Gyroscopic Investing

Gold blows...

dualstow wrote:

(BOGLEHEAD fantasytensai)
What do I do with my bond funds that have been dropping like a rock? I'm already at 80/20 but I still feel absolutely screwed by my bond fund allocations. I have the risk tolerance for 90/10 but it just sickens me to sell VBTLX at such a huge loss.

I'm always fascinated when people's perception of their own risk tolerance is in such obvious opposition to their actual behavior.

Cortopassi wrote:Gold blows...

You got it.

Greetings,

I go back to the epic discussions on the other board, from 2008. I’m a nostalgic slob, even over things like this. Those talks remain my best memories regarding anything to do with investing, with Craig and Tex, and the usual suspects who joined in, and even the relative authorities who were big critics, but an important part of that discussion, or the why Gold is terrible threads, which always referred back powerfully to this concept.

There was always a reason (or a bunch) why the basic HBPP could not or should not work, or some part of it not work, and surely altogether would not work—going forward in the new normal of whatever month happened to be in focus.

How’d that turn out?


Yeah, this time is different (and here follows the well-argued reasons why…). Sure. So was pick-your-month of the last 10 years different, followed by the sometimes well-argued reasons whys.

“Is it different this time?,” someone asked here five years ago. I thought then and feel the same:

" I wonder how many times those five words have been used—and will be used— to justify the abandonment of a good plan. "


It is useful revisiting those threads—way back to the olden days—and what it felt like living through those times.

If one did not fret over the dailies, the experience was and remains, dust in the wind…


Volatile parts, sure. Valuations too rich, I suppose. Too funky, yep. But portfolio-as-a-whole rarely looked this good. Especially when not looking at it. I suspect much the same might be said 10 years from now.

Peace

I just went to etefreplay.com. Over the last 12 months, the PP is up 5.7%. Year to date, the PP is down 0.8%, which is exactly the same as a 60/40 stock/bond fund. I'm baffled by the angst in this thread.

stuper1 wrote:I just went to etefreplay.com. Over the last 12 months, the PP is up 5.7%. Year to date, the PP is down 0.8%, which is exactly the same as a 60/40 stock/bond fund. I'm baffled by the angst in this thread.

What is the 60/40 12-month return.
The PP goes down with stocks and when stocks go up the portfolio goes up 1/5 the amount.
That doesn’t disturb you?

60/40 12-month return is 9.9%

Stocks have been on a 10 year tear, so of course the PP has been lagging. A 60/40 or 70/30 isn't going to look very good if we hit another 10-year stretch like 1998 to 2008. I know for me personally that having so many down years over that time frame would make it very hard for me not to capitulate and sell low. Having two assets (LTT and gold) that are uncorrelated to stocks/bonds helps smooth returns out a lot, without causing a huge reduction in long term returns.

I'm still a long ways from retirement, so I think 25% gold is too much. My personal allocation is about 45/20/20/15 in stocks/LTT/STT/gold.

stuper1 wrote:60/40 12-month return is 9.9%

Stocks have been on a 10 year tear, so of course the PP has been lagging. A 60/40 or 70/30 isn't going to look very good if we hit another 10-year stretch like 1998 to 2008. I know for me personally that having so many down years over that time frame would make it very hard for me not to capitulate and sell low. Having two assets (LTT and gold) that are uncorrelated to stocks/bonds helps smooth returns out a lot, without causing a huge reduction in long term returns.

I'm still a long ways from retirement, so I think 25% gold is too much. My personal allocation is about 45/20/20/15 in stocks/LTT/STT/gold.

Another poster not 4x25...
You have 45% in stocks and 15% in Gold.
Your experience is more like a BH portfolio than traditional PP which explains why you have a hard time understanding where I’m coming from.

buddtholomew wrote:

stuper1 wrote:60/40 12-month return is 9.9%

Stocks have been on a 10 year tear, so of course the PP has been lagging. A 60/40 or 70/30 isn't going to look very good if we hit another 10-year stretch like 1998 to 2008. I know for me personally that having so many down years over that time frame would make it very hard for me not to capitulate and sell low. Having two assets (LTT and gold) that are uncorrelated to stocks/bonds helps smooth returns out a lot, without causing a huge reduction in long term returns.

I'm still a long ways from retirement, so I think 25% gold is too much. My personal allocation is about 45/20/20/15 in stocks/LTT/STT/gold.

Another poster not 4x25...
You have 45% in stocks and 15% in Gold.
Your experience is more like a BH portfolio than traditional PP which explains why you have a hard time understanding where I’m coming from.

Budd,

So if you haven't already, tweak it to where you are ok with it. I am 35% stocks (mix), 10% cash, 25% gold, 5% silver, 25% LTT. Obviously not a 25/25/25/25 PP, but something I am happy with.

Cmon, Budd, you have posted your overall portfolio many times. Mine is a lot closer to a PP than yours. The lesson I have learned from the PP is to keep a good percentage in LTTs and gold -- i.e., at least 10 to 15%, enough to actually make a difference -- because those things are either negatively correlated or uncorrelated with stocks and typical bonds.

One problem I have with the Bogleheads approach is that their idea of bonds is a total bond market index, which turns out to be highly correlated to stocks, just with muted peaks and valleys. By using a LTT/cash barbell approach to bonds, you get a lot smoother ride, especially with the gold added in.

You could look at my portfolio as a 60/40, but with 15% taken out of stocks and put into gold.

Roy wrote:Greetings,

I go back to the epic discussions on the other board, from 2008. I’m a nostalgic slob, even over things like this. Those talks remain my best memories regarding anything to do with investing, with Craig and Tex, and the usual suspects who joined in, and even the relative authorities who were big critics, but an important part of that discussion, or the why Gold is terrible threads, which always referred back powerfully to this concept.

There was always a reason (or a bunch) why the basic HBPP could not or should not work, or some part of it not work, and surely altogether would not work—going forward in the new normal of whatever month happened to be in focus.

How’d that turn out?


Yeah, this time is different (and here follows the well-argued reasons why…). Sure. So was pick-your-month of the last 10 years different, followed by the sometimes well-argued reasons whys.

“Is it different this time?,” someone asked here five years ago. I thought then and feel the same:

" I wonder how many times those five words have been used—and will be used— to justify the abandonment of a good plan. "


It is useful revisiting those threads—way back to the olden days—and what it felt like living through those times.

If one did not fret over the dailies, the experience was and remains, dust in the wind…


Volatile parts, sure. Valuations too rich, I suppose. Too funky, yep. But portfolio-as-a-whole rarely looked this good. Especially when not looking at it. I suspect much the same might be said 10 years from now.

Peace

Nice! I like revisiting old threads, too. Should do that more often.

stuper1 wrote:Cmon, Budd, you have posted your overall portfolio many times. Mine is a lot closer to a PP than yours. The lesson I have learned from the PP is to keep a good percentage in LTTs and gold -- i.e., at least 10 to 15%, enough to actually make a difference -- because those things are either negatively correlated or uncorrelated with stocks and typical bonds.

One problem I have with the Bogleheads approach is that their idea of bonds is a total bond market index, which turns out to be highly correlated to stocks, just with muted peaks and valleys. By using a LTT/cash barbell approach to bonds, you get a lot smoother ride, especially with the gold added in.

You could look at my portfolio as a 60/40, but with 15% taken out of stocks and put into gold.

My taxable is 100% PP.

Aren't you happy that it's up 5.7% in the last 12 months? Sure beats a savings account at the bank.

Keep in mind though that a PP has historically suffered drawdowns as much as 20% or more, so it's definitely not as safe as a savings account.

stuper1 wrote:Aren't you happy that it's up 5.7% in the last 12 months? Sure beats a savings account at the bank.

Keep in mind though that a PP has historically suffered drawdowns as much as 20% or more, so it's definitely not as safe as a savings account.

Personal CAGR for PP is around 4.25% since I started.
My 70/30 has tripled since 2008.
Can’t even compare the 2 with a straight face.

That's the point. You shouldn't try to compare the two. They are two different things completely. Like trying to compare a giraffe with an orange.

One is higher risk/higher reward. The other is lower risk/lower reward. You get to choose. Just remember that when you pick "higher reward", you don't get to pick the timeframe when that higher reward will materialize. If it doesn't materialize until after you've already had to sell a bunch of your portfolio because you lost your job or whatever, or because you lost your nerve which is what happens to many people, then you're out of luck. Again, don't forget that 1998 to 2008 time period. It wasn't a pretty time to have a typical 70/30 portfolio.

buddtholomew wrote:

stuper1 wrote:Aren't you happy that it's up 5.7% in the last 12 months? Sure beats a savings account at the bank.

Keep in mind though that a PP has historically suffered drawdowns as much as 20% or more, so it's definitely not as safe as a savings account.

Personal CAGR for PP is around 4.25% since I started.
My 70/30 has tripled since 2008.
Can’t even compare the 2 with a straight face.

I was in American Century Ultra from 1989 (graduation) to about the internet bubble. I thought I could not lose. Look what happened. Would I like to go back and go PP all in from the day I had my first job? You bet. Ultra STILL hasn't recovered after 18 years.

And after selling Ultra after the bubble, and losing a lot of the gains, I figured I would get into more "conservative" Dodge and Cox Stock. And then this happened, and I sold at the end of 2008, nearly at the bottom. Didn't realize how tied DODGX was to financials. Duh.

This market churned me for 20 years. It WILL churn again.

Started buying gold after 2008. Smartest move in the world, right? At least up until 2011.

Churn, yet again.

I will never shift from holding all classes for the rest of my life, unless it is to move into cash for retirement or rentable properties.

FYI, I do these posts mainly for my benefit, to remind me I cannot be counted on the make the right calls, or get in or out at the right time.

Cortopassi, your experience is about the same as mine.

I am determined to pass on more investing guidance to my children than what I received from my parents, which was zero. When I read Craig and Tex's PP book, it was like a light bulb went on in my head. It just makes so much sense, but nobody ever explained it to me before. We can argue about what percentages belong in stocks/LTT/STT/gold, but the basic idea remains the same. Pick an allocation that you are comfortable with and re-balance semi-consistently, and you are essentially guaranteed to buy low and sell high, which is always the goal but seems so hard to do when you are just going by the seat of your pants.

stuper1 wrote:Cortopassi, your experience is about the same as mine.

I am determined to pass on more investing guidance to my children than what I received from my parents, which was zero. When I read Craig and Tex's PP book, it was like a light bulb went on in my head. It just makes so much sense, but nobody ever explained it to me before. We can argue about what percentages belong in stocks/LTT/STT/gold, but the basic idea remains the same. Pick an allocation that you are comfortable with and re-balance semi-consistently, and you are essentially guaranteed to buy low and sell high, which is always the goal but seems so hard to do when you are just going by the seat of your pants.

As opposed to my prior method which was buy high, sell low. Seriously. And I am the same way, Stuper. My kids will have all of my hard knocks knowledge which will hopefully help them avoid similar situations.

In order to make outsized ('speculative' in the PP sense) gains you need to bet against what most people are saying. And then be right.

The contrarian in me: All these people hating on gold (and tangentially the PP)... gold is due for a rise.

bitcoininthevp wrote:In order to make outsized ('speculative' in the PP sense) gains you need to bet against what most people are saying. And then be right.

The contrarian in me: All these people hating on gold (and tangentially the PP)... gold is due for a rise.

Same with bonds. Due for a reversal.

Cortopassi wrote:

stuper1 wrote:Cortopassi, your experience is about the same as mine.

I am determined to pass on more investing guidance to my children than what I received from my parents, which was zero. When I read Craig and Tex's PP book, it was like a light bulb went on in my head. It just makes so much sense, but nobody ever explained it to me before. We can argue about what percentages belong in stocks/LTT/STT/gold, but the basic idea remains the same. Pick an allocation that you are comfortable with and re-balance semi-consistently, and you are essentially guaranteed to buy low and sell high, which is always the goal but seems so hard to do when you are just going by the seat of your pants.

As opposed to my prior method which was buy high, sell low. Seriously. And I am the same way, Stuper. My kids will have all of my hard knocks knowledge which will hopefully help them avoid similar situations.

Thanks for the hard-won lessons and reminders. It’s always good to zoom out and connect the dots on how this stuff works with real money on the line. I hope you were able to contribute more or less throughout the churn and benefit somewhat from the unfortunate buying opportunities along the way.

Your kids are lucky, both for your prep for your retirement now and for the frank education they will receive. It amazes me how we have total control of these accounts and, for many of us, no training. I had luckily absorbed just enough of Bogle’s Little Red Book to avoid selling in 2009, but I made some costly mistakes in allocation and buy timing. It must work out great for the people on the other side of these terrible trades. I enjoy the control, but pensions weren’t all bad, I guess.

buddtholomew wrote:

stuper1 wrote:Aren't you happy that it's up 5.7% in the last 12 months? Sure beats a savings account at the bank.

Keep in mind though that a PP has historically suffered drawdowns as much as 20% or more, so it's definitely not as safe as a savings account.

Personal CAGR for PP is around 4.25% since I started.
My 70/30 has tripled since 2008.
Can’t even compare the 2 with a straight face.

Did you ever pull the trigger?

I am considering entering very slowly by building my cash portion up first. If I know my target FIRE number is X, for example, and I am currently at 0.1X and will reach X in 5 years, I will spend the first year or so building my cash pile up to 0.25X, then the next 3-4 years adding the final 0.75X on a 33/33/33 basis so upon retirement (X) I have a balanced PP. Has anyone else ever used this approach? It makes me feel a little more comfortable given what others on this thread have mentioned (clearly overvalued stocks and bonds). Or maybe I go 50/50 cash gold first...or maybe just take the plunge!

jhogue wrote: ↑Sun Feb 11, 2018 10:39 am If Buddtholomew did not exist, this forum would have to invent him.

Keeping a perpetual worrier around lets the rest of us see just how ridiculous it is to try to micro-manage the Permanent Portfolio

Thanks, Bud.

Reading so many of these old posts in a relatively compressed period of time is somewhat similar to watching many seasons of a TV series also in a relatively compressed period of time. In both cases you get to know a lot of the characters involved!

Vinny