Gyroscopic Investing

Kriegsspiel wrote:

“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.

buddtholomew wrote: 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.

buddtholomew wrote:
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.

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.

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

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.

buddtholomew wrote: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.

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

Tyler wrote: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.

eufo wrote: 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.

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!

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

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.

The only temporary issue I have with this downturn is the rapidity of the paper loss. I was at 2.66% up on 1/25, here we are 15 days later and I am -2.81% down. The PP is mitigating the downturn, but it is still a painful 5.5% turn negative.

Cortopassi wrote:The only temporary issue I have with this downturn is the rapidity of the paper loss. I was at 2.66% up on 1/25, here we are 15 days later and I am -2.81% down. The PP is mitigating the downturn, but it is still a painful 5.5% turn negative.

Finally, someone coming to my point of view.
PP has provided absolutely zero benefit during this downturn.
Only reason PP is losing slightly less is the lower allocation to equities. This lower allocation comes with MUCH lower gains when stocks rise.

buddtholomew wrote:

Cortopassi wrote:The only temporary issue I have with this downturn is the rapidity of the paper loss. I was at 2.66% up on 1/25, here we are 15 days later and I am -2.81% down. The PP is mitigating the downturn, but it is still a painful 5.5% turn negative.

Finally, someone coming to my point of view.
PP has provided absolutely zero benefit during this downturn.
Only reason PP is losing slightly less is the lower allocation to equities. This lower allocation comes with MUCH lower gains when stocks rise.

Budd, you are making sense. For now. Not disparaging you, because at these times, if I was in a 70/30 or near 100% stocks as I was in the past, I would NOT be considering this a buying opportunity, but instead would be freaking out. EVEN with the gains I would have had since 2009, this 10+% downdraft would be killing me.

Four years in the PP have mellowed me. I have faith that things will come around for one asset or another, but there is no doubt that there are a lot of doomsayers out there right now saying there will be nowhere to hide, not gold, not stocks, not bonds.

The PP has a 'duration' of longer than 5 days.

You’re right, it’s so awesome!!
Look how beautiful the sea of red is.

Kriegsspiel wrote:The PP has a 'duration' of longer than 5 days.

Could you please explain what that means. I'm slow. Thanks!

I mean the PP won't always be in the green over 5 days. So if you need the money to be there in 5 days, put it in a bank account. bud seems angry because gold and treasuries didn't immediately spike when stocks dropped.

If stocks continue deflating and treasuries and/or gold don't wind up picking up the slack then I'd be concerned, but I'm not sweating it that they haven't done so already. Hell, if stocks regained their swagger and continued their march up the hill, I'd be ok with that too. I just want the PP to return around 3-4% real a year.

So what’s the threshold where the other assets move? Is it
20, 30, 40%. If that’s the case why bother with Gold and LTT’s. With those declines you should be buying stocks.

Stocks come back, Gold and LTT’s down.
Stocks go down, Gold and LTT’s flat or down.
Hmm...

Not that what's going on is nearly as severe as September 2008 when stocks fell off the cliff, but perhaps it would help to look at the day by day or month by month movement of the broad market compared to the PP from that time.

I just did so on Peak2Trough and what I see is the PP took a nosedive like everything else in September, only to recover due to gold and T Bonds kicking in. The thing is the latter didn't happen until November. That was a long month or two but rewarded those who stayed true to their chosen strategy.

The point - the whole risk parity, negative correlation phenomenon does not happen instantaneously. It takes some time (weeks, months?) for the transitions to occur. Harry Browne talks about this in his book, and this must be one of the various reasons he advocated looking at your HBPP infrequently (once per year, and only for re-balancing at that). I don't know if this gives you any comfort Budd or Cortopassi, but I hope it does.

Glenn

Thanks Glennd’s for the reminder.
Stocks are rebounding with Gold/LTT’s selling off.

buddtholomew wrote:So what’s the threshold where the other assets move? Is it
20, 30, 40%. If that’s the case why bother with Gold and LTT’s. With those declines you should be buying stocks.

Stocks come back, Gold and LTT’s down.
Stocks go down, Gold and LTT’s flat or down.
Hmm...

So that means that gold is always worse than stocks.

Which is odd because as someone else has already pointed out, there have been 2 decades in the last 5 when gold was the best performing investment.

Have you read Bill Bernstein's article about the HBPP? Here's the URL again in case you missed it: http://www.efficientfrontier.com/ef/0adhoc/harry.htm.

But to cut to the chase (no pun intended), people who get into the HBPP because it has been outperforming for the past several years are not going to stick with it, so they won't get the benefits of its lower volatility with overall good performance.

If that sounds familiar, it should.

buddtholomew wrote:Thanks Glennd’s for the reminder.
Stocks are rebounding with Gold/LTT’s selling off.

By the way, I should say I completely get and share your pain. That's what drove me to the Peak2Trough tool to look back at the history myself.

I occasionally have to remind myself of the quote in the article that Libertarian666 linked - "Investment success accrues not so much to the brilliant as the disciplined".