Is The PP Good For Investing?

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Xan
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Re: Is The PP Good For Investing?

Post by Xan » Thu Jan 08, 2015 11:20 pm

I'm really honestly asking here: when did the PP's max drawdown of 25% occur?
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Re: Is The PP Good For Investing?

Post by MachineGhost » Thu Jan 08, 2015 11:26 pm

Coffee wrote: P.S. The PP is the super safe car that doesn't have enough horse power to get out of its own way and ends up getting creamed by a big rig truck that has, "Market Returns" painted on the side.
+100

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Last edited by MachineGhost on Fri Jan 09, 2015 9:18 am, edited 1 time in total.
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Re: Is The PP Good For Investing?

Post by frugal » Fri Jan 09, 2015 2:34 am

MachineGhost wrote:
barrett wrote: Plenty of people are happy with a "stock-heavy Boglehead type" portfolio. It's not the worst thing in the world if you have a long investing horizon and can hold on when stocks are getting crushed and your bonds don't have enough juice to counteract the drop. Stocks often bounce back quickly but those drops are killer.
Plenty of people have no real experience of what a secular bear market is like because we haven't had one since the markets have been chronically overvalued since, say, 1992.  What could go wrong?  And we all know this shoe drop is a-coming.  It's how you choose to deal with the potentiality ahead of time that is going to determine your eventual fate.  Thank gawd for the PP but you really have to do it as prescribed because every potential putcome is so darn asset class co-dependent on each other.  It's an all-or-nothing whole package deal here.  Any tactical or tilting adjustements are a whole package deal as well.  Can't have half of one and two of another.  I give myself more stress not being purely vanilla to deal with the PP's annoying fragilities than I would just "set it and forget it" and close my eyes (and ears and mouth) to a -25% MaxDD.
MG,

how are you?

How do you know that stockmarket is overvalued?

What conditions would make you get out of PP?

My best regards.
Live healthy, live actively and live life!
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Re: Is The PP Good For Investing?

Post by MachineGhost » Fri Jan 09, 2015 4:00 am

frugal wrote: how are you?

How do you know that stockmarket is overvalued?

What conditions would make you get out of PP?
Doing good, how are you frugal?

There are many forward-looking indications that the US stock market is overvalued.  It may not be in a bubble, but stocks are not currently priced to deliver returns higher than TBills or TBonds over the next decade.  Everything is basically being forced to zero yields as the law of equilibrium demands.  Except, TBills and TBonds dont usually have the same downside risk as equity.  Going by history, a secular bear market low would be around 75% lower from where equities are currently.  We haven't had a secular bear market low since around 1980. From Faber:

[align=center]Image[/align]

I wouldn't ever give up on the PP; the PP would stop working on me first.  I'd say it will cease working when your country's long term bond defaults.  Since that is starting to happen around the world, I don't have an answer as to what to do since I'm not familiar with exactly what happens during sovereign debt defaults.  Last time we had that happen was during the 1930's.  Do only long-term bonds turn into toilet paper while leaving cash and short-term durations suitable replacements?  Or does it all blow up equally?  Clueless.  But I think you can adjust your equity exposure down and cash up if you had to use lower-duration, newly issued, post-default bonds, which means availing yourself of a weighting mechanism to keep the relative asset risks normalized.  Tricky question though because everyone is going to be fleeing into the USD and TBonds as the defaults spread country to country.  What happens when the US has its own moment?  That I do not know either, I just hope I have a lot of gold at the time as would have worked in Iceland.  I think we can look towards Japan over the next year or two to get a taste of what is coming for the US because they are the farthest along this MMR/Keynesian/Socialism debt-backed fiat money nightmare for coming up with a working solution.  The EU may stave off The Fall with QEternity for awhile; but once Greece exits, its the beginning of the end.
Last edited by MachineGhost on Fri Jan 09, 2015 4:15 am, edited 1 time in total.
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Re: Is The PP Good For Investing?

Post by sophie » Fri Jan 09, 2015 8:20 am

Xan wrote: I'm really honestly asking here: when did the PP's max drawdown of 25% occur?
I believe it was in 1981, which was the worst performing year for the PP (down 4% nominal, 13% real).  However, it was a tight money recession and stock portfolios were doing no better, so it didn't come with any "market envy" problems.  And the next year the PP posted its best ever return (23%).

2013 was possibly worse than 1981, because the PP was down 2-3% while stock portfolios were going gangbusters.  I remember MediumTex had to keep reminding us that this performance during a major drawdown in one of the volatile assets just showed the PP's strength.  Several of us have had past horrific experiences with the market though, and I think that made it a lot easier to put that loss into perspective.
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Re: Is The PP Good For Investing?

Post by MachineGhost » Fri Jan 09, 2015 9:23 am

sophie wrote:
Xan wrote: I'm really honestly asking here: when did the PP's max drawdown of 25% occur?
I believe it was in 1981, which was the worst performing year for the PP (down 4% nominal, 13% real).  However, it was a tight money recession and stock portfolios were doing no better, so it didn't come with any "market envy" problems.  And the next year the PP posted its best ever return (23%).
It was in 1969.  I've already discussed this many times in other threads and there's even one thread on what happened economically in 1969 to have caused it.  So use the search function, people!  You can also use Peak2Trough's backtester and set it to 4/1/1968 and you'll get close (20% MaxDD or so I as recall) because he calendar aligns rebalances.

Generally, after a losing year, the PP will run for about 11-12 years before having another losing year.  The 2000's were the exception with just 6 years.
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Re: Is The PP Good For Investing?

Post by Xan » Fri Jan 09, 2015 10:17 am

MachineGhost wrote:It was in 1969.  I've already discussed this many times in other threads and there's even one thread on what happened economically in 1969 to have caused it.  So use the search function, people!
Can you tell me what search terms should have been used?

Are results from before the closing of the gold window even valid?
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Re: Is The PP Good For Investing?

Post by Gosso » Fri Jan 09, 2015 10:20 am

Here are my results for the inflation-adjusted drawdowns of the PP and 60/40:

Image

It's interesting that the drawdown for the PP exceeded the 60/40 drawdown in 2013, which is a rare event.

And also, welcome back MT!
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Re: Is The PP Good For Investing?

Post by MachineGhost » Fri Jan 09, 2015 10:32 am

Xan wrote: Can you tell me what search terms should have been used?

Are results from before the closing of the gold window even valid?
Hmm, try searching under "inflation 1969".

Are results before 1987 when the PP didn't exist even valid?

Besides Gosso's chart shows 1980 is almost -25% in real terms which blows away -25% in nominal.  So let's worry about that instead of 1969.
Last edited by MachineGhost on Fri Jan 09, 2015 10:35 am, edited 1 time in total.
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Re: Is The PP Good For Investing?

Post by Xan » Fri Jan 09, 2015 10:39 am

And how exactly would I have searched for 1969 in order to find out the answer was 1969?
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Re: Is The PP Good For Investing?

Post by Gosso » Fri Jan 09, 2015 12:20 pm

MachineGhost wrote: Besides Gosso's chart shows 1980 is almost -25% in real terms which blows away -25% in nominal.
I think you got that flipped around, if inflation is 5% and the nominal drawdown is -25% then the real drawdown would be -30%.  So drawdowns in real terms look worse.
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Re: Is The PP Good For Investing?

Post by LC475 » Fri Jan 09, 2015 12:22 pm

MediumTex wrote:What is your understanding of the maximum peak to trough PP drawdown that occurred in the 1981-1982 period?
My understanding is that it was not 25%.  It was, instead, less than 25%.  That is my understanding.  Thanks for asking!

I believe this is also Mr. Ghost's understanding, that he knows he doesn't have a leg to stand on with his erroneous/exaggerated/misremembered claim, because otherwise he would simply post the data showing his rectitude and we would all proceed to agree with him.  Instead, he has chosen to "dig in" and continue to lob his spurious criticism of the PP as frequently as he possibly can work it in.

The rest of us just say: Show Me the Data!

But he can't.  'Cause his claim is bogus.  He doesn't have the data.

Also, as a minor, tiny, irrelevant I'm sure, note: the biggest actual "draw-down" (you know, the kind that actually exists outside of Ghostly imaginations) for the PP came immediately after experiencing a ~18.5% gain in a single month.  It lasted for three months and at bottom amounted to a loss of ~20%.  Oh, the humanity.

Yep, gold can be volatile.  Yep, gold sure was volatile in 1980.  Yep, gold could be volatile again.  And yep, the PP smoothed things out as well as could possibly be expected when an asset amounting to 25% of it suddenly skyrockets to the moon and then just as suddenly crashes to the floor.
Last edited by LC475 on Fri Jan 09, 2015 12:23 pm, edited 1 time in total.
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Re: Is The PP Good For Investing?

Post by upside » Fri Jan 09, 2015 12:32 pm

LC475 wrote:
MediumTex wrote:What is your understanding of the maximum peak to trough PP drawdown that occurred in the 1981-1982 period?
My understanding is that it was not 25%.  It was, instead, less than 25%.  That is my understanding.  Thanks for asking!

I believe this is also Mr. Ghost's understanding, that he knows he doesn't have a leg to stand on with his erroneous/exaggerated/misremembered claim, because otherwise he would simply post the data showing his rectitude and we would all proceed to agree with him.  Instead, he has chosen to "dig in" and continue to lob his spurious criticism of the PP as frequently as he possibly can work it in.

The rest of us just say: Show Me the Data!

But he can't.  'Cause his claim is bogus.  He doesn't have the data.

Also, as a minor, tiny, irrelevant I'm sure, note: the biggest actual "draw-down" (you know, the kind that actually exists outside of Ghostly imaginations) for the PP came immediately after experiencing a ~18.5% gain in a single month.  It lasted for three months and at bottom amounted to a loss of ~20%.  Oh, the humanity.

Yep, gold can be volatile.  Yep, gold sure was volatile in 1980.  Yep, gold could be volatile again.  And yep, the PP smoothed things out as well as could possibly be expected when an asset amounting to 25% of it suddenly skyrockets to the moon and then just as suddenly crashes to the floor.
This is pretty much how I see it too. Still waiting for MG's data on his 25% claim.
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Re: Is The PP Good For Investing?

Post by dragoncar » Fri Jan 09, 2015 2:04 pm

I have no reason to doubt MG, but I am continually surprised that he doesn't just post the data.  It's like when Fox news kept asking for Obama's birth certificate.  It's all silly, but here we are.  Just post the data and put the haters to bed.
MachineGhost wrote:
Coffee wrote: P.S. The PP is the super safe car that doesn't have enough horse power to get out of its own way and ends up getting creamed by a big rig truck that has, "Market Returns" painted on the side.
+100

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Re: Is The PP Good For Investing?

Post by KevinW » Fri Jan 09, 2015 2:09 pm

dragoncar wrote: I have no reason to doubt MG, but I am continually surprised that he doesn't just post the data.  It's like when Fox news kept asking for Obama's birth certificate.  It's all silly, but here we are.  Just post the data and put the haters to bed.
+1
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Re: Is The PP Good For Investing?

Post by Reub » Fri Jan 09, 2015 2:31 pm

MG please don't post the data. Your word is good enough for me. ;)
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Re: Is The PP Good For Investing?

Post by MachineGhost » Fri Jan 09, 2015 10:41 pm

dragoncar wrote: I have no reason to doubt MG, but I am continually surprised that he doesn't just post the data.  It's like when Fox news kept asking for Obama's birth certificate.  It's all silly, but here we are.  Just post the data and put the haters to bed.
Well, if a certain Low Class dickhead hadn't acted like one, because I was on the threshold of doing so... <shrug>

As I've said several times already and am repeating myself one more time, use Peak2Trough's backtester from 1968 with annual rebalancing and throw in a few percents to account for different rebalancing dates.  That is my final word on the subject.  If you got a problem with a -25% nominal (1969) or -25% real (1980), take it up with your own psychology, NOT ME.
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Re: Is The PP Good For Investing?

Post by upside » Sat Jan 10, 2015 9:03 am

MachineGhost wrote:
dragoncar wrote: I have no reason to doubt MG, but I am continually surprised that he doesn't just post the data.  It's like when Fox news kept asking for Obama's birth certificate.  It's all silly, but here we are.  Just post the data and put the haters to bed.
Well, if a certain Low Class dickhead hadn't acted like one, because I was on the threshold of doing so... <shrug>

As I've said several times already and am repeating myself one more time, use Peak2Trough's backtester from 1968 with annual rebalancing and throw in a few percents to account for different rebalancing dates.  That is my final word on the subject.  If you got a problem with a -25% nominal (1969) or -25% real (1980), take it up with your own psychology, NOT ME.
Are you 12?
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Re: Is The PP Good For Investing?

Post by Kbg » Sat Jan 10, 2015 9:39 am

Well since I have real money in this I care about the answer...and using several sources here's what I come up with for 1969 which is the year in question:

- DJI: -26% (Jan 69 6276, Jan 70, 4648)
- Gld: -17.4% (Jan 69 42.30 mo avg, Jan 70, 34.94 mo avg. Kitco London spot monthly average)
- TBonds: ~-12.5% (Jan 69 yield 5.74, Jan 70 yield 6.81, assume 6% coupon rate avg and roughly -12.5%...FRED data has the 10 yr at -5.01% for the year.)
- TBills: + 6.5% (Annual return, several sources/FRED)

And the final math is...-12.35% for the year. Looking at the prices for both gold and stocks by month both pretty much went straight down from Jan to the end of the year. So the draw down absolutely was not worse by much. In every case of the above, I assumed/took the worst prices.

So MG...show us the data. I'll grant you a couple of percent more if you can prove the T-Bonds different from what I posted. Other than that and greater than 25%, no way. If you have a backtest showing that, categorically you have bad data somewhere. Of this I am positive. One maybe able to squeak out a little bit more down from Jan-Jul 70 as the stock mkt kept going down; however, this is counterbalanced by both T-Bonds and gold going up during the same time period. Thus, Dec was likely the nadir.

Case closed w/o you posting data and sources.
Last edited by Kbg on Sat Jan 10, 2015 9:53 am, edited 1 time in total.
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Re: Is The PP Good For Investing?

Post by Pkg Man » Thu Jan 15, 2015 8:11 pm

MediumTex wrote:
...
Are you saying that we might see regular posters just disappear for months and post nothing?

Seems unlikely.
Yes, unlikely indeed  :)
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Re: Is The PP Good For Investing?

Post by sophie » Fri Jan 16, 2015 2:14 pm

Kbg wrote: Well since I have real money in this I care about the answer...and using several sources here's what I come up with for 1969 which is the year in question:

- DJI: -26% (Jan 69 6276, Jan 70, 4648)
- Gld: -17.4% (Jan 69 42.30 mo avg, Jan 70, 34.94 mo avg. Kitco London spot monthly average)
- TBonds: ~-12.5% (Jan 69 yield 5.74, Jan 70 yield 6.81, assume 6% coupon rate avg and roughly -12.5%...FRED data has the 10 yr at -5.01% for the year.)
- TBills: + 6.5% (Annual return, several sources/FRED)

And the final math is...-12.35% for the year. Looking at the prices for both gold and stocks by month both pretty much went straight down from Jan to the end of the year. So the draw down absolutely was not worse by much. In every case of the above, I assumed/took the worst prices.

So MG...show us the data.
I have to say I'm feeling a bit sorry for MG.  I value his contributions generally and hope others do as well.  What was that quote about he who is without sin should cast the first stone?  I think we've all made mistakes in our posts...if mistake this was.

The yield curve was inverted in 1969 so it may not have made much difference, but the above numbers are for 10 year Treasuries.  There were no 30 years issued then, so perhaps MG's data was extrapolated somehow...with no gold and no Treasury options, the PP in 1969 is a purely mythological beast anyway.  Can we all agree that a) a 25% drawdown remains within the realm of possibility for the PP, albeit rare and likely transient, and b) that if you invest in any kind of volatile assets you need to be prepared for big drawdowns? 

At the risk of sounding like a broken record, let me add that this is why the cash allocation is important.  It's my definition of being "prepared for big drawdowns".  It's not only to dampen the extent of the swing, it's there to let you weather dips in other assets - and even take advantage of them.

Now back to your regular programming!
Last edited by sophie on Fri Jan 16, 2015 2:16 pm, edited 1 time in total.
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Re: Is The PP Good For Investing?

Post by Xan » Fri Jan 16, 2015 3:25 pm

MG didn't say "It's realistic for the PP to have a drawdown of 25%", he said that it had in fact suffered such a drawdown, and then when anybody asked him when, why, or how, that person was berated mercilessly.  MG said that the numbers were readily available, at least one time he even posted an enormous useless chart of numbers, which I believe was a snow job since they didn't support his statement.  People were called stupid or lazy for not finding his [ultimately nonexistent] data, and people were called "dickheads" for asking for it.

Then finally when he found out he'd been wrong the whole time, instead of saying "I screwed up, sorry" he made it sound like other people's fault.

I think everyone here is perfectly willing to forgive the mistake.  The bigger problem is how he treated everyone involved.  Expressing the slightest remorse would go a long way, but there hasn't been any sign of that.
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Re: Is The PP Good For Investing?

Post by sophie » Fri Jan 16, 2015 3:57 pm

Yes, I saw the spicy language but I've seen it from plenty other people on the board too.  OK point taken...MG AND OTHERS please tone down the criticisms.

I thought the issue was settled by Gosso's charts, posted in another thread?  It showed at least one 25% drawdown.  I believe daily data was required to find it, but monthly data came close.
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Re: Is The PP Good For Investing?

Post by Gosso » Fri Jan 16, 2015 5:01 pm

sophie wrote: Yes, I saw the spicy language but I've seen it from plenty other people on the board too.  OK point taken...MG AND OTHERS please tone down the criticisms.

I thought the issue was settled by Gosso's charts, posted in another thread?  It showed at least one 25% drawdown.  I believe daily data was required to find it, but monthly data came close.
(I'm going to stay out of the MG feud, but it would be nice to see calmer heads prevail).

The 25% drawdown is the result of the extreme volatility of gold during its parabolic move in late 1979 and early 1980.  I doubt something that extreme would occur again in one of the PP assets in our life time, but it might.  IMO a reasonable expectation for a nominal PP drawdown (measured with daily data) is in the -15% neighborhood. 

From May 1969 to May 1970 there was a -15% nominal drawdown in the PP.  However I converted 20 year bonds into 30 year bonds, which may not be appropriate, but gives us a rough look into how a PP might have performed.

Just for fun I calculated multiple max drawdowns for the PP by changing the month of annual rebalancing:

Jan -22.6%
Feb -22.0%
Mar -26.3%
Apr -26.1%
May -25.1%
Jun -25.3%
Jul -24.8%
Aug -24.3%
Sep -22.4%
Oct -22.5%
Nov -21.9%
Dec -20.2%

Bands 15/35 -19.7%  (during gold's parabolic move the 15/35% rebalancing bands rebalanced on Sept 5, 1979 and Jan 2, 1980)

The max drawdown always ended on March 27, 1980.

In all honesty I'm not sure how much the max drawdown really tells us, I much prefer to measure rolling real returns since I believe the risk of not producing a real return is far more damaging than a blip of extreme volatility.  Although the extreme volatility might cause investors to sell and then realize their paper losses, in which case it is a real risk.
Last edited by Gosso on Fri Jan 16, 2015 7:30 pm, edited 1 time in total.
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Re: Is The PP Good For Investing?

Post by Kbg » Fri Jan 16, 2015 7:53 pm

sophie wrote: I have to say I'm feeling a bit sorry for MG.  I value his contributions generally and hope others do as well.
Me too (a lot). He brings data. Data is good. It is facts, not opinion.

MG (the board)...if it wasn't clear, let me say so publicly. I will attack data any day of the week and if I post data/analysis that looks jacked up I welcome and encourage full frontal assaults on mine. Attacking data is OK in my book. Attacking the poster on a personal level is totally not cool in my book.

If my posts were interpreted as such, full up public apology is proffered.

And in the end we all found out that even if the year was wrong PP has had at least one 25%+ DD...this is why we attack data, to learn from it.
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