What have we learned over last 10 years?

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LazyInvestor
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What have we learned over last 10 years?

Post by LazyInvestor » Thu May 23, 2019 1:33 am

This forum has been active for the last 10 years or so. There've been many interesting discussions. I'm curious what new have we learned with respect to the theoretical foundations behind the PP?

It seems to me it's standing the test of time despite its lower performance compared to the generally recommended passive portfolios. At the same time, I'm having difficulty figuring out which economic conditions we were going through based on the performance of the different components of the portfolio. While it seems it is prosperity based on the performance of the stock component, it's difficult to accept it given daily news we've been receiving during these times.
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Re: What have we learned over last 10 years?

Post by dualstow » Thu May 23, 2019 6:23 am

I don’t know if I learned a fundamental new thing, but it’s been an interesting ten years for long bonds. Harry’s deceased. He’s not around to guide us. Would he have said this time it’s different? Could bonds really go lower?

All we needed to do was stick to the bands.

If Medium Tex hadn’t posted his insightful posts about a game of tennis becoming a game of ping pong, I might’ve completely bailed on bonds. (bond bailsman?) I’m grateful that he wrote what he wrote.
don’t the b-heads know that Pyrex just isn’t made by Corning anymore?
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Re: What have we learned over last 10 years?

Post by pmward » Thu May 23, 2019 8:56 am

Haha, yeah and if people sold their long bonds or didn't rebalance when they were down would be seriously missing out this year. Long bonds are the strongest asset at the moment, and just hit a new yearly high today, the highest they've been since the end of 2017.

In real after inflation terms the PP is still chugging along in its typical tight, consistent, and dependable range of return. It's returned a bit lower in nominal terms over the last decade though, simply because inflation has been so low. As for where we are right now? Geez, I have no clue to be honest. Stocks have been moving sideways for a year and half now so it's hard to argue we are in prosperity. I think 2018 was a year for "tight money", but I really have no idea where we are at right now or where we are going from here. We very well could be at a turning point. Then again, the bull could just be taking a breather. I could make an argument for prosperity, deflation, or even inflation over the next couple of years. It's a great time to be hedged against all the above!
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Re: What have we learned over last 10 years?

Post by Cortopassi » Thu May 23, 2019 11:39 am

What the PP has taught me:

** Not to obsess about my investments. 5 years ago I was scrambling. I was out of the market for a while, and into gold and gold stocks, which were not doing well. I rotated into and out of strategies, all ended up being losers. The PP has allowed me to removed 99% of my thinking about money. Maybe some of that comes with getting older, but not dealing with the market on a daily, hourly or minute basis as I used to do.

Regardless of whether this is the "correct" strategy, (we know it isn't for a lot of people), it works for me because I feel more comfortable with a larger than typical allocation to precious metals and I don't think there's any (??) others that approach 25%.

I know Harry talks about the different economic conditions, but that is a moot point to me. To me, the two emotional conditions are more important: fear and greed. The PP has effectively muted both.
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Re: What have we learned over last 10 years?

Post by Cortopassi » Thu May 23, 2019 11:43 am

And given my reply about not dealing with the market, what's going on today causing the swings? More tariff BS?
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Re: What have we learned over last 10 years?

Post by dualstow » Thu May 23, 2019 11:49 am

Pretty much.
don’t the b-heads know that Pyrex just isn’t made by Corning anymore?
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Re: What have we learned over last 10 years?

Post by Kbg » Thu May 23, 2019 2:39 pm

I think the PP is behaving pretty closely to how it's supposed to theoretically. The one asset I'm not so sure about is gold. I'd have to go back and reread the gold section of "Best Laid Plans" to see if I'm missing/not remembering something.

One simple example; in theory gold should not have been a great deflationary asset but then we have 2008-2011/13ish where it went on a tear. Double kicker, and the dollar did quite well during the same time frame. It does appear that people were anticipating eventual inflation due to QE and therefore the run up.

IDK really, but the most recent cycle doesn't seem to be conforming. Personally I find gold a bit of a mystery but stick with it because it is weakly correlated to the other assets and therefore a good diversifier.

I haven't even checked...how we doing on real returns since 2008. Is the PP hanging?
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Re: What have we learned over last 10 years?

Post by pmward » Thu May 23, 2019 3:05 pm

Kbg wrote:
Thu May 23, 2019 2:39 pm
I think the PP is behaving pretty closely to how it's supposed to theoretically. The one asset I'm not so sure about is gold. I'd have to go back and reread the gold section of "Best Laid Plans" to see if I'm missing/not remembering something.

One simple example; in theory gold should not have been a great deflationary asset but then we have 2008-2011/13ish where it went on a tear. Double kicker, and the dollar did quite well during the same time frame. It does appear that people were anticipating eventual inflation due to QE and therefore the run up.
I can't remember where he said it, but I did hear him say that in a deflation gold would likely get a bid because of the fear factor, but that it wouldn't be sustainable or the best performing asset.

I think the main reason why gold went on such a tear from 2009-2011 was because of QE. I think that people were expecting it to have a larger effect on inflation. Inflation aside, Ray Dalio has a theory that the price of gold is heavily influenced by the money supply, and we don't count "inflation" as the money supply these days we count it as the consumer price index. So gold went up when money supply increased, even though there was no "inflation" as we commonly define it these days.

Like you, I don't feel anybody fully understands gold. This is all just conjecture. But that's part of it's allure and a great reason why it's such a potent diversifier. Harry Browne was MPT before MPT was a thing. I buy and hold gold mostly because of how well it compliments a portfolio of stocks and bonds. The reasoning behind it doesn't matter as much to me, so long as it continues to stay uncorrelated to stocks and bonds over the long haul.
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Re: What have we learned over last 10 years?

Post by Tortoise » Thu May 23, 2019 3:29 pm

Periods of different economic conditions are only identifiable in retrospect. If it were otherwise, Harry Browne's recommendation would have been to go all-in on a single asset (stocks, bonds, gold, or cash) depending on the current economic condition. He didn't recommend that approach, because we never really know what economic condition we're in until probably a few years after the fact when that period of time can be viewed in the full context of everything that came before and after it.

So HB recommended owning all four assets all the time in a fixed allocation. And that works pretty well.

What I've learned about the HBPP over my first 9 or 10 years invested in it is that it consistently does pretty much what it was designed to do: Provide a reasonable inflation-adjusted return with far less volatility than just about any other portfolio I've seen.
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Re: What have we learned over last 10 years?

Post by Kbg » Thu May 23, 2019 10:27 pm

Pm...a big ditto on gold. My thoughts exactly.

I should start the kbg portfolio...40/40/20. It’s all history of course but this has been a very good mix.

(S/LTT/G)
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Re: What have we learned over last 10 years?

Post by Tyler » Thu May 23, 2019 11:43 pm

pmward wrote:
Thu May 23, 2019 3:05 pm
Like you, I don't feel anybody fully understands gold. This is all just conjecture. But that's part of it's allure and a great reason why it's such a potent diversifier. Harry Browne was MPT before MPT was a thing. I buy and hold gold mostly because of how well it compliments a portfolio of stocks and bonds. The reasoning behind it doesn't matter as much to me, so long as it continues to stay uncorrelated to stocks and bonds over the long haul.
Well said.

Gold is a lot more complicated than even its biggest fans often give it credit for. I like to think of it as the "chaos asset" (in contrast to stocks as the "prosperity asset"). Runaway inflation, stock market crashes, political instability -- lots of things can drive up the price and to single out one does it a disservice. Stop thinking about dry macroeconomic factors and start thinking about the feeling of raw financial desperation, and it will start to make more sense why gold will always have a place in a well-balanced portfolio.
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Re: What have we learned over last 10 years?

Post by jhogue » Fri May 24, 2019 4:53 pm

I would like to shift the focus of this thread and speculate on what the NEXT 10 years of the PP will bring:

-I hold most of my gold in tax-deferred ETFs, and therefore not as much physical as I would like. Gold ETFs seem to have performed its uncorrelated role in these “normal” times, but they have not really been tested in a serious crisis. Will they be tested and will they survive?

-Perhaps the most hopeful development in gold in the last 10 years is the creation of the Texas Bullion Depository. Will other states follow? No geographical diversification, but “Don’t Mess with Texas” attitude is a powerful signal of where (and who) you want to keep your gold. I don’t own any gold there yet, but I am watching it and hope technovelist and others will report on developments on this forum.

-I predict that the Treasury will start phasing out Series I and Series EE savings bonds. They have done it before with Series E and Series H bonds so there is nothing stopping them from doing it again. Pugchief will shed no tears, but I will be sad to say a long goodbye to Deep Cash.

-Despite the recent collapse of talks between Democrats and Trump, I think there will be a bipartisan infrastructure bill. If so, it reopens the opportunity for Treasury to sell ultra-long 50 or 100 year bonds. If a flatter long term yield curve is here to stay for a long time to come, it will make sense for both the federal budget deficit and investors.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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