years expenses in cash, which is a common recommendation, and 20 years expenses in the 60/40 investment, as opposed to our hypothetical PP owner who simply holds 25 years expenses in the 25x4 PP. The actual Boglehead portfolio, then, is 20% cash, 48% stocks, and 32% bonds.

If this Boglehead were smart, instead of holding 20% cash and 32% intermediate bonds which entirely changes the risk/return profile of the intended 60/40, they'd hold 20% long bonds and 20% cash. This achieves the risk/return of the 60/40 while holding 5 years of cash. This compares much more favorably with the PP over the time period you tested. There's still a good dinging in 2008, but that was never in dispute.

We can't forget that that the risk/return profile of the PP is nearly identical to that of a 25% stocks, 25% gold, 50% intermediate treasury portfolio. The PP just gets creative and splits the bond holdings into long bonds and cash. This provides some additional benefits without messing with the intended result.

flyingpylon wrote:

MG I also would never have guessed you were under 40.

Gen X birth years start in the early to mid '1960s, so he might not be under 40.

And/or 30ish using base 16....

(yes, Computer major, GenX)

Kbg wrote:MG,

I have one small quibble on your DD stats for 1981...the hellaciously good returns the two years before. What was the max intraday DD not counting 1981?

1980 is when the big damage was done, so 1968 to 1979 was 11.42% CAGR and -13.78% MaxDD. Good returns is relative because after high inflation it was more or less the same real return as now. The PP is a frustratingly turgid non-growth portfolio with occasional hurricanes that takes a big chunk of flesh.

curlew wrote:Well, since you're not greedy for gains like we were everything should be all right then.

Quite the contrary, but y'all priced me out of the market. I've had to resort to desperate measures!

Reub wrote:You're a GenXer? I thought you were at least 75!

I am very wise beyond my years.

sophie wrote:The comparison of the 60/40 returns to the 25x4 PP indeed isn't fair, because the owner of the 60/40 needs to hold cash. How much isn't clear, but most would recommend a sizeable enough chunk that it's a significant fraction of the stock/bond portfolio. Similarly, the 60/40 owner has to decide when to liquidate volatile assets during the drawdown phase.

So, because a 60% stock, 30% bonds and 10% cash portfolio is currently priced to deliver less than 2% nominal returns over the next 10-12 years, that means the PP is now relying on gold to drive any further growth from this point on. Hence, why I'm having trouble pulling the trigger on unhedged overvalued equity and 5000-year lows in bond yields.

How do we know these distorted assets will continue to work in their expected fashion during such historically unprecedented circumstances? I would like to be fully invested in the PP by the end of the year, but frankly, we're purely speculating on the USA to be the last harbor in the storm. What happens when that harbor too goes bellyup? I don't want to suffer like iceland or Argentina and lose 75% of my wealth and still wind up with a loss if only because there's not enough gold to offset the other three assets imploding.

Grrr, you Baby Boomers have had it all too easy!

Go to your room young whippersnapper!