Gyroscopic Investing

i owned a small cap value fund prior to slyv last year . fcpex was up 22% last year . i also bought slyv after it came down prior to the election when i decided to do some proactive protection in the gb and it was actually one of my best gainers . it had a great run up after the election until it gave a bunch back

mathjak107 wrote:i owned a small cap value fund prior to slyv last year . fcpex was up 22% last year

yes, but you didn't own it in the money allocated to the GB, correct?
your story changes to match your perspective on that particular post...
mj, just give it a rest already.

like i said time will tell . the results we get individually are all that matter , not charts .

Thanks, Budd.

MJ, I may be misremembering here, but I recall that the PP purposely holds volatile assets. Are they always going to be uncorrelated and volatile in opposite directions? As we have seen, no. But it seems that you like to come in and challenge whether it is a good strategy, because the assets should be uncorrelated every single day and they aren't

There have been many days that I have been happy, because all have gone up in tandem. Many other days where they have all gone down in tandem. But it is pretty clear that at least since Nov, 5 months now, there has been little correlation. And most of the time there is little correlation. **If someone has access to data, it would be interesting to see the correlation between the main assets over time**

My version of the PP is currently up 5.26% YTD, better than three of the four main components (VTI, TLT, cash). Gold, silver and international are pulling the weight right now.

I am not complaining.

Sure Corto.

Everything I own is positive YTD, except a sliver of IJS and REITs.
Also, the PP is performing above expectations so this is a time to rejoice and not complain about poor performance.

Many have said before its less about what you own and more about whether you can invest in the strategy for better or worse.
Its also not about having the biggest pot of Gold in retirement as more $$ does not equate to more happiness.

I enjoy the journey the PP provides more than I enjoy the roller-coaster ups and downs a 70/30 allocation can have OVER longer periods than a day or week or month or year.

i did not complain about poor performance at all . i said the volatility in the gb is as high as a 100% equity portfolio at times lately but the gains are not . my typical mix is under 50% and closer to 45% or so equity if i don't use the gb . i do not use 70/30 at all .

i would not classify the gb as a low volatility portfolio at this point in time and i do not recommend it for anyone who does not want a pretty wild ride at times .

that is really my point .

mathjak107 wrote:i did not complain about poor performance at all . i said the volatility in the gb is as high as a 100% equity portfolio at times lately but the gains are not .

sure, but is that the case when stocks decline.
I recall many days where stocks have declined and gold and treasuries have risen.
Gold has outperformed stocks (S&P500, Small-Cap) so the increased volatility has resulted in higher gains, no?
If you didn't hold the GB you wouldn't be invested in Gold.

the volatility is different in the gb now . a 40%- 45% conventional model does not move like a 100% equity portfolio at any point in time .

that is not true in the gb as on those days many parts follow each other with the result that it behaves more like the 100% growth model i still track .

so it isn't the fact it is just volatile , it can be on par with a 70-100% equity model at times so a user needs to understand that because history on it shows it to be one of the lowest volatility wise today that may not be the case and the experience you have with it .

that may have been true over the long term or in the past but today if someone is looking at it as bit more aggressive equal to the pp as far as comfortable swings it can be far from it .

if you use it today you will experience the same swings a 70-100% equity model see's at times and potential users should be aware of that . it does not behave like a 40% equity model would be expected to.

you may think it would be even less docile than wellesley because it has opposing asset classes but it is not and i think this is important for potential users to realize .

I'm still not clear on what you mean by volatility. Take this morning for example. My PP is down 0.13%, due to gold and TLT being down and the stock portion being up. So the volatile swing in gold is attenuated by a rising stock market, and overall the PP is right now less than 1/4 as volatile as a 100% stock and higher than a 60/40 (which is currently about a 0.1% move up)

You are saying that on days when assets are correlated, that each asset class might be up or down in tandem, say 1% and that makes the GB more volatile?

If I've got 5 GB assets each at 20% all moving 1%, the entire portfolio moves 1% And if I was in a 100% VTI setup instead, that move would be 1%. Same for a 60/40 TLT/VTI.

And the same results for a negative move.

So on days when all assets track, it doesn't matter what your allocations are, everyone gets the same move.

I suspect it all comes back to you not liking holding gold because that is a wildcard that doesn't fit into any "normal" portfolio.

I don't know why we're even talking about the Golden Butterfly in this thread, but you can see its standard deviation at portfoliocharts. Way lower than all_equities of course, but a bit higher than that of the pp.

yes , i am saying on the days that stocks , bonds and gold are all up or down the move can be huge , especially in dollars if you have a lot in it .

on those days the 40% equity gb surpasses my 100% equity model in moves .

so what i am saying is if the reason someone is running with a 40% equity model is to temper the swings they get on volatile days as opposed to running 100% equity , they may even get more of a swing at times in the gb .

if someone is looking to temper the short term volatility the gb may really not be the answer at times like now. there are other 40% equity models that will produce much less in swings ala wellesley as an example .

don't forget we are not talking action in a plunge , we are talking just daily activity and how the gb responds when all 4 move the same way just a bit .

mathjak107 wrote:yes , i am saying on the days that stocks , bonds and gold are all up or down the move can be huge , especially in dollars if you have a lot in it .

on those days the 40% equity gb surpasses my 100% equity model in moves .

so what i am saying is if the reason they are running with a 40% equity model is to temper the swings they get on volatile days as opposed to running 100% equity , they may even get more of a swing at times

So you are saying that when all your assets move in the same direction, you have more volatility than if they moved in different directions?

What are you going to tell us next? That 50% of the population has no more than the median amount of assets?

I can hardly wait.

if you can't grasp what i am saying i can't help you understand it any better .

for someone looking for a portfolio that responds the way only 40% equity's is expected to act compared to 100% , the gb is likely not going to be the answer if short term drops are the reason you are using such a conservative model.

this concept really is not hard to understand ! volatility in it today can be far greater than the charts show the past was surpasing 100% equity portfolio's at times .

if you think it is a 40% equity alternative to wellesly you would be making the wrong choice for now .odds are you will be scared out out and that never is a good thing .

mathjak107 wrote:if you can't grasp what i am saying i can't help you understand it any better .

for someone looking for a portfolio that responds the way only 40% equity's is expected to act compared to 100% , the gb is likely not going to be the answer if short term drops are the reason you are using such a conservative model.

this concept really is not hard to understand ! volatility in it today can be far greater than the charts show the past was

Most people who follow the short-term behavior of every asset in their portfolio will be upset a lot of the time.

Personally, I follow my portfolio performance weekly and it doesn't bother me. But I know I'm weird, and don't recommend this to others.

most who follow models like the pp or other conservative models do so because they don't want the high peaks and deep valleys to deal with in the short term .

longer term investing has temporary short term drops irrelevant so there is little logic to mitigating short term drops over a normal accumulation stage which spans lots of years . mitigating temporary short term dips that permanently reduce long term gains has no no logic to a long term investor .

so it is either pucker factor or shorter time frames that have someone going more conservative .

it is the shorter term many who use conservative portfolio's are concerned with , not the world ending as we know it .

Libertarian666 wrote:Most people who follow the short-term behavior of every asset in their portfolio will be upset a lot of the time.

Personally, I follow my portfolio performance weekly and it doesn't bother me. But I know I'm weird, and don't recommend this to others.

I'm hooked into high frequency trading algorithms so I can be disappointed and nervous thousands of times per minute.

mathjak107 wrote:not true . most who follow models like the pp or other conservative models do so because they don't want the high peaks and deep valleys to deal with in the short term .

longer term investing has temporary short term drops irrelevant so there is little logic to mitigating short term drops over a normal accumulation stage which spans lots of years . mitigating temporary short term dips that permanently reduce long term gains has no no logic to a long term investor .

so it is either pucker factor or shorter time frames that have someone going more conservative .

it is the shorter term many who use conservative portfolio's are concerned with , not the world ending as we know it .

That is a problem for psychologists, not investment analysts.

well it is what it is and that is why folks turn to conservative models - short term swings and pucker factor as well as time constraints on the money . so yes short term volatility can be very important .

other wise there is little point to permanently hurting your long term performance unless you believe doomsday is coming. so all this mitigating is for these temporary short term drops . so don't say " why wold someone be concerned about the short term " that is exactly what they are concerned about as a conservative investor .

There's an awful lot of daylight between a horizon of several decades and a horizon of a single day.

The PP/GB should not be considered a "conservative" model, at least by the day to day timeframe. You've gone from a standard 25/25/25/25 PP to a GB, which will likely be more volatile in the first place.

Secondly, the assets held are purposely meant to be volatile. From Wikipedia on the PP:
-----------------------
The PP asset allocation involves four assets, held in roughly equal proportions. Each asset relates to a specific economic condition; when a condition predominates, its corresponding asset ought to rally due to macroeconomic forces.

25% stocks for prosperity
25% cash for recession
25% gold for inflation
25% long term bonds for deflation

Stocks, gold, and long term bonds are considered volatile assets. Their market price fluctuates wildly as economic conditions change.
----------------------
So if you got into the GB to reduce your day to day volatility, there are going to be many days it doesn't work out that way. But over the long term, it does seems to work.

And again, you mention the PP as a doomsday scenario portfolio (which can only mean your distaste of holding gold), and we are limiting ourselves. I 100% disagree. The PP protects against doomsday better than other, sure, but the most important thing is it would have helped me STICK with the system through times like 2001 and 2008 had I been doing it then, vs. bailing at the worst possible times like I did.

i didn't refer to the pp as a doomsday portfolio . i was referring to mitigating short term temporary dips having no logic for a long term investor with a long term perspective . heavy betting against each other is for mitigating things in the short term as long term these dips have no meaning .

as peter lynch said more money has been lost preparing for or anticipating the next correction or crash than has ever been lost by any long term investor .

which goes back to what i said which you are mis-construing . thinking because the gb is 40% equity it is on not only on par with wellesley short term volatility wise but thinking it is less because of the risk "pairing " would likely be a mistake by that person .. that is my entire point . do not confuse it in the short term for what you may think a portfolio with only 40% stocks would leave you up or down in the short term . you can get qa much wilder ride than you signed on for. if short term mitigating is your goal the pp is better at

You're telling me I am not to infer you think the PP and its variants are doomsday portfolios by you stating it this way:

"other wise there is little point to permanently hurting your long term performance unless you believe doomsday is coming."

Nobody generally uses the term doomsday when regarding investing unless you are biased against holding gold. And if instead you are referring to a very conservative portfolio, i.e. bonds/CDs/cash as a doomsday portfolio, I would think those categories are potentially up for losses if a doomsday scenario includes problems with the government or banking sector in one form or another, debt, high interest rates, loss of confidence, inflation, hyperinflation, wars, etc.

I don't think anyone here is swayed by any short term PP volatility, other than bitching about it every now and then.

And I think/assume most here are more than happy giving up the potential increased returns of a 20-25% higher stock holding and instead having that portion in the safety (and likely lower return) of gold.

GB with 20% SCV is a volatile 40% stock allocation.
(Wellesley is 35% LCV)

20/20 LTT/STT is, what, >50% more duration exposure than Total Bond.
(While Wellesley tends to be longer duration, I think it's currently similar to Total Bond, mostly corporates)

Gold is....

But yes, not fun to watch move more than equity heavy portfolios.

I've always wanted my equity to be >= LTT + Gold to reduce (negative) tracking error in my GBish portfolio.

With the hope that when things go south, I go less south.

Dieter wrote:GB with 20% SCV is a volatile 40% stock allocation.
(Wellesley is 35% LCV)

20/20 LTT/STT is, what, >50% more duration exposure than Total Bond.
(While Wellesley tends to be longer duration, I think it's currently similar to Total Bond, mostly corporates)

Gold is....

But yes, not fun to watch move more than equity heavy portfolios.

I've always wanted my equity to be >= LTT + Gold to reduce (negative) tracking error in my GBish portfolio.

With the hope that when things go south, I go less south.

I reached that conclusion as well.
Equity >= LTT/ST+ Gold, currently 53,41 and 7 respectively.

mathjak107 wrote:i didn't refer to the pp as a doomsday portfolio . i was referring to mitigating short term temporary dips having no logic for a long term investor with a long term perspective . heavy betting against each other is for mitigating things in the short term as long term these dips have no meaning .

According to Tyler's website, the longest drawdown was ~3 years. So people should not invest in the PP unless their time horizon is > 3 years. No point worrying too much about the daily movement of the different assets.