gonetowindsurf wrote:
Here is where PP has its drawback. It lags the overall equity market when stocks are rising. The PP is defensive in nature. So if we are truly in a bullish stock market, treasuries, gold and cash will drag on your performance.
And also the inverse, it lags when stocks are crashing
I have had a couple days like this with gold since I started the PP. Although the magnitude of LTT wasn't commensurate with gold's decline, the big upward move in LTT coinciding with the downward move in gold shows that there is still a yin and yang within the PP.
Regarding comparisons with the stock market, I think one should really be asking if their investment program is meeting their real return hurdle rate (mine is about 3-4% annually) at a manageable level of risk. Those are both personal questions, and I don't think one should make too many comparisons to outside financial benchmarks because you are always going to compare yourself to whatever the hottest market is. Besides, you can't spend relative performance. It's all about real returns.
everything comes from somewhere and everything goes somewhere
I actually found the gold dive reassuring. One asset fell nearly 5% in a single day, but the overall portfolio was down less than 1%. That's a feature, not a bug. It'll save you the same way when stocks inevitably have a similar day.
I think people have a really tough time understanding how volatility capturing works. Most people believe investing means buying a single, homogenous "good" thing and waiting patiently for it to grow while occasionally replacing it with whatever did well the year before (always a year too late). The concept of diverting the surplus from "good" investments to "bad" ones just doesn't make sense. But that's exactly how you "buy low". Underperforming assets are not a drag -- when properly diversified, getting good deals is engine for portfolio growth.
Gold is now selling at a significant discount from the day before, and I still have pretty much the same amount of money to buy more. I think that's cool.
Historically, it is not falling assets that trigger the rebalance. When you do hit a rebalance point, if gold remains the laggard, think of the great deal, you get to substantially increase your holdings in that asset class at a discount to your buy-in cost. A similar thing happened for me with LTT. It was sure hard to buy more of those a couple years ago when *everyone*, like Gross, were dumping them because they knew interest rates were going to rise. I even bought a bit this week after they dropped as I am reducing my exposure in TLT.
To me, the simple beauty of the PP is that if forces you to buy low and sell high, which is opposite of what the herd does. If you sell your gold, what better asset would put that money into?
melveyr wrote:
Regarding comparisons with the stock market, I think one should really be asking if their investment program is meeting their real return hurdle rate (mine is about 3-4% annually) at a manageable level of risk. Those are both personal questions, and I don't think one should make too many comparisons to outside financial benchmarks because you are always going to compare yourself to whatever the hottest market is. Besides, you can't spend relative performance. It's all about real returns.
TNotes have returned about 6.00% CAR since 1973 so not much is really needed from the other three assets to add on top of the 1-2% real return. I'm actually questioning why so much is unbalancingly allocated to the other three assets when it does not juice the portfolio real return much.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Tyler wrote:
I think people have a really tough time understanding how volatility capturing works. Most people believe investing means buying a single, homogenous "good" thing and waiting patiently for it to grow while occasionally replacing it with whatever did well the year before (always a year too late). The concept of diverting the surplus from "good" investments to "bad" ones just doesn't make sense. But that's exactly how you "buy low". Underperforming assets are not a drag -- when properly diversified, getting good deals is engine for portfolio growth.
But if the 1980's and 1990's has been like Japan, averaging down into gold's 70% decline with nothing else to really offset it... ouch! It seems to me what saved the PP in Japan was not so much the other poor assets, but the fact that the decline did not happen overnight. It took over 20 years and that allowed time to capture the diversification and rebalancing bonus. Can we say the same will happen again in the future with modern, high-speed, interconnected markets?
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
BearBones wrote:
Damn! Having a hard time refraining from buying gold right now...
Never try to catch a falling knife.
If rebalancing bands are only hit on the upside, that implies that lagging assets are only bought with profits, i.e. the other suck market's money and not your own. That's a comfortable position to be in.
I can see why craigr thinks hes vacuuming it up.
Last edited by MachineGhost on Sat Apr 13, 2013 2:27 pm, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Kriegsspiel wrote:
I really enjoyed that hot Australian chick
Yeah, the guys like her. She won some kind of hottest TV newschick award or something, somewhere. So, they keep her on for eye-candy. She's like 5' tall. Teeny, tiny. Married, has at least one child, two I think.
Anyway, I can't stand her - her accent and the talking through her nose/sinuses annoy me no end - have to turn on captions to understand her half the time - did I say I can't stand her?
So, I usually turn to another channel when she's on - except stayed for the discussion of gold.
