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Re: US / International weight

Posted: Sat Jul 30, 2022 6:22 pm
by Kbg
Jack Jones wrote:
Sat Jul 30, 2022 5:01 pm
I was talking about gold being great from the standpoint of someone who owns it as an asset. However, it seems I inadvertently stepped into the role of the gold standard shill that you so desperately wanted to argue with.

Just curious, have you ever owned physical gold?
Well let's get to I guess was the point you are trying to make which is gold is a great asset to hold.

My counter to your assertion is that it is not a great asset to hold.

Reason: The government can take it or make it useless for the purposes of exchange for other goods and if you can't trade it for something what's the point other than to make jewelry?

Then you threw in that gold provides some kind of monetary balancing force to rampant inflation

And it does not and never has.

So what am I missing on what started this debate going?

After that you asserted that more dollars printed means they are worth less. No it does not mean that and I cited some easy to understand examples we've all lived through to illustrate that assertion just ain't true. The reverse is also true, when the Fed starts destroying money it doesn't necessarily make it more valuable either and for dang sure that is the case in a digital economy...and that my friend is why I asked you to post a chart of M2 velocity. If you don't understand the concept of monetary velocity you really should educate yourself on it...I promise an aha moment.

Moving along to now, I "think" we are now at physical gold is a great asset (but isn't good money...point conceded???) You noted it can be passed along quietly to someone else because I presume you think because it is a good store of value. If you think it is, great. Go for it. I don't. Gold and BTC produce nothing and fundamentally are built on the greater fool theory. I like intrinsic value, gold and btc have exactly none of that.

I'm a land guy. However, the government can take that too and they charge me for my ownership every year which is annoying for sure. But between some gold coins and an acre of farm land no question what I'm going to buy.

And nope, never owned physical gold in my life. The coins seem pretty cool to look at and I've thought about it, but I've never pulled the trigger. I might one day. As posted somewhere I do own a not unsubstantial amount of paper gold via the cheapest fee ETF there is in the US market. I really wonder if I should even bother with it though. Inflation adjusted, it hasn't made a dime since Dec of 1980. At least with a TIPs bond one can get a minuscule rate above inflation...and you are much more likely to get more when you need it with a TIPS than an ounce of gold. I assume you will agree that the volatility and cyclicity of gold is magnitudes higher than TIPS? And yes, I'm fully aware that the USG is the issuer of TIPS. As a store of value, anyone not wedded to gold would most likely conclude TIPS are a much better store of value as they are way more stable.

If I missed any other questions post them and I'll answer them.

Now, why haven't you answered any of mine?

Let's wrap this one up, shall we?

Re: US / International weight

Posted: Mon Aug 01, 2022 5:46 am
by Jack Jones
Kbg wrote:
Sat Jul 30, 2022 6:22 pm
Let's wrap this one up, shall we?
Yeah, I'm good, teach.

Re: US / International weight

Posted: Wed Aug 03, 2022 8:54 am
by Kbg
For those who want to stomp on a dead horse...

https://klementoninvesting.substack.com ... horses?s=w

https://klementoninvesting.substack.com ... -thing?s=w

The second is particularly good, and was quite surprising to me regarding velocity.

Summary of both...pretty much anything we thought we knew about monetary theory hasn't held up empirically for three decades now.

Re: US / International weight

Posted: Thu Aug 04, 2022 9:23 am
by seajay
50/50 is a general good choice/balance. A factor with stocks is that they include bond exposure, stocks on average borrow (issue corporate bonds/whatever) half their book-value, whilst share prices are broadly priced to 2x book value. So each $1 of stock purchase also buys into 25c of short bond exposure. Broadly long or short bond washes, zero sum gameplay. Factor that in, and for 50/50 stock/bond balance you need to buy 44 stock, 56 bonds. The 44 stock includes 11 short bonds that when combined with 56 bonds = 45 long bonds, near-as 50/50 overall stock/bond exposure.

Stocks might on average earn half of earnings from foreign. Gold and FX can be comparable in a domestic currency crisis. For instance Iceland 2009 when gold in Krona rose significantly, saw gold in Euro's remaining much the same price, so gold or Euro's equally hedged the Icelandic Krona. If half of 44 stock exposure is FX, then to bolster 22 FX to 44 requires 22 gold. Leaving you sitting on the equivalent of 44 FX, 44 stock, 44 bond factors exposure, close to equal weightings (50/50 type balances). Some firms hedge their FX exposure to the domestic currency in order to stabalize reporting (reduce volatility). Accordingly its reasonable to split stocks 50/50 between domestic/foreign stock indexes. For bonds a 10 year Treasury bullet is 50/50 STT/LTT.

So for a overall neutral portfolio ... 22% gold, 22% domestic stock, 22% foreign stock, 44% 10 year Treasury (or 22% in each of STT and LTT). If that is the 'optimal' case then the PP is relatively close, as is the Larry Portfolio 33/67 but where some of the 67 bonds are instead invested into gold, its also close to a Golden Butterfly. But all from a investing is art rather than a science angle. I suspect however the precise scientific measures would result in allocations also within the same ballpark region, but involve a lot of effort such as identifying how much of each firms earnings were sourced from foreign and how much the firm might have hedged such FX exposure.

if the stock index you hold has foreign earnings and doesn't hedge all/some of that, then there may be no need to hold foreign stocks. If much of a indexes earnings are foreign, then you might reduce gold. More depends upon comfort, if your asset allocation is within the region of reasonable and its a asset allocation you're comfortable with and unlikely to change, then achieving the average is generally good-enough. 22 gold, 33 SCV, 45 10 year T for instance, is close to being both a PP and a Larry Portfolio and likely differences in actual outcomes might be considered as just noise. PV

Re: US / International weight

Posted: Thu Aug 04, 2022 9:32 am
by joypog
seajay wrote:
Thu Aug 04, 2022 9:23 am
likely differences in actual outcomes might be considered as just noise.
That is my big takeaway with this months long exercise of looking at investing and picking an AA.

After a point, fine tuning is just blowing kisses into the wind.

Re: US / International weight

Posted: Thu Aug 04, 2022 10:20 am
by seajay
joypog wrote:
Thu Aug 04, 2022 9:32 am
seajay wrote:
Thu Aug 04, 2022 9:23 am
likely differences in actual outcomes might be considered as just noise.
That is my big takeaway with this months long exercise of looking at investing and picking an AA.

After a point, fine tuning is just blowing kisses into the wind.
Investor swapping around their asset allocation tends to on average induce a 2%/year lag factor (considerably worst for some of those). A scientific optimal allocation can be out of sync within seconds following purchase due to prices/values having moved on. A primary factor when picking a asset allocation is the confidence that you'll stick with it or otherwise be at risk of inducing that 2% type overhead, end up having taken on all of the risks, in order to line other peoples pockets with the rewards. Some of the best investors are the disinterested who simply bought and forgot. Saw dividends drop into their bank account alongside pensions/whatever and had little if any idea as to the holdings/value. The more interested are more inclined to swap/change to their detriment. In that context I quite like a 20 year ladder instead of a STT/LTT barbell. Spend the dividends, bond interest and the maturing bond value that drop into your bank account each year, add 2.5% of the ongoing portfolio value into buying another 20 year Treasury bond, typically funded by reducing some of stock or gold according to whichever might have done the best that year. Income provided = 2.5% from the maturing bond value, 0.5% from dividends assuming 2% dividend yield and 25% stock weighting, 1% from bond interest assuming bonds yield 2% (in reflection of central banks targeting 2% inflation). Combined 4% from diverse sources.

Despite that simplicity there's some pretty astute 'trading' going on. After the portfolio value had advanced at a above average rate, then 2.5% of the relatively higher portfolio value might be rolled into a 20 year below average yield bond, buys more of a lower yielding bond. Or if portfolio value were down and yields were high, then buys less of higher yielding 20 year bonds. Broadly washes. And where you sell some of the most up asset (stock or gold) to 'average' into bonds, a form of cost averaging down the bottom line (average cost of stocks/gold/bonds).

Note that presently its a relatively good time to be loading into a 20 year treasury ladder. TLT for instance 2016 to recent has a -1.6% annualized real, so in part is somewhat like having averaged into six years worth of long dated treasuries at around the same inflation adjusted price/value. Whilst shorter dated rungs are seeing more recent higher yields.

Re: US / International weight

Posted: Thu Aug 04, 2022 6:24 pm
by Kbg
Unfortunately I don't I can't remember where I saw the study...but in a diversified portfolio, selling off the best performing asset to fund expenditures is a well backed approach. IIRC it even worked for stock sectors which isn't really diversified. (But IIRC could be IDRC).

In short, +1 on seajay's post.