The GOLD scream room

[barrett]

My impression is that every time stocks win back like 10 points from a dip, gold and bonds lose 100 - 200.

I guess pros buy up gold and treasurys when stocks are in a short slump, then use stocks as an indicator of when to liquidate those holdings.

Yeah, right now gold and bonds seem to be moving more or less in tandem and in the opposite direction from gold. As always Ryan Melvey's little "Intraday Interplay" graph shows this quite nicely. Here is the link if anyone wants to check it out:

http://www.stableinvesting.com/p/recent ... mance.html

Looking at that in recent weeks has really helped to illustrate the push-pull of the three volatile assets for me. It's really quite fascinating how one line will move up fairly dramatically while another is moving down. Of course we expect this with negatively correlated assets but this visual really helps me maintain perspective on the whole PP concept.

[Pointedstick]

Ooh, looks like a great day to buy some gold.

[Lowe]

So that in one year you can regret it.

[Pointedstick]

So that in one year you can regret it.

Why would I regret it? I bought gold at $1,700 a ounce and don't regret it. My overall portfolio is doing great.

[barrett]

Ooh, looks like a great day to buy some gold.

So that in one year you can regret it.

Maybe, but I think PS and most of us have an investment horizon that is longer than one year

[Lowe]

Why should one be happy about losing money in a position?  That doesn't make me happy.

If your outlook is long term, then you should view gold in a negative light.  We have a good demographic reason (declining reproductive rates) and a good political reason (central bank wanting to increase rates) to think gold will perform badly for years to come.

I hold gold just in case I am totally wrong, and there is some inflationary event coming.  However, I hold my nose when I buy it, and I definitely don't entertain the idea that recent dips are a buying opportunity.  They would only be that if I planned on closing my position in mere days, to lock in a 1 or 2% gain.  Which I'm not going to do.

[Pointedstick]

Why should one be happy about losing money in a position?  That doesn't make me happy.

If your outlook is long term, then you should view gold in a negative light.  We have a good demographic reason (declining reproductive rates) and a good political reason (central bank wanting to increase rates) to think gold will perform badly for years to come.

I hold gold just in case I am totally wrong, and there is some inflationary event coming.  However, I hold my nose when I buy it, and I definitely don't entertain the idea that recent dips are a buying opportunity.  They would only be that if I planned on closing my position in mere days, to lock in a 1 or 2% gain.  Which I'm not going to do.

I don't care about my positions, I care about my overall portfolio. Am I sad that I bought an asset that has gone down? Sure. But how was I supposed to be able to predict the future and avoid that? Impossible. Buying assets and then seeing them fall is just part and parcel of participating in the investment game. As long as my overall portfolio is growing--which it is, because I have chosen one composed of assets that are generally non-correlated--the individual components aren't very relevant, and in fact, at least one is guaranteed to be falling at any particular point in time simply due to the non-correlation of the assets. It's built-in. I can't let myself experience a form of regret that is guaranteed 100% of the time due to the investment portfolio that I have chosen. That would be silly.

If you don't like gold and feel like there are favorable long-term trends in the USA that will benefit the stock market, then by all means, buy a shitload of stocks in your VP!

[Lowe]

I understand that you are pleased with your portfolio over all.  I am somewhat less pleased, but maybe that's just because I'm generally a complainer.

However perspective doesn't fit with the idea that this is a buying opportunity for gold.  If you don't know where gold is going, and won't guess, then there is no such thing as a buying opportunity.  Opportunity presupposes that it's likely to go up.

I agree that it is likely to go up in the near future, but my point is that it's also likely to go down long term.  And not even that long term.  Every gold purchase I've made in the last three years is in the red, and the long term history of gold suggests there is a long time (decades) between run ups like we saw leading up to 2011.  If your implicit positive prediction is acceptable, I would say my negative prediction is also, and more relevant to the PP.

I don't suggest you feel bad about a single position.  I do, but it's not something I'd wish on anyone, nor is it wise.  However I tire of reading that gold is a bargain.  It's not.  Even if it goes up 3% tomorrow, it won't be.  Buying gold is just a hedge against uncertainty.  If I thought it was anything else, I'd have to accept that I'm a fool to have bought it at all.

[Xan]

The entire PP is a hedge against uncertainty.  That's what it is.

[Pointedstick]

Maybe you're right. Maybe not. Gold can certainly go down for a long time. The 80s and 90s were a very long bad stretch for gold. Every time some rube like me said, "holy cow, a buying opportunity!" it just went lower. But then it went up again. And it went up and up and up and up! And it saved the portfolio during the 2000s.

Either you buy the PP concept or you don't. If you do, sometimes you have to hold your nose and buy assets you don't like, and sometimes you have to watch assets go down for a long time. But it's an investment portfolio, not a straightjacket. If you're bearish about gold, then you're free to load up on stocks, bonds, cash, or whatever in your VP to water down your overall gold holdings. Or you can even abandon the PP entirely and ditch that stinky yellow metal, that barbarous relic. Your choice! But you have to live with your choice, whatever it is. There's no point in making a choice and then feeling bad about it without being willing to reverse course or change things. That's just self-imposed psychological torment.

[iwealth]

Why don't people spend as much time getting angry about the worst performing 25% of stocks in a stock market index fund as they do the 25% gold allocation as part of the PP? Lack of visibility I guess.

There are nearly 3800 stocks held by the Vanguard Total Stock Market index fund. I guarantee there are a substantial number of total duds with no chance of performing well into the future.

[MachineGhost]

Why don't people spend as much time getting angry about the worst performing 25% of stocks in a stock market index fund as they do the 25% gold allocation as part of the PP? Lack of visibility I guess.

There are nearly 3800 stocks held by the Vanguard Total Stock Market index fund. I guarantee there are a substantial number of total duds with no chance of performing well into the future.

Probably because they have no control over junx like that in a market-cap weighted index fund (which also minimizes the impact), but they have to be solely responsible for pulling the trigger and buying that barbarous relic that just won't stop going down.  There's some kind of cognitive bias in whittling away responsibility when someone else makes the buy/sell decision.

If you don't like rebalancing bands, then use another form of market timing.  Don't kid yourself.  Anything but buy and holding the global market portfolio is active management and market timing.  It's just a matter of degree.

FWIW, I still do not have a buy signal on my gold timing model.  Its very frustrating because I'd love to own more gold since I last bought near the high in 2011 like PS (which annoyed me such much that I developed the timing model).  It is real money.  Everything else is metaphysical toilet paper.

[Kbg]

I understand that you are pleased with your portfolio over all.  I am somewhat less pleased, but maybe that's just because I'm generally a complainer.

However perspective doesn't fit with the idea that this is a buying opportunity for gold.  If you don't know where gold is going, and won't guess, then there is no such thing as a buying opportunity.  Opportunity presupposes that it's likely to go up.

I agree that it is likely to go up in the near future, but my point is that it's also likely to go down long term.  And not even that long term.  Every gold purchase I've made in the last three years is in the red, and the long term history of gold suggests there is a long time (decades) between run ups like we saw leading up to 2011.  If your implicit positive prediction is acceptable, I would say my negative prediction is also, and more relevant to the PP.

I don't suggest you feel bad about a single position.  I do, but it's not something I'd wish on anyone, nor is it wise.  However I tire of reading that gold is a bargain.  It's not.  Even if it goes up 3% tomorrow, it won't be.  Buying gold is just a hedge against uncertainty.  If I thought it was anything else, I'd have to accept that I'm a fool to have bought it at all.

Not that anyone is asking, but I think it is important to come to terms with whoever you are and your investments. For one, it appears that you focus on elements of a portfolio vice the portfoilo. Secondly, you may have a need to have immediate positive confirmation of investment decisions. It's hard to say if you have a need to be more active, but that might be the case. The first two suggest momentum strategies may be a better fit or you. The third element would suggest what type of trading periodicity might suit you better. There are plenty of public strategies out there that perform better than PP but with more volatility. In fact search around some and you will find some that combine momentum and PP by over/underweighting the four assets based on mo.

Or if you are simply strongly convinced that gold isn't going to perform for a long period of time then get rid of it or cut the allocation to it. A smaller allocation will still give you a lot of the benefit and better performance during strong periods for stocks.

BL: As Van Tharp likes to say...at the end of the day you *will* trade your beliefs.

[AdamA]

So that in one year you can regret it.

The PP is designed this way.  At least on asset class will almost always perform poorly.

[buddtholomew]

So that in one year you can regret it.

The PP is designed this way.  At least on asset class will almost always perform poorly.

As stated above, the portfolio composition ensures that one asset will perform poorly over a period of time. However; gold is what distinguishes the PP from a more conventional BH allocation and this portion of the portfolio has been in constant decline since 2011, with short upward movements followed by crushing downward losses. I suspect Lowe would feel more at ease with his/her decision to invest in the PP if equities or treasuries were exhibiting the same behavior and gold was supporting the overall portfolio. Equities and bonds are conventional holdings, whereas gold is not.

[JMoyle]

Here is a thought for those holding Gold ETFs as all or part of their Gold holdings... When the 50 day SMA crosses below the 200 day SMA, sell the Gold ETF, keep it in cash, until the 50 SMA crosses back above the 200 SMA. Then you will not have to watch the ugly fall. For that matter, you can "asset lock" any or all four parts of the PP. This will affect the rebalancing bands but selling high and buying low will still be applicable. Personally, I cannot stand watching any part of my PP investments falling 30+ %.

[bedraggled]

JMoyle,

What is meant by "asset lock?"

[dualstow]

JMoyle,

What is meant by "asset lock?"

I think it's defined by the previous sentence which begins, "When the 50 day SMA crosses below...", where SMA = S'mores Moving Average or something tasty like that. Looks like a kind of stop loss.

[bedraggled]

Dualstow,

THank you.

[dualstow]

I hope I got it right.  Correct me, JM, if not.

[JMoyle]

dualstow, stop loss is  more of a price-point whereas what I was suggesting is more of a momentum indicator.  Half of my liquid assets are following the 25/25/25/25 PP.  However,  I just cannot sit back and watch an asset class fall 10%-30%. Too much volatility for me even though one or two of the remaining asset classes may experiencing upward movement/momentum.

[dualstow]

dualstow, stop loss is  more of a price-point whereas what I was suggesting is more of a momentum indicator. 

But same idea, right?

I just cannot sit back and watch an asset class fall 10%-30%.

[JMoyle]

if all you want to do is stop a loss then yes same idea but I also want to have an idea of when to get back in..

[dualstow]

if all you want to do is stop a loss then yes same idea but I also want to have an idea of when to get back in..

Yeah, I guess that's the tradeoff and the tricky part about this asset locking. You don't want to miss out when gold suddenly surges like a lightning strike. With the traditional HBPP, you're always in the game.

Since one asset is almost always down, I try to see the package as something like a fund that I'm holding for someone else. I would only show them the performance of the entire package. Therefore, I shouldn't dwell on a particular component myself, either.

[barrett]

Since one asset is almost always down, I try to see the package as something like a fund that I'm holding for someone else. I would only show them the performance of the entire package. Therefore, I shouldn't dwell on a particular component myself, either.

Yeah, that's a great way to look at it. I'm not quite there yet but I guess the person I am holding the fund for is an older version of myself. It's interesting how I don't worry about my wife's PP at all even though it's the same damn thing. Because she's not really interested in investing, she'll only ask me about it every few months and she really only cares about the bottom line on her statements. She looks at it for about two seconds, files it away and gets back to work.