Nauseous

[Storm]

[align=center][/align]

I love that graphic Gumby... it symbolizes so many of the psychological states I have been through as an investor, and reminds me to ignore my instincts and stick through for the long haul.

[MediumTex]

I wonder how a PP investor would have felt in the early 1980s.

All of the concerns above must have been even greater back then.

Once you fully internalize the strategy, however, I think most of this stuff goes away.  It just takes practice and positive experiences with the PP, I think.

We're not betting on any particular outcome, so whichever one shows up, it will never be an unpleasant surprise.

***

As far as the ratings agencies being part of the cause of the concern expressed above, it's surprising that a group of incompetent backward-looking analysts who can't even keep their own data straight could create so much alarm.

From a contrarian perspective, if S&P says it's time to sell, that makes me think it might really be time to buy.

Look at what happened following the recent downgrade of Japan.

[MediumTex]

Since I don't see too many PP investors panicking over the recent downgrade in the credit rating, I'll share my perspective on the topic. I am fearful to the point of converting to cash in an attempt to protect investments from the trouncing I expect the portfolio to take next week. Am I irrational in thinking that this downgrade will have such a dramatic impact on the PP or are others as concerned as I am? Losing 30K in treasuries alone yesterday is difficult to digest.

I realize no one can predict the future, but are PP investors concerned that economic conditions could derail the success the portfolio has had over the last 40 years? What if the US is no longer a safe haven and LTTs go the way of Ireland?

With respect to that 30k that you "lost" yesterday, aren't you still up in your LT bonds over the last week or so (not to mention that the whole portfolio is having a great year)?

The PP doesn't go up every single day.  Wouldn't that be asking a bit much of any strategy other than 100% cash?

[Gumby]

Look at what happened following the recent downgrade of Japan.

Agreed. I posted this about a week ago, but I think it's worth re-posting, given the circumstances.

Nomura recently released an interesting chart that shows that average 10-year yields through nearly every major S&P downgrade since 1998.

[align=center][/align]

So, there's a pattern of a very short term reaction to downgrades. And when you consider the alternatives in the AAA debt market, you see that Treasuries are pretty much all there is.

[align=center][/align]

France and Germany aren't sovereign currency issuers, and have too much exposure to the Euro, so you can probably remove them as viable alternatives. When the markets flee to high quality debt, the US Treasury market would still have to absorb the bulk of the money flow no matter what the rating was (many large banks are Primary Dealers, and are contractually obligated to create a "reasonable" market for US Treasuries). Even if there was a financial shock from all of this, I bet you'd still see people fleeing to US Treasuries.

[MediumTex]

Budd, I feel pretty panicky.

My husband is all "breathe deeply and stick to the plan."

I am amazed at the general serenity here, aspire to it, and appreciate knowing that I am not the only one feeling freaked out.

So thank you, Budd. And thank you, serene ones.

Part of the reason I'm not all that worked up right now is that I haven't watched or read much news the last few days.

All the media wants to do is upset people and then sell them junk they don't need.

IMHO, most of these hand wringing situations are media created storms.  The really bad stuff doesn't get much coverage because those stories are too complex to reduce to a sound bite (assuming the media doom jockeys understand them in the first place, which they frequently don't).

Have you ever been personally involved in a situation that was covered by the media?  How did the media do?  Did they leave a lot of important stuff out?  Did they frame the story based upon dramatic effect, rather than based upon the really important parts of the story?  What would make you think it's any different with all the other stories they cover about which you don't happen to have any firsthand knowledge?

What if most of what passes for news was really just entertainment?  Just one more reality show to keep people titillated, agitated, and receptive to advertising messages that tell them about various forms of consumption that can ease their fear and uncertainty.

[buddtholomew]

Since I don't see too many PP investors panicking over the recent downgrade in the credit rating, I'll share my perspective on the topic. I am fearful to the point of converting to cash in an attempt to protect investments from the trouncing I expect the portfolio to take next week. Am I irrational in thinking that this downgrade will have such a dramatic impact on the PP or are others as concerned as I am? Losing 30K in treasuries alone yesterday is difficult to digest.

I realize no one can predict the future, but are PP investors concerned that economic conditions could derail the success the portfolio has had over the last 40 years? What if the US is no longer a safe haven and LTTs go the way of Ireland?

With respect to that 30k that you "lost" yesterday, aren't you still up in your LT bonds over the last week or so (not to mention that the whole portfolio is having a great year)?

The PP doesn't go up every single day.  Wouldn't that be asking a bit much of any strategy other than 100% cash?

Defintely irrational, but I am concerned  that the PP will begin to faulter just as I invest a bulk of my assets. I am still not at the point where I can invest, rebalance as necessary and focus on other aspects of my life. Watching the gyrations of the market minute by minute is consuming a wealth of my time, often at the expense of focusing on my work.

To answer your question, I was fully invested in PRPFX until recently and sold at a profit to invest in the 4x25PP. I do have capital gains for this year that offset the declines in LTTs on Friday afternoon.

[MediumTex]

Defintely irrational, but I am concerned  that the PP will begin to faulter just as I invest a bulk of my assets. I am still not at the point where I can invest, rebalance as necessary and focus on other aspects of my life. Watching the gyrations of the market minute by minute is consuming a wealth of my time, often at the expense of focusing on my work.

To answer your question, I was fully invested in PRPFX until recently and sold at a profit to invest in the 4x25PP. I do have capital gains for this year that offset the declines in LTTs on Friday afternoon.

Is there any real alterntive for you?

Wouldn't anything else make you worry just as much, but about different things?

We both know that 100% cash is no answer.  It's just a place to stay until your personal perception of things changes, and then you will have to decide where to invest then.

Obviously, you have to decide for yourself, but if you are anticipating market volatility in the days ahead, remember that the HB PP loves volatility.

My personal opinion is that the PP strategy has earned a large measure of respect by simply doing what it was supposed to do, no matter how crazy things have gotten (see 2008), and no matter how many experts have said it shouldn't work.

I would just stick with it.

[buddtholomew]

Thanks MediumTex for appeasing my concerns. I wish that I wasn't so emotionally invested in the ebbs and flows of the market and took a more objective and rational view of the volatility. I rebalanced my VP (60/40) and PP (taxable) this week and will continue to press forward. I hope that I don't capitulate and sell in taxable at an inopportune time.

[MediumTex]

One option is not to watch the markets so closely.

It's hard to be wise on horseback, as they say.

[smurff]

Have you ever been personally involved in a situation that was covered by the media?  How did the media do?  Did they leave a lot of important stuff out?  Did they frame the story based upon dramatic effect, rather than based upon the really important parts of the story?  What would make you think it's any different with all the other stories they cover about which you don't happen to have any firsthand knowledge?

Every single story the news media has covered about me, or people I know, or situations I have professional knowledge about, has had some material fact wrong.  Not just incorrect, but plain flat out wrong, in a way that altered the slant of the story.

So every piece of information I receive through the media is a piece of information I treat with a few grains of salt.

Even seemingly trivial errors, like bad spellings of names.  If they can't get the name right--something that can be achieved with a simple phone call, inspection of the phone book, or Internet search--do I have any belief that anything else in the story is right, considering the amount of research involved in establishing its credibility is more involved?

[MediumTex]

Every single story the news media has covered about me, or people I know, or situations I have professional knowledge about, has had some material fact wrong.  Not just incorrect, but plain flat out wrong, in a way that altered the slant of the story.

It sounds like you are still sore about the story saying the smurfs caused the recent market decline. 

[smurff]

One option is not to watch the markets so closely.

It's hard to be wise on horseback, as they say.

Another option to do while watching financial news programs is to imagine that the Alpha-reporter on the show is delivering his or her message while wearing a clown suit, complete with polka dots and big shoes.  If it's a panel of commentators, imagine that the others on the panel are rats with big ears.  If anyone you happen to like, such as Warren Buffett, John Bogle, etc., shows up on the panel, it's okay to think of them normally as themselves, but all the others are either clowns or rats (or both).  You will then be faced with a panel of rats and clowns interviewing John Bogle.

That will put a smile on your face and you can laugh throughout the show.  Laughter relieves stress and anxiety, freeing your brain to make rational decision--the kind based on reality, not on propaganda.

Of course, if you find yourself laughing so much that your sides hurt, then it might be time to turn off the program and chop some firewood instead.

[smurff]

Every single story the news media has covered about me, or people I know, or situations I have professional knowledge about, has had some material fact wrong.  Not just incorrect, but plain flat out wrong, in a way that altered the slant of the story.

It sounds like you are still sore about the story saying the smurfs caused the recent market decline. 

Okay, okay, I confess, that still annoys me.  But I was referring to media coverage of the non-Smurf part of the family.

[Liz L.]

Tex, I have worked in media (writer and editor for newspapers, magazines and websites), and I completely agree with you and Orwell about "news" coverage.

Thanks for the responses. Downgrading myself from "panicky" to merely "more anxious than usual."

[clacy]

Budd,

This is the perfect time for the Permanent Portfolio.  There is so much risk and uncertainty right now.  Gold, LTT and Stocks APPEAR to be overpriced and cash has no return.  If you look at them relatively speaking, stocks priced in gold are actually historically pretty cheap.  LTT's are definitely not over priced in gold.  My point, is that money has to flow into at least one of these asset classes and by holding all 4 you are as protected as you can possibly be without seeing the future.

Would you rather be overweight stocks right now, say 80/20?  Probably not.  Would you rather be 80% in gold?  Probably not.  But by being split equally, you are covered/hedged in any direction and will continue to benefit from buying low and selling high for your capital appreciation over time.

[buddtholomew]

I've spent many years at Diehards.org, A.K.A Bogleheads and always considered my portfolio as a whole. Today, I decided to look at the PP and VP components in isolation and realized that I am slightly underweight in equities to the tune of 3-4%. I plan to exchange FI for Stocks in the VP to 65/35 tomorrow and stay the course until a re-balancing band is triggered. All of these investments are in tax-deferred accounts.

I am invested as follows in taxable:

4x25% - VTI, GLD, TLT and Cash. The plan is to re-balance when any investment exceeds the 35%/15% threshold. I also have Muni's, Savings and CD's. I consider all investments in taxable as an emergency fund and plan to withdraw Savings, Muni's, CD's and then PP investments in the event of an emergency (job loss). If the PP loses 75% of its value, I still have approximately 2 years of living expenses.

I think the makeup of my portfolio is the best I can possibly have to manage risk and still participate in market upside. Beyond this, there is nothing much more that I can control.

[Coffee]

Defintely irrational, but I am concerned  that the PP will begin to faulter just as I invest a bulk of my assets. I am still not at the point where I can invest, rebalance as necessary and focus on other aspects of my life. Watching the gyrations of the market minute by minute is consuming a wealth of my time, often at the expense of focusing on my work.

To answer your question, I was fully invested in PRPFX until recently and sold at a profit to invest in the 4x25PP. I do have capital gains for this year that offset the declines in LTTs on Friday afternoon.

Is there any real alterntive for you?

Wouldn't anything else make you worry just as much, but about different things?

We both know that 100% cash is no answer.  It's just a place to stay until your personal perception of things changes, and then you will have to decide where to invest then.

Obviously, you have to decide for yourself, but if you are anticipating market volatility in the days ahead, remember that the HB PP loves volatility.

My personal opinion is that the PP strategy has earned a large measure of respect by simply doing what it was supposed to do, no matter how crazy things have gotten (see 2008), and no matter how many experts have said it shouldn't work.

I would just stick with it.

I just want to take a moment to thank you (and Craig) on behalf of the rest of the forum for your wisdom and balanced, Spock-like non-emotional view of investing and current events.  It's much appreciated, and I should probably send you a check, as these posts are a lot more useful (and cheaper) than seeing a shrink. 

[Liz L.]

Lt. Bailey: Raising my voice back there.... means I have a human thing called an adrenaline gland.

Mr. Spock: It sounds most inconvenient. Have you considered having it removed?

Star Trek, "The Corbomite Maneuver"

[craigr]

The people covering the news are not subject matter experts as they need to report on everything. So yes they will frequently get very large facts wrong or latch onto incorrect ideas that drive a story to make a point they think is important to themselves.

In investing, the market is made up of millions of people making millions of decisions for their own self-interest. There is simply no way to associate a market move one day to any one reason why these people collectively decided these things. So a narrative needs to be built around the indescribable. This is just how humans work. Often the narrative is wrong, or even if it is right, it is too late to act upon it anyway. So the only thing you can do is ignore all of this stuff and protect yourself, preemptively, with solid diversification.

There also is a known effect (which I forgot what it is called) where you can read a news story and spot a gross error. Then continue reading it and believe everything else being written. Yet you know they already made one major blunder in the story so why should you believe they were correct in the other parts where you lacked knowledge to spot other errors?

Human thinking is an interesting thing.

[rhymenocerous]

I remember on the morning of August 2nd, the NYT had a headline that read something like, "Global Markets Soar After U.S. Reaches Debt Deal."  I swear that not 30 minutes later, the headline read, "Global Markets Mixed After U.S. Debt Agreement."  News articles have to fit a story or reason each and every day to explain the movements of the markets.  They are completely reactionary and, in my opinion, offer no insight as to what is really going on.  As a fun exercise, I like to count the number of "ifs," "maybes," "coulds," and "possiblys" in any article.