Gyroscopic Investing

dualstow wrote: ↑Thu Dec 27, 2018 11:41 am

Xan wrote: ↑Thu Dec 27, 2018 9:48 am

dualstow wrote: ↑Thu Dec 27, 2018 8:53 am A belated Merry Xmas and happy new year to you, Budd.

It's not belated; Christmas is twelve days long, starting Christmas Day. There's a song about it and everything.

Fair enough. So are you celebrating the other eleven days, beside the partridge and turtledoves and whatnot?

Well, the tree is up, the house is decorated, the outside lights are up until the Epiphany. And on Sunday we'll be singing all the Christmas songs at church.

Sounds nice!

buddtholomew wrote: ↑Thu Dec 27, 2018 8:15 am Stocks down, Gold and LTT’s up at end of pre-market.

Will the day end this way or should we expect to see a reversal with stocks ending up, Gold and LTT’s flat to down? The question to ask yourself...”is this pattern actionable.”

Can we continue to ignore this pattern?
Borderline ridiculous, right?
Intra-day PP swing of -.71% to +.48% (quite impressive, too bad I was taking a nap to watch it happen in real-time)

buddtholomew wrote: ↑Thu Dec 27, 2018 3:43 pm

buddtholomew wrote: ↑Thu Dec 27, 2018 8:15 am Stocks down, Gold and LTT’s up at end of pre-market.

Will the day end this way or should we expect to see a reversal with stocks ending up, Gold and LTT’s flat to down? The question to ask yourself...”is this pattern actionable.”

Can we continue to ignore this pattern?
Borderline ridiculous, right?
Intra-day PP swing of -.71% to +.48% (quite impressive, too bad I was taking a nap to watch it happen in real-time)

Hey Bud! Hope you had a Merry Christmas. Here is my perspective on what is happening.

1. The FED is raising interest rates (by definition that's bad for long-term treasuries) so LTT is going to be DOWN
2. Point #1 means that inflation is less likely, the FED is trying to get ahead of inflation and plans to raise rates to combat it so gold is DOWN
3. The market fears that the fed is a bit over-zealous and aiming towards deflation so the market is DOWN
4. Cash is king! Literally every asset class has suffered except CASH this year it seems. CASH is UP, and T-bills are yielding over 2.4% for me now

So going back to the basis of the portfolio, what economic circumstance are we in?

Prosperity? (seems like that is coming to an end, certainly the era of easy money is)
Recession? (maybe in the future, but certainly not in one right now)
Inflation? (again seems the fed has that under control, or trying at least)
deflation? (seems like the most likely of the 4 states)

The PP remains apathetic to all of this and thus we still hold long-term treasuries despite rising rates, and we hold gold despite inflation expectations being hampered by those same rates, and we hold cash just in case as this thread talks about everything else is down.

Cash (T-bills in particular) will go down as one of the best performing asset classes of 2018. That in my opinion is a strong sign of the wisdom of the PP.

Full Disclosure: I have migrated to the "Golden Butterfly" approach as advocated by Tyler on his website because I felt that I was under-exposed to equities for my higher risk tolerance. i.e. I considered the risk of losing out on returns greater than the risk of me selling in a bear market.

^^^
Great post.

+1

I also have extra exposure to equities. My equity exposure is 30% US 30% ROW (including emerging markets). The remaining 40% is divided equally between Gold, LTT, and STT.

I am very comfortable with this tilt toward equities and international stock exposure.

Ha, only on this forum can a 30-40% stock allocation be considered going out on a limb :-)

At the family Christmas party, the subject of the stock market came up. At one point someone asked me "How come you're so calm about this? We're all stressed out because our retirement accounts are vanishing before our eyes!"

Thank you Harry Browne! And Tyler, because I'm working toward Golden Butterfly-land also.

sophie wrote: ↑Sat Dec 29, 2018 10:56 am At the family Christmas party, the subject of the stock market came up. At one point someone asked me "How come you're so calm about this? We're all stressed out because our retirement accounts are vanishing before our eyes!"

Thank you Harry Browne! And Tyler, because I'm working toward Golden Butterfly-land also.

Congrats on setting a good example! Data only goes so far, and IMO there's no better way to evangelize wise investing techniques than to have people take notice of your distinctive lack of stress.

Any love here for The Desert Portfolio that has outperformed the PP since 2008 with less volitility?

Hi, Folks and Tyler,

Am i wrong but it seems the Desert Portfolio has been removed from Portfoliocharts.com.

The Desert Portfolio is a lovely portfolio.

I may not be looking in the correct place. Wouldn't be the first time.

Thanks.

bedraggled wrote: ↑Sat Dec 29, 2018 11:24 pm Hi, Folks and Tyler,

Am i wrong but it seems the Desert Portfolio has been removed from Portfoliocharts.com.

The Desert Portfolio is a lovely portfolio.

I may not be looking in the correct place. Wouldn't be the first time.

Thanks.

Good eye. Yes, I recently removed the Desert Portfolio from Portfolio Charts. It's still a wonderful asset allocation, but as the site grows I'm being a little more picky about the portfolios I curate for the list. Having things like books I can point to helps keep things looking professional.

But as thanks to Desert and the rest of the group here, here's a permanent link to the page with the historical data: https://portfoliocharts.com/portfolio/desert-portfolio/

Tyler,

Thanks for the link.

I have heard math people refer to elegant solutions. Is the Desert Portfolio an elegant portfolio or just terrific.

I reflect on the Desert concoction as it might be perfect for a person who truly wishes to “set and forget.” Yes, I know the Golden Butterfly has had at most 2 consecutive down years but with the Desert, why bother looking at all. Craig Rowland checks once per year with th HBPP but with the Desert, a person could misplace all paperwork and forget passwords- and, so what? Maybe find the info in 5 years. No rush or worry....

Desert Portfolio might be really good for a person with $10 million. That person has won the race.

I guess I wait for the GB and 4x25 people to point to some things I missed.

Jeffreyalan wrote: ↑Sat Dec 29, 2018 10:52 pm Any love here for The Desert Portfolio that has outperformed the PP since 2008 with less volitility?

The Desert Portfolio was designed for someone skittish about holding gold, and it does very well though doesn't allow for as high a withdrawal rate as the PP/GB. Its weakness is performance during a long 1970s style inflation, so I guess it depends if you think that could happen again. I personally don't think we are immune from repeating any financial event that has happened in the past.

I was able to pull up the Portfolio Charts page by googling it - the link may be gone but the page is still there.

How far can one deviate from the 4x25 allocation and still consider themselves invested in the Permanent Portfolio?

Is it sufficient to hold all 4 assets or does percent allocated to each asset determine whether one holds the PP or some other variant thereof?

Wrestling with this obviously for a long time.

i would propose that holding all 4 assets and sticking to rebalance bands (even with minor variations to % or allocations to ad-ons) equals a pp --- constantly changing or playing with the percentages or adding and removing assets outside the basic four breaks the permanence and is not a pp....

From my perspective (I think HB mentioned himself) the PP is invalidated when one of the assets is < 15% of portfolio.

I’m not sure Permanent applies to holding a fixed allocation and rebalancing although these are main traits of a successful investor.

buddtholomew wrote: ↑Sun Dec 30, 2018 9:24 am I’m not sure Permanent applies to holding a fixed allocation and rebalancing although these are main traits of a successful investor.

Rebalancing according to a formula/bands vs tinkering and timing in the guise of rebalancing. I think that’s the significant difference.

dualstow wrote: ↑Sun Dec 30, 2018 9:31 am

buddtholomew wrote: ↑Sun Dec 30, 2018 9:24 am I’m not sure Permanent applies to holding a fixed allocation and rebalancing although these are main traits of a successful investor.

Rebalancing according to a formula/bands vs tinkering and timing in the guise of rebalancing. I think that’s the significant difference.

Agree DS, but the above doesn’t differentiate the PP from other portfolios. Any investor, not specifically a PP one would benefit from adhering to rebalance bands vs. market timing purchases and sales.

Let me rephrase with an example:
When you go to a party and talk about the PP, how is it presented? 4x25 or other when discussing economic climates, etc.

Speaking of repeating past financial events...

I got "Too Big to Fail" by Andrew Sorkin to read over the holidays. It starts out a bit dry but eventually reads as sort of a financial thriller. More to the point, it makes it very clear just how narrowly we escaped another Great Depression in 2008: we were lucky enough to have a Fed Chairman who happened to be a noted scholar of the Great Depression, plus some brave souls in the Treasury Dept who were humble enough to cross the partisan divide to get support for TARP.

If that event happened now with the current cast of characters I don't think we'd be so lucky. I think that because of that narrow escape, people may be thinking that nothing that bad is ever going to happen again, so there's no point in having insurance assets in your portfolio. Before you follow that line of reasoning, you might want to pick up this book, or at least see the HBO movie.

@sophie: Love Sorkin! He always puts out interesting articles.

buddtholomew wrote: ↑Sun Dec 30, 2018 9:44 am

dualstow wrote: ↑Sun Dec 30, 2018 9:31 am

buddtholomew wrote: ↑Sun Dec 30, 2018 9:24 am I’m not sure Permanent applies to holding a fixed allocation and rebalancing although these are main traits of a successful investor.

Rebalancing according to a formula/bands vs tinkering and timing in the guise of rebalancing. I think that’s the significant difference.

Agree DS, but the above doesn’t differentiate the PP from other portfolios. Any investor, not specifically a PP one would benefit from adhering to rebalance bands vs. market timing purchases and sales.

Well, how much magic do we want to ascribe to the word “permanent?” Plenty of people permanently stick with a 60/40 stock/bond allocation.

I think of the pp as an all-weather portfolio, something you shouldn’t have to abandon in extreme inflation, deflation, etc. But, what if you’re an all-stock investor and the stock market of your country is wiped out? What if some event sends people fleeing to gold? More likely to jump ship?

The pp could be called “The Agnostic Portfolio.” It just doesn’t have that fine alliteration.

I was surprised at how good the HBO movie from "Too Big To Fail" was. Strong performances by William Hurt as Treasury Secretary Hank Paulson and Paul Giamatti as Fed Chair Ben Bernanke. My favorite scene was Paulson (R) literally getting down on his knees and begging Nancy Pelosi (D) to support the TARP bill in the US House.

Unfortunately, stock market crashes, bank panics, and depressions have been more common in American history than most people think. After the Civil War, the triumphant North went on a speculative and highly-leveraged railroad building binge that ended with a stock market crash in 1873. The depression that followed went on for five years and wiped out half of the railroad companies in the US.

buddtholomew wrote: ↑Sun Dec 30, 2018 9:44 am

dualstow wrote: ↑Sun Dec 30, 2018 9:31 am

buddtholomew wrote: ↑Sun Dec 30, 2018 9:24 am I’m not sure Permanent applies to holding a fixed allocation and rebalancing although these are main traits of a successful investor.

Rebalancing according to a formula/bands vs tinkering and timing in the guise of rebalancing. I think that’s the significant difference.

Agree DS, but the above doesn’t differentiate the PP from other portfolios. Any investor, not specifically a PP one would benefit from adhering to rebalance bands vs. market timing purchases and sales.

Let me rephrase with an example:
When you go to a party and talk about the PP, how is it presented? 4x25 or other when discussing economic climates, etc.

the permanent portfolio as established by HB would be a tight adherence to the original plan and philosophy as he wrote it, and i would present it that way.. the PP as discussed and dissected on this forum would be a little looser, it would be a portfolio that still adherers to the philosophy and is primarily made up of the 4 assets, and sticks to rebalance bands, but allows for some variation as long as it is preserving money you cant afford to loose, not timing the market, and staying true to the underling concepts/understanding of economics. (i think this is accurate but it is a bit of a semantics question, so it may not be a easy difference to split.)

sophie wrote: ↑Sun Dec 30, 2018 8:07 am

Jeffreyalan wrote: ↑Sat Dec 29, 2018 10:52 pm Any love here for The Desert Portfolio that has outperformed the PP since 2008 with less volitility?

The Desert Portfolio was designed for someone skittish about holding gold, and it does very well though doesn't allow for as high a withdrawal rate as the PP/GB. Its weakness is performance during a long 1970s style inflation, so I guess it depends if you think that could happen again. I personally don't think we are immune from repeating any financial event that has happened in the past.

I was able to pull up the Portfolio Charts page by googling it - the link may be gone but the page is still there.

So would an ETF approximation of the Desert Portfolio be:

IEF - 60%
VTI - 30%
IAU - 10%

This seems very easy and simple to replicate in any brokerage account.

I think of the Permanent Portfolio more as a state of mind than strict adherence to 4x25. So while I might initially explain it to someone using the orthodox 4x25 allocation, I would explain that there's also room for flexibility depending on each individual's needs.