The GOLD scream room

[buddtholomew]

Well can’t say I didn’t tell you so...
First hint of inflation and gold disappears.
Wonderful day for the PP.

Look at her go, thank god I only have 25% in each asset class since they are all going down together...hmm

Told who what now? Last I recall you were voicing unrealistic expectations for gold in light of its actual, well understood relationship to stocks and bonds and a few people were gently reminding you of various facts, such as that zero correlation is not the same thing as the negative correlation you seem to expect, that no one ever promised the assets cancel each other out on a daily basis, that gold is up YTD and for the past year, and that gold was the top asset in two out of the past five decades, one as recently as one decade ago.

By the way, what ever happened to your strategy to buy and sell gold regularly based on its awfulness being so predictable?

If Gold's relationship to stocks and bonds is so well understood, then that is news to me.
Being invested in the portfolio since 2011, I can tell you Gold and LTT's are nothing but a drag on performance.
Even on the occasion that Stocks decline >10%, one should expect Gold and LTT's to go lower as well.
I have had blinders on myself hoping that the PP was the answer, but from experience I can tell you it is not.
You may get lucky and the portfolio saves you during the next crisis but I doubt it.
Chances are you would have already lost a significant amount in the assets you hold for that very scenario.

[buddtholomew]

Well can’t say I didn’t tell you so...
thank god I only have 25% in each asset class

That's the idea, right? :-)

UB, you cut-off the most relevant point...25% in each asset class doesn't save you if they are all falling together.
Case in point, my 70/30 BH allocation only fell .40% today whereas my version of the PP fell .90%

[Ugly_Bird]

my 70/30 BH allocation only fell .40% today whereas my version of the PP fell .90%

Today? Why did you even looked at that today?
If it is not close to any rebalance limits, there is no need to look neither today nor tomorrow. The longer - the better.

[buddtholomew]

my 70/30 BH allocation only fell .40% today whereas my version of the PP fell .90%

Today? Why did you even looked at that today?
If it is not close to any rebalance limits, there is no need to look neither today nor tomorrow. The longer - the better.

You might as well hold 100% stocks if you never look, it has the highest expected return.

[eufo]

You might as well hold 100% stocks if you never look, it has the highest expected return.

Put everything in AAPL. It's the largest market cap stock out there but has crushed the overall market for years.

Seriously, though, the PP is about as stable an allocation as one could ever hope for. Day to day moves mean zilch. If you look at the 4 prongs from Jan 24th through today, Cash is the leader, with Gold in second. Sorry it fell today, but it's still beating both stocks and bonds during this correction.

You need to chill, dude.

[Mr Vacuum]

Budd, you frequently tout with confidence statistics and historical perspectives showing the superior long run performance of stocks as justification for their proper use in a portfolio. Have you asked yourself why you have such trouble accepting statistics on gold that form the long term basis for its inclusion in the PP?

It's one thing to come in here and complain about gold: this is the scream room for that. But it's another thing to insist that the portfolio is broken because it goes down some days. Gold is the most volatile asset in the portfolio. It is not correlated with the other assets. It is going to go down at times that are inconvenient.

Perhaps we have no recourse but to convince Fidelity to release a newsletter stating the probability of different assets going down in the same day, month, and year to prove that it’s possible and expected.

[sophie]

Budd, I think you are confusing day to day fluctuations with meaningful trends. There is a reason why momentum investors use histories of 3 or 6 months to determine trend lines. That's the length of time needed to obtain a stable curve.

Please please please, for your sanity (and ours), stop checking prices every day. Check your portfolio every 3 months, and enjoy the rest of your life in the meantime!

[buddtholomew]

I have 200K to add to the portfolio.
I’m having a difficult time deciding between 70/30 and the PP.
All I have witnessed in my investing life which started in 2008 is stocks out-performing all other assets with minimal/short-lived declines.
While psychologically I like the PP, I have yet to witness the portfolio zigging when stocks zag.
It’s stocks up, PP up; stocks down, PP down.

[flyingpylon]

All I have witnessed in my investing life which started in 2008...

Well that explains a lot.

[stuper1]

Budd, what is your time horizon for possibly needing to withdraw money from your portfolio?

[buddtholomew]

Budd, what is your time horizon for possibly needing to withdraw money from your portfolio?

PP in taxable serves primarily as an emergency fund with a short timeframe and if not used is part of my overall retirement portfolio (70/30, tax deferred). Don’t expect to touch those assets for 20 years.

[stuper1]

If your PP is your emergency fund, then maybe that is why you are so worried about short-term dips. Historically, the PP as an overall portfolio has had drawdowns as much as 20% or more, so I'm not sure that a PP is meant to be an emergency fund. On the other hand, it should be okay to view the cash in your PP as your emergency fund.

For example, if your monthly expenses are $5k, and you want a 6-month emergency fund of $30k, then you need a PP of at least $120k, so that the cash in your PP can be your $30k emergency fund. As long as you have enough cash in your PP to serve as your emergency fund, don't worry about short-term PP dips. They will come back a lot faster than they would with most other portfolios (if backtesting is to be believed).

And if you don't expect to touch those assets for 20 years, then sure, it makes sense to over-weight stocks a bit, as long as your employment prospects are good (although some of us may tend to be overly optimistic about such things). But make sure you know your risk tolerance, so that you won't panic and sell when stocks go into a downturn. And make sure you have a re-balancing plan in place ahead of time, along with a plan to taper the stocks down as you get closer to retirement. Use robust backtesting to test your plan. Follow the plan. If you try to follow your gut, you will likely end up buying and selling at the wrong times and losing money.

[iwealth]

Budd, you've known for years that the PP does not do what you want it to do. You want it to zig while stocks zag on an intraday basis. It does not do that. And it's creating a massive drag on your returns during one of the greatest and longest bull markets in history.

Why would you allocate any of that 200k to gold or long bonds?

[Ugly_Bird]

I have 200K to add to the portfolio.
I’m having a difficult time deciding between 70/30 and the PP.
It’s stocks up, PP up; stocks down, PP down.

100k to PP
100k to 70/30
And forget about it... For a while... :-)
Would be good to compare the performance in 10 years. :-)

[buddtholomew]

Budd, you've known for years that the PP does not do what you want it to do. You want it to zig while stocks zag on an intraday basis. It does not do that. And it's creating a massive drag on your returns during one of the greatest and longest bull markets in history.

Why would you allocate any of that 200k to gold or long bonds?

That’s why I have a 70/30 allocation for retirement since the PP hasn’t met my needs at all. A whole lot of volatility with the hopes that one asset outperforms. For the last 7 years it’s been stocks.

Another beating today, no surprise there.
Guess who? That’s right Gold and LTT’s.

[buddtholomew]

I'm not going to post anymore since obviously I haven't reached the zen that others have investing in the PP.
Good luck to all.

[stuper1]

It really doesn't take zen. When the PP experiences a drop, compare the current drop to drops that have happened in the past using a back-testing tool like portfoliovisualizer.com. If the current drop is no larger than drops that have happened previously, then shrug your shoulders and find something else to worry about. Also, you have to realize that the PP is going to lag a stock-heavy portfolio when stocks are going through a bull market. When a stock downturn hits, the PP will catch up quite a bit, but probably not all the way. If you are sure that you can ride it out all the way through a stock downturn and the years-long return to the previous peak, then you may be better off with a stock-heavy portfolio. But what happens if you lose your job during the downturn and need to draw on some of your assets?

[ochotona]

It being Lent and all, our church advises cutting back on social media as a Lenten discipline so as to put emphasis on personal interactions.

Maybe totally giving up on daily portfolio checking would also be helpful.

[Mr Vacuum]

I have 200K to add to the portfolio.
I’m having a difficult time deciding between 70/30 and the PP.
All I have witnessed in my investing life which started in 2008 is stocks out-performing all other assets with minimal/short-lived declines.
While psychologically I like the PP, I have yet to witness the portfolio zigging when stocks zag.
It’s stocks up, PP up; stocks down, PP down.

Have you ever invested in the Permanent Portfolio? YES! And how did that make you feel? LIKE A LOSER! (remember the old Late Show Crystal Clear Party Ice ad?)

I don't have daily data for all three assets, but here is some perspective on the monthly losers. From 1968-2007 all three assets were down 9.4% of months. Starting 2008, 7.5%.

[Cortopassi]

Not checking day to day is a HUGE help to me. And purposely not trying to care. Seriously, what am I going to do, micromanage my portfolio again? Disaster and stress if I do.

Other than the PP, the other thing I did about 6 months ago was quit Quicken and go to an online bank/portfolio accounts tracker. Not selling it, but it is Personal Capital.

What it has done for me is change my daily routine. I would come home, fire up Quicken, download transactions. Enter receipts manually and match when they cleared, and obsess about the top line number.

With changing to online, the transactions are downloaded automatically. I enter nothing. A quick 3 seconds to see that a receipt matches and I shred the receipts. Changes a 10-15 minute daily process to 1 minute, and it is not in my head anymore.

So my portfolio is down another $3-4k on paper today. Whatever. Does that change my ability to retire, send my kids to college and pay day to day bills? No. So the hell with worrying about it.

[Kriegsspiel]

BUDD YOU HAVE TO STAY MY GYROSCOPICINVESTING DRINKING GAME IS WORTHLESS WITHOUT YOU NOOOOOOO

[Tyler]

I have 200K to add to the portfolio.
I’m having a difficult time deciding between 70/30 and the PP.
All I have witnessed in my investing life which started in 2008 is stocks out-performing all other assets with minimal/short-lived declines.
While psychologically I like the PP, I have yet to witness the portfolio zigging when stocks zag.
It’s stocks up, PP up; stocks down, PP down.

Don't get dejected, Budd. And don't stop posting. It's a lot better to vent and eventually chill than it is to let it all build up and make you do something rash like yank all your money between portfolios.

Explaining how your observations about the PP vs your 70/30 portfolio jive with history is sorta tricky, and it inspired me to tinker with a new calculator that directly compares portfolios. It's still a work in progress, but I'll give you a sneak preview as I think it will help.



This overlays the 1-15 year performance for every historical start year since 1970 for both the PP and a 70-30 portfolio. The gray is the 70/30, and the orange is the PP. The wide band represents the outcome extremes, while the darker inner band represents the most common middle two-thirds of the outcomes.

Think of this chart as representing the historical accuracy of each portfolio trajectory. The PP is like a laser beam of returns while the the 70/30 is like a shotgun. While the 70/30 portfolio does have a higher average return, the PP is a lot more steady along the way with less upside and less downside. Basically, it's a lot more predictable and can work really well with the right savings plan. And there are ways to supplement it with a VP if simply raising the average to a similar spot is a concern, although that's a topic for another discussion.

Even if the 70/30 has outperformed the PP since 2008, eventually you'll run across a timeframe when the 70/30 portfolio falls into that lower band well below the PP. If the relative performance of the two portfolios bothers you now, how will that make you feel?

BTW, my best advice on gold is to stop scrutinizing every individual portfolio ingredient and focus on the cake.

[Cortopassi]

Really nice way to view it, Tyler!

[stuper1]

I think what we are looking at is probabilities. Most likely the 70/30 is going to out-perform the PP over a 15-year time frame, but there is a chance that it won't. Do I really want to take that chance? Harry Browne was very smart when he said to hold the PP with the money that you can't afford to lose. With the VP, I can take on some additional risk with money that I can afford to lose.

[buddtholomew]

Even if the 70/30 has outperformed the PP since 2008, eventually you'll run across a timeframe when the 70/30 portfolio falls into that lower band well below the PP. If the relative performance of the two portfolios bothers you now, how will that make you feel?

Thank you Tyler for spending the time to produce the illustration.

I selected the PP for its overall stability and risk adjusted return comparable to a more equity centric portfolio.
Unfortunately, I cannot substantiate my decision as the PP has not kept pace, let alone outpaced a 70/30 or even 60/40 allocation on an annual basis since 2008 (10 years). What I have witnessed is the PP gains less or loses less but the increases pale in comparison to an equity heavy portfolio and the losses are sometimes even greater. Case in point, the latest 10-15% decline in equities clobbered the PP as well since Gold was flat and LTT's down 6%+. My 70/30 allocation with International and IT bonds is UP, yes UP over the same time frame with the PP still negative YTD.

In response to your question, I would feel content if the PP out-performed a 70/30 allocation over the next 15 years, but would still contribute to equities as I have internalized that they decline from time to time. I am prepared for that. What I am not prepared for is a portfolio that doesn't offer diversification when equities decline and is muted during a bull market. Lose/lose.