Gyroscopic Investing

MangoMan wrote:Are you seriously still reading Hussman? Please tell me when the last time he was right about anything [timing wise]. I'd bet my VP that it hasn't been in the last 10 years.

It doesn't matter whether or not he was timing right with his fund, he's right about the valuation (93% correlation). The PP is going to suffer unless we have some kind of stagflationary, Bretton Woods II, etc. scenario so gold can outperform. When was the last time we had stock yields and long-term bond yields in the same low class ballpark? Never. So for the PP it is uncharted territory. This is more a danger for those who aren't DCAing (and won't panic).

And BTW, if you don't grok how Hussman had a "timing" miss, then you're operating on security threatre. You essentially betting your glorious future on government competence (or at least the fickle Boobus Americanus perception of thus) because thats what the last 7 years has been. Not holding my breath.

MachineGhost wrote:The PP is going to suffer unless we have some kind of stagflationary, Bretton Woods II, etc. scenario so gold can outperform. When was the last time we had stock yields and long-term bond yields in the same low class ballpark? Never. So for the PP it is uncharted territory. This is more a danger for those who aren't DCAing (and won't panic).

Maybe it's time to broaden out the "real" asset category of the PP to include different types of commodities, and not only gold. Those might trip upwards, they have been mercilessly pummeled over the past several years, much worse than gold.

The fact is, this is also doom-alicious for standard stock/bond portfolios, because for PP-ers gold might pick up the slack. That won't work for the majority of investors who don't own any.

This has about the same weight as any other prediction (i.e. close to nil). Could he be right? Sure, but I'm not going to do anything to bet on it. And what could you do about it anyway? Emerging markets maybe?

In a nutshell, here is what happened:



Yeah maybe as PPers we can afford to be cocky, but Bogleheads and just about everyone else would have been destroyed with another -80% MaxDD. They've been "saved" only by the audacity of hope, so they have terribly unrealistic expectations which is why they're gonna lose for the third time since 2000. It's only natural...

sophie wrote:The fact is, this is also doom-alicious for standard stock/bond portfolios, because for PP-ers gold might pick up the slack. That won't work for the majority of investors who don't own any.

This has about the same weight as any other prediction (i.e. close to nil). Could he be right? Sure, but I'm not going to do anything to bet on it. And what could you do about it anyway? Emerging markets maybe?

I don't really see any alternative but to diversify among strategies and have the PP be a core. Call it a melding of the VP with the PP if you want. Another worst situation for the PP (that gold won't help with) would be if we had economic growth over the next 12 years but stocks did not return any of it because suddenly the overvaluation started to matter to investors! That's happened before.

It would also help to have investments in the real economy instead of the financial fantasyland.

Curious how the PP did since that time (I used the March peak), I ran the stats: 6.71% CAGR, -14.95% MaxDD. Not even get rich slow!

http://www.amazon.com/Antti-Ilmanen/e/B0074NNOCW

Here ya go...all kinds of ways to make money.

MachineGhost wrote:

Curious how the PP did since that time (I used the March peak), I ran the stats: 6.71% CAGR, -14.95% MaxDD. Not even get rich slow!

MG, Are you really not happy with a 6.71% CAGR over that timespan? Inflation has been low for most of that period. It seems to me that the PP has been doing its thing up to this point. I don't have the exact real return during that time period but it's still something over 4% which I would take any day.

barrett wrote:MG, Are you really not happy with a 6.71% CAGR over that timespan? Inflation has been low for most of that period. It seems to me that the PP has been doing its thing up to this point. I don't have the exact real return during that time period but it's still something over 4% which I would take any day.

Not really, but then I'm in wealth generating mode. I just hate to think of all the time I put into tire kicking the PP and all I got was a blasted 6.71% CAGR. Man, you'd think the PP was the bee's knees from all the high praise about it!

The problem is the lazy gene in me really wants the PP to offer more reward without more risk. I hate having to work for it and battling your emotions all the time can get very, very monotonous.

I'd most definitely take the 6%. Compare that to the S&P 500's return of just around 2% (CAGR, real) since 2000.

I remember reading an investing article when I was researching portfolios, about how slicing and dicing various stock subclasses could bring annual yields of well over 10%. Later I realized this was all based on assuming the 1980s bull market would continue forever. Because of those bull markets we all think we can expect our money to grow > 10% per year, but historically that just isn't so.

It's also one reason why Harry Browne recommended just plain Treasury bills for people who couldn't deal with maintaining a permanent portfolio - rather than 100% stocks. T Bill returns, historically, are not much lower than the average performance of the stock market.

I highly recommend reading Meb Faber's asset allocation book. The bottom line is that from a returns perspective it really just doesn't matter over a long period of time as any allocation returns pretty much the same thing. It was way eye opening for me. A couple of weeks back half joking half seriously he told people to quit reading his blog and quit stressing about their ports.

I still come back to why I'm here...a very simple port that returns a little less than most standard asset allocation ports at way less volatility. Add some prudent leverage and it's an excellent risk adjusted way to grow your savings.

Kbg wrote:I highly recommend reading Meb Faber's asset allocation book. The bottom line is that from a returns perspective it really just doesn't matter over a long period of time as any allocation returns pretty much the same thing. It was way eye opening for me. A couple of weeks back half joking half seriously he told people to quit reading his blog and quit stressing about their ports.

Hey Kbg,

What is the name of that book? Thanks.

On his website which bears his name, the eBook is given away for free

ochotona wrote:On his website which bears his name, the eBook is given away for free

Thanks, ocho. Now I have his book but he has MY email address.

MangoMan wrote:But Meb is not a spammer, and I'm pretty sure they don't share your info with any third parties.

He's not. I think I get stuff occasionally but definitely not daily or weekly.

Kbg wrote: I still come back to why I'm here...a very simple port that returns a little less than most standard asset allocation ports at way less volatility. Add some prudent leverage and it's an excellent risk adjusted way to grow your savings.

I guess I've got to disagree that putting 50% of my net worth at risk for a MaxDD via 2x is an "excellent" way to grow my savings. That's just not very smart in my book. The way to get more gains is to take less risk because risk by default is what eats away at gains! But less risk will requires more work to get more gains. So there's no free lunch.

I think in my next life I'll choose an alternative career to finance.

Kbg wrote:

MangoMan wrote:But Meb is not a spammer, and I'm pretty sure they don't share your info with any third parties.

He's not. I think I get stuff occasionally but definitely not daily or weekly.

I like Meb but similar to Hussman, his ideas fail when implemented as funds. I think the problem is he's too simplistic and assumes backtests will repeat in the future without recognizing the changing dynamics of arbitrage, knowledge and computation. Since he's a Wall Street outsider, he's sort of [re]introducing simplistic 1980's ideas in the 2010's. And most of his catchet seems to be coming from going around giving speeches, etc. than any real skill as a money manager.

MachineGhost wrote:

Kbg wrote: I still come back to why I'm here...a very simple port that returns a little less than most standard asset allocation ports at way less volatility. Add some prudent leverage and it's an excellent risk adjusted way to grow your savings.

I guess I've got to disagree that putting 50% of my net worth at risk for a MaxDD via 2x is an "excellent" way to grow my savings. That's just not very smart in my book. The way to get more gains is to take less risk because risk by default is what eats away at gains! But less risk will requires more work to get more gains. So there's no free lunch.

So watcha got that is better? During the wealth building phase, above all, the thing that kills gains is lack of compounding gains. William Bernstein does a great job of discussing life cycle investing in his book...so it depends where one is at in their life cycle and if they are grossly rich an entirely different set of rules apply, but let's see what you got. Layout your best system and let's run it against something like Sortino, UPI or CAR/MaxDD. And let's compare the alternative(s) decade by decade to see how they do.

Sharpe doesn't count as something with very little return can have agreat sharpe ratio.

Kbg wrote:[quote="MachineGhost"So watcha got that is better? During the wealth building phase, above all, the thing that kills gains is lack of compounding gains. William Bernstein does a great job of discussing life cycle investing in his book...so it depends where one is at in their life cycle and if they are grossly rich an entirely different set of rules apply, but let's see what you got. Layout your best system and let's run it against something like Sortino, UPI or CAR/MaxDD. And let's compare the alternative(s) decade by decade to see how they do.

It's not that difficult. Any strategy that compounds gains more frequently than buy and pray will have superior metrics. And in most cases that reduces risk as well since time in market increases the probability of suffering through a Black Swan event. But this requires more work than just rebalancing once a year or every 2-3 years with bands, so that's the trade off. At some point it will turn into a career and that will conflict with your other career.

OTOH, I haven't found a strategy that I have a great confidence in that will continue to work on a weekly, monthly or quarterly basis. Intraday or daily sure, yearly or every few years, sure, but the in-between is very problematic. It's either a lot of work or very little work.

The stock market bubble is going to pop. It's getting bigger and bigger like an animated cartoon balloon.

Sure, but you don't know when. Could be tomorrow. Could be once it hits 30,000.

Cortopassi wrote:Sure, but you don't know when. Could be tomorrow. Could be once it hits 30,000.

+1
It wasn't that long ago that there were discussions here about the stock market being "broken." Stocks have only surged since then.
And, remember the thread called "Which Asset Will Double First"?

My stop-loss is set at 2060 on the S&P500. That's a target based on my use of Dual Momentum (I use April '16 as my lookback reference, not February '16... I've mentioned this before. I'm being cautious).

We're at 2297 now. Some optimists think we could make 2500.

So am I willing to lose -10% in order to gain 8.8%? Not good risk:reward

If the price goes to 2160, then the risk:reward changes:

-4.6% vs. 15.7% which is much better... but then we're right at the 200 day MA, which itself is a really good momentum indicator, so as a momentum investor I can't take that bet either.

Sort of hard to stay still, hard to move. Getting boxed in.

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