Out of balance

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steve
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Re: Out of balance

Post by steve » Sat Dec 23, 2017 8:19 am

If my portfolio were out of balance I would buy bonds in a heartbeat! I remember some years back when everyone was talking about interest rate hikes and how bonds were going down. I taxed loss harvested a bond position that I had, I sold tlt and immediately replaced it with the 50/50 split of edv and vglt, I was thinking that if that went down I would again loss harvest and go back into tlt after 30 days. Guess what? I was never able to because it took off from that point. If you follow the PP you buy whatever you need to rebalance without market timing.
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ochotona
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Re: Out of balance

Post by ochotona » Sat Dec 23, 2017 9:08 am

Don wrote:I would not buy bonds at this time. To me it's the most bearish looking asset of them all.
I don't know. The only asset I'm convinced is overvalued is stocks, but then I also have to acknowledge they could keep going up for years, and become even more overvalued. I think cash is undervalued, if that makes sense, because future volatility or declines in stocks, gold, or bonds or possible all three at once will make people WISH they'd held onto more cash, though the value is not reflected in the interest rate, which is Scheit.
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Re: Out of balance

Post by Kbg » Sat Dec 23, 2017 11:07 am

I think if one is investing in a PP they should understand that a fundamental premise of the PP is that one can’t predict anything when it comes to markets. Pick a rebalance methodology and stick with it. The wonderful thing about a rebalance methodology is that is buys low and sells high. Historically every component of the PP is overvalued right now. It is what it is. If you can predict when one of the assets is going to mean revert, just rebalance then. You’ll be brilliant and outperform the standard PP. If you can’t, just rebalance when you are supposed to.

It is pretty much an academic fact that the HUGE, HUGE, HUGE majority of professional investors (and the investing public) can’t predict anything that adds to their bottom line in terms of performance.

Sorry for the broken record/continuous rant on this topic. If someone can’t follow their investing approach they need to find something else that they can follow. In the end they will be much better off.
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ochotona
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Re: Out of balance

Post by ochotona » Sat Dec 23, 2017 2:17 pm

Any kind of rules-based approach is much better than forecasting and guessing.
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Re: Out of balance

Post by Don » Sat Dec 23, 2017 6:22 pm

Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?
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ochotona
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Re: Out of balance

Post by ochotona » Sat Dec 23, 2017 6:44 pm

Don wrote:Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?
If we have another financial crisis, the Fed will take the ST rate to 0% again, and if it's a global crisis involving a Euro crisis again, there could be a flight to quality to US Treasuries which would increase demand, bidding up the price, thereby decreasing the yield. Japan's interest rates have been super low for 22 years.

The challenge for investors is in choosing the set of securities and trading rules which would respond best to the set of risks that endanger the accomplishment of their goals, and everyone's goals and risk tolerances are is different. But once that policy portfolio is chosen, investors are best served by sticking to the portfolio, or else they will commit all kinds of emotional errors.

If you're afraid of interest rate risk... don't buy 30 year bonds, buy 10s, or 5s. Problem solved, for you. It's nothing about being in one's right mind or not.
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Re: Out of balance

Post by Don » Sat Dec 23, 2017 11:41 pm

ochotona wrote:
Don wrote:Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?
If we have another financial crisis, the Fed will take the ST rate to 0% again, and if it's a global crisis involving a Euro crisis again, there could be a flight to quality to US Treasuries which would increase demand, bidding up the price, thereby decreasing the yield. Japan's interest rates have been super low for 22 years.

The challenge for investors is in choosing the set of securities and trading rules which would respond best to the set of risks that endanger the accomplishment of their goals, and everyone's goals and risk tolerances are is different. But once that policy portfolio is chosen, investors are best served by sticking to the portfolio, or else they will commit all kinds of emotional errors.

If you're afraid of interest rate risk... don't buy 30 year bonds, buy 10s, or 5s. Problem solved, for you. It's nothing about being in one's right mind or not.
Sorry, not me.
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Re: Out of balance

Post by buddtholomew » Sun Dec 24, 2017 1:39 pm

Don wrote:
ochotona wrote:
Don wrote:Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?
If we have another financial crisis, the Fed will take the ST rate to 0% again, and if it's a global crisis involving a Euro crisis again, there could be a flight to quality to US Treasuries which would increase demand, bidding up the price, thereby decreasing the yield. Japan's interest rates have been super low for 22 years.

The challenge for investors is in choosing the set of securities and trading rules which would respond best to the set of risks that endanger the accomplishment of their goals, and everyone's goals and risk tolerances are is different. But once that policy portfolio is chosen, investors are best served by sticking to the portfolio, or else they will commit all kinds of emotional errors.

If you're afraid of interest rate risk... don't buy 30 year bonds, buy 10s, or 5s. Problem solved, for you. It's nothing about being in one's right mind or not.
Sorry, not me.
Then it’s an easy decision for you Don.
100% equities. Anything less will be a drag on your returns. You should also consider margin as it will really boost your growth.
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ochotona
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Re: Out of balance

Post by ochotona » Sun Dec 24, 2017 1:56 pm

This chart suggests maybe 10 year yields are breaking out... or maybe they've hit their head on the top rail of a three decade long channel, and the Japanification of America is not yet complete. Very interesting.

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Re: Out of balance

Post by Don » Sun Dec 24, 2017 6:07 pm

buddtholomew wrote:
Don wrote:
ochotona wrote:
If we have another financial crisis, the Fed will take the ST rate to 0% again, and if it's a global crisis involving a Euro crisis again, there could be a flight to quality to US Treasuries which would increase demand, bidding up the price, thereby decreasing the yield. Japan's interest rates have been super low for 22 years.

The challenge for investors is in choosing the set of securities and trading rules which would respond best to the set of risks that endanger the accomplishment of their goals, and everyone's goals and risk tolerances are is different. But once that policy portfolio is chosen, investors are best served by sticking to the portfolio, or else they will commit all kinds of emotional errors.

If you're afraid of interest rate risk... don't buy 30 year bonds, buy 10s, or 5s. Problem solved, for you. It's nothing about being in one's right mind or not.
Sorry, not me.
Then it’s an easy decision for you Don.
100% equities. Anything less will be a drag on your returns. You should also consider margin as it will really boost your growth.
When did I say that?
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Re: Out of balance

Post by Kbg » Sun Dec 24, 2017 6:39 pm

Be nice kids or you’ll get underwear for Christmas.
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Re: Out of balance

Post by Don » Tue Jan 02, 2018 3:07 pm

Don wrote:Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?
One might be a lot better off instead of rebalancing back into the losing bond trade to instead place the funds into cash or a M.M. fund. But definitely not into bonds for the foreseeable future. Or just let it ride in stocks.
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Re: Out of balance

Post by glennds » Tue Jan 02, 2018 4:01 pm

Don wrote:
Don wrote:Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?
One might be a lot better off instead of rebalancing back into the losing bond trade to instead place the funds into cash or a M.M. fund. But definitely not into bonds for the foreseeable future. Or just let it ride in stocks.
I understand the case you're making, but for a subscriber to the Permanent Portfolio as a complete strategy, this recommendation would be attempting to time the market. The idea is to embrace the asset for its negative correlation to other buckets in the portfolio. Even shortening maturities degrades the strategy because we're looking for the increased volatility of the long bond. I think at most times, the PP is requiring you to do something counter-intuitive that would seem out of touch with the real world at the time.
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Re: Out of balance

Post by Cortopassi » Tue Jan 02, 2018 4:29 pm

Don wrote:
Don wrote:Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?
One might be a lot better off instead of rebalancing back into the losing bond trade to instead place the funds into cash or a M.M. fund. But definitely not into bonds for the foreseeable future. Or just let it ride in stocks.
You are in the wrong discussion group if that's your thinking. Not saying it is wrong, just not what most here (including me) would do.

If you are rebalancing annually here right now, you are likely taking some of the 20+% gains in stocks and reallocating it to lower performing bonds and gold. If that rebalancing doesn't feel right to you, not sure what to say.

Personally, I think yields on long bonds have an even chance of going up or down from here. Look at other countries long bonds compared to the US, esp. Europe. Many yields there are significantly lower. I still don't understand why.

Look here for example at 10 year bonds. Even Italy is lower than the US. Please explain?

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Re: Out of balance

Post by Kbg » Tue Jan 02, 2018 5:07 pm

Don,

Study up on how bonds actually perform in a rising interest rate environment. You might be surprised.

What we do know, categorically, is if you are siting in cash you are losing 2.2% per year purchasing power per the last annualized CPI reporting.

There's quick risk that might happen and then there's the slow inevitable risk of actual inflation. WAY too many people focus on the first and not enough people focus on the second...you can speculate all day on the former and have a 50% chance of being right or wrong. You don't need to speculate on the latter at all. It's reported thanks to your tax dollars monthly...and is far more problematic over the long haul. If interest rates go up, guess what? Interest rates on new bonds are going up with it.
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Re: Out of balance

Post by Don » Tue Jan 02, 2018 5:54 pm

glennds wrote:
Don wrote:
Don wrote:Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?
One might be a lot better off instead of rebalancing back into the losing bond trade to instead place the funds into cash or a M.M. fund. But definitely not into bonds for the foreseeable future. Or just let it ride in stocks.
I understand the case you're making, but for a subscriber to the Permanent Portfolio as a complete strategy, this recommendation would be attempting to time the market. The idea is to embrace the asset for its negative correlation to other buckets in the portfolio. Even shortening maturities degrades the strategy because we're looking for the increased volatility of the long bond. I think at most times, the PP is requiring you to do something counter-intuitive that would seem out of touch with the real world at the time.
What is being advocated seems almost like a religion. When are we allowed to think for ourselves?
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Re: Out of balance

Post by buddtholomew » Tue Jan 02, 2018 6:03 pm

Don wrote:
glennds wrote:
Don wrote:
One might be a lot better off instead of rebalancing back into the losing bond trade to instead place the funds into cash or a M.M. fund. But definitely not into bonds for the foreseeable future. Or just let it ride in stocks.
I understand the case you're making, but for a subscriber to the Permanent Portfolio as a complete strategy, this recommendation would be attempting to time the market. The idea is to embrace the asset for its negative correlation to other buckets in the portfolio. Even shortening maturities degrades the strategy because we're looking for the increased volatility of the long bond. I think at most times, the PP is requiring you to do something counter-intuitive that would seem out of touch with the real world at the time.
What is being advocated seems almost like a religion. When are we allowed to think for ourselves?
No one is stopping you Don.
We’ve all been around the block enough to know removing a leg from the chair creates an unbalanced seat.

Are you familiar with risk parity...perhaps look there if you are not comfortable holding LTT’s.
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Re: Out of balance

Post by Kbg » Tue Jan 02, 2018 7:17 pm

Don wrote:What is being advocated seems almost like a religion. When are we allowed to think for ourselves?
It's your money. First, last, always...think for yourself.
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Re: Out of balance

Post by Kriegsspiel » Tue Jan 02, 2018 9:50 pm

Don wrote:
glennds wrote:
Don wrote:
One might be a lot better off instead of rebalancing back into the losing bond trade to instead place the funds into cash or a M.M. fund. But definitely not into bonds for the foreseeable future. Or just let it ride in stocks.
I understand the case you're making, but for a subscriber to the Permanent Portfolio as a complete strategy, this recommendation would be attempting to time the market. The idea is to embrace the asset for its negative correlation to other buckets in the portfolio. Even shortening maturities degrades the strategy because we're looking for the increased volatility of the long bond. I think at most times, the PP is requiring you to do something counter-intuitive that would seem out of touch with the real world at the time.
What is being advocated seems almost like a religion. When are we allowed to think for ourselves?
When you are smarter than Harry Browne.
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Re: Out of balance

Post by glennds » Wed Jan 03, 2018 12:48 pm

Don wrote:
glennds wrote:
Don wrote:


What is being advocated seems almost like a religion. When are we allowed to think for ourselves?
Nah, it's not religion, it's just a strategy that appeals to most of the participants here for a whole bunch of technical reasons. My reply was just giving you the theory and rationale behind holding long bonds even though it might not comply with the conventional wisdom of the moment.

If you familiarize yourself with the PP and don't feel it's right for you (or if you simply don't agree with the theory), then you shouldn't use it. It's not what's right or wrong, it's what's right or wrong for you.
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Re: Out of balance

Post by stuper1 » Wed Jan 03, 2018 1:21 pm

Think for yourself all you want, but also go back and look at the predictions for many of the last years about long bonds. The "experts" have been saying they will lose value for years, and in fact what has happened is that many years they have been the biggest winner.
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Re: Out of balance

Post by buddtholomew » Wed Jan 03, 2018 2:11 pm

I agree, thinking gets you in trouble as we are our own worst enemies.

The most logical, analytical and intelligent people I know make the most inopportune investing decisions. It pays to know less, not more.
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Re: Out of balance

Post by glennds » Wed Jan 03, 2018 4:20 pm

buddtholomew wrote:I agree, thinking gets you in trouble as we are our own worst enemies.

The most logical, analytical and intelligent people I know make the most inopportune investing decisions. It pays to know less, not more.
I'd say it's not thinking, it's over-thinking that gets us in trouble. It's still important to make informed decisions, even if you're consciously deciding to not think, if that makes sense. Among the many things I like about the Permanent Portfolio is that the auto pilot nature of it, especially the re-balancing regimen, protects us from ourselves.
But it's still an informed decision to choose the strategy because you understand these features and they appeal to you.
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buddtholomew
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Re: Out of balance

Post by buddtholomew » Wed Jan 03, 2018 4:27 pm

I'm not saying put your head in the sand and ignore.
What I am suggesting is not trying to determine which of the components should be dropped from the portfolio because it is so obvious that rates have to go up. All those geniuses that said bond rates will sky rocket and that stocks are over-valued....these are the people I am talking to.
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Re: Out of balance

Post by glennds » Wed Jan 03, 2018 5:24 pm

buddtholomew wrote:I'm not saying put your head in the sand and ignore.
What I am suggesting is not trying to determine which of the components should be dropped from the portfolio because it is so obvious that rates have to go up. All those geniuses that said bond rates will sky rocket and that stocks are over-valued....these are the people I am talking to.
Got it, thanks for clarifying! I was preaching to the choir, ha.

You brought up an interesting point though. I once heard Warren Buffett say something to the effect that there is a peculiar natural bias among us humans thinking that the more complicated something is the better it must be, and conversely the simpler something is the more primitive and worse it must be. Obviously we all know the opposite is very often the case.
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