Is the PP going to hold up?

[jason]

Bonds and stocks are going down lately. Gold has been pretty flat. If this trend continues, is gold likely to come to the rescue, even if inflation stays low? Have there been economic scenarios in the past that are similar to what is going on now? If so, how did the PP play out?

[buddtholomew]

Pretty sad if you ask me.
PP falling like everything else, nothing special to see here.
Gold +.3 while S&P down 2%+.
No magic, just smoke and mirrors

[Cortopassi]

I think the thing to remember, as many have said, the correlation is not day to day. Gold and bonds were flat today, sure.

Let's see what happens over the next weeks and months assuming that the downturn is not just some weird volatility blip and that is is sustained. You are going to be hearing screams and moans that the Fed can't raise rates in this environment and real looking at alternatives.

I don't think people are there yet, but another 1000 point down day today will get them much closer to that. And we'll see some green on bonds and gold.

[dualstow]

All I can do is hear the OP text in my mind in the voice of the 60s Batman TV narrator.

[Xan]

Tune in next week, same Bat-time, same Bat-channel!

[buddtholomew]

Bitcoin is +10% and gold is + .3

Duped.

[Libertarian666]

Bitcoin is +10% and gold is + .3

Duped.

Obviously you should sell all your gold and buy Bitcoin.

Or rather, you should have done that yesterday.

[Ugly_Bird]

Obviously you should sell all your gold and buy Bitcoin.
Or rather, you should have done that yesterday.

Should have done it when Bitcoin was close to $20k

[buddtholomew]

I was talking to one of my offshore resources who bought into BTC at 3K, 10K and then the bulk of the investment at 17K...needless to say he is not happy.

I’m not that type of speculator but I get the sarcasm.

[Libertarian666]

I was talking to one of my offshore resources who bought into BTC at 3K, 10K and then the bulk of the investment at 17K...needless to say he is not happy.

I’m not that type of speculator but I get the sarcasm.

Since you seem to have the idea that one can determine the best investments by looking at their past records, Bitcoin is obviously #1 by light years. Just look at how far it's come in only 10 years or so!

This is called "performance chasing" and is an excellent way to lose money.

It is impossible to know in advance which investments will do the best, because if that were possible, people would pile into them until they were fairly priced. Of course different people have different opinions, or there wouldn't be a market at all, but no one knows the future.

That's the advantage of the PP: it doesn't require you to know the future to do pretty well over a long period of time.

[Kriegsspiel]

“Why keep something in gold? It’s stable. But why keep it in gold when it stays in a $100 range, when I could buy Bitcoin when it is increasing everyday?” Salamida said.

http://fortune.com/2018/02/08/bitcoin-p ... price-buy/

bud?

[blue_ruin17]

If stocks keep nose diving, either gold or LTT will kick in. My bet is gold -- figuratively, of course, because technically am betting on both... and on a stock rebound, for that matter.

[buddtholomew]

“Why keep something in gold? It’s stable. But why keep it in gold when it stays in a $100 range, when I could buy Bitcoin when it is increasing everyday?” Salamida said.

http://fortune.com/2018/02/08/bitcoin-p ... price-buy/

bud?

Let me be clear, I am not advocating buying BTC but merely pointing out on a day where the DOW fell 1000+ points BTC rose 10% while Gold only 0.24% That doesn't seem unusual to anyone on this forum? Think about that for a moment.

Techno, not sure what you are talking about but you missed the point once again.

[Mr Vacuum]

Let me be clear, I am not advocating buying BTC but merely pointing out on a day where the DOW fell 1000+ points BTC rose 10% while Gold only 0.24% That doesn't seem unusual to anyone on this forum? Think about that for a moment.

I thought about it again and it still seems congruous with zero correlation.

[iwealth]

Let me be clear, I am not advocating buying BTC but merely pointing out on a day where the DOW fell 1000+ points BTC rose 10% while Gold only 0.24% That doesn't seem unusual to anyone on this forum? Think about that for a moment.

Techno, not sure what you are talking about but you missed the point once again.

Bitcoin doesn’t have any correlations to anything. A 10% rise on a day gold falls 3% or rises 3% or stocks are up or down or whatever has absolutely no deep meaning.

[Kriegsspiel]

BTC is wildly volatile, a 10% day is kinda a limp-wrist-wave ordeal.

As far as safe havens going up at the same time as stocks are taking it in the * ... As long as they're compensating for each other over time, I'm cool with it.

[buddtholomew]

I see; so when there’s fear the masses run to BTC. That makes sense now.

[Tyler]

It's exactly times like this when I most appreciate the PP firewalls. Bonds, gold, and cash don't even need to make money for the PP to be a success when stocks are falling like a rock. Diversification FTW.

[iwealth]

I see; so when there’s fear the masses run to BTC. That makes sense now.

Can’t tell if you are being serious because nobody said anything close to that.

Bitcoin dropped 25% between 2/5 and 2/6 during the most volatile market day in a decade. The masses ran out of bitcoin far faster than any other asset that day.

[ochotona]

How is BTC an asset? You pay money, you get a token!

[eufo]

It's exactly times like this when I most appreciate the PP firewalls. Bonds, gold, and cash don't even need to make money for the PP to be a success when stocks are falling like a rock. Diversification FTW.

You said it, brother! It's easy to discount the role bonds and gold are playing right now since they have been declining. The fact is, they are declining at a MUCH slower rate than stocks, so are acting as relative protection while pure equity portfolios are getting slaughtered.

RE: Bitcoin... If anyone is selling equities to run to Bitcoin as a safe haven, I think they are making a gross error that will prove disastrous.

[dualstow]

RE: Bitcoin... If anyone is selling equities to run to Bitcoin as a safe haven, I think they are making a gross error that will prove disastrous.

I agree, very strongly.

[sophie]

All I can say is, going into this with 30% cash in the PP is AWESOME. The Bogleheads portfolio in my retirement accounts, not so much :-)

All these posthoc, know-it-all explanations of "why" the market is dropping are entertaining, but useless. They can't really know, not without conducting a large survey. This event could have started simply as a localized dip in an early-opening Asian market, then people already a bit rattled by something (tax reform, interest rates, government shutdown, people just afraid the stock market went up too fast and my buddy is going to sell so I'd better do it first, whatever) see it and start following suit, then more people take notice and make "me-too" sales, and then automatic sell signals kick in, and there you have it.

One of the things I study is biological networks, and it occurs to me that it's a good explanation of stock market behavior. People tend to think of networks as organized from the top down, like an orchestra: there's a conductor, the violins are listening to the cellos, etc. A better analogy is how geese come to fly in a V formation. They don't decide as a group to form the V. Instead, each of them has its own localized rules for where it wants to fly in relation to the goose next to it. I call it a self-organizing network, and it's incredible how much complexity can arise from a few very simple rules. You can try to make up rules for why the large-scale structure forms as it does, but you'll fail because there aren't any. There are very, very few people who have recognized and truly understood this, AND were willing to admit it.

Given this, sticking to a formula that is "good enough" and works under most conditions is about the best you can do. I think the PP is working just fine in this situation by limiting losses, and putting you in a great position to take advantage of the stock sale. People who are 80% stocks can't do this, because they don't have the necessary reserves. All they can do is wait for the market to go back up. Could be next week, next year, or next decade, no way to know.

Thought for the day!

[stuper1]

Thanks for that great, enlightening, comforting post, Sophie!

[dualstow]

Awesome, Sophie, especially about the self-organizing networks. Reminds me of the beginning of one of those Dawkins books that explains how the tide makes a beach look so orderly and how the largest vitamins rise to the top of a pill bottle, only better!

Watching stocks go up since 2012(?) I had a bit of pp buyer's remorse, yearning for my old stock-heavy portfolio, glee for the extra equities in my Vp, and some woulda/coulda/shoulda dreams of a future equity-heavy portfolio. I think it's normal and natural to have those feelings; I'm not an ice man.
Now that my pp+vp has shrunk by a bit over 5% from the peak (including some normal spending from cash), I feel glee for cash and short-term bonds.

I'll be nibbling at stocks on a regular (weekly) schedule, but I think the dumbest thing I can do is make that equity-heavy fantasy a reality, even if stocks continue to drop. My thought for the day is stay the course.