Stock scream room

Discussion of the Stock portion of the Permanent Portfolio

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Xan
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Re: Stock scream room

Post by Xan » Mon Apr 01, 2019 11:33 am

Jeffreyalan wrote:
Mon Apr 01, 2019 11:16 am
The case for 100% cash is a lot stronger than 100% Gold or Stocks IMO.
Certainly that is true in, as you say, your opinion. There are others who have just as strong an opinion that the correct default is gold or stocks.
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Re: Stock scream room

Post by pmward » Mon Apr 01, 2019 12:06 pm

Jeffreyalan wrote:
Mon Apr 01, 2019 11:16 am
The case for 100% cash is a lot stronger than 100% Gold or Stocks IMO. 100% stocks could easily lose you 50% in a year and make take many, many years to recover. Cash will not ever do that to you unless you are talking about runaway inflation. Correct me if I am wrong on that.

When I say I think about going to cash, I don't mean for a certain period of time and then trying to jump back in. I am thinking of going to cash permanently. I often think instead of putting my money at risk (even if it is a small risk) squeezing a 4-6% return out of the Desert Portfolio, why don't I just keep my money in 2.5% bank accounts and Treasury bills and focus on trying to save more, cutting my cost of living, having no debt, buying things in bulk, taking advantage of special bank offers of promotional rates, working an extra hour of overtime each week? Those would be certain returns instead of hopeful returns.
Correction, in a portfolio with 30% stocks a 50% decline in stocks is a 15% decline in the portfolio (likely much less because your bonds and/or gold would likely be appreciating at the same time). This isn't a debate of one asset vs another, it's a debate between a diversified portfolio or a 100% all in bet on cash.

Cash over the long term keeps up with inflation and nothing more. While it appears like you are making money, you aren't. Those 2.5% rates are also likely to go bye bye as odds are looking like a 25-50 bp rate cut in the next year or two (possibly more). That "4-6%" return you quoted for desert portfolio is also real after inflation expected return, comparing a real return to a nominal return is apples to oranges. The 4-6% real expected return for a desert portfolio sure beats the hell out of the 0% real expected return of cash to me.

The Fed has also stated they are going to start moving their balance sheet over to the short end of the curve, placing more downward pressures on short term treasuries, even if the fed funds rate stays the same. Cash has lost money to inflation every year for the last decade other than 2018. Negative interest rates are also a possibility that the Fed is on record as considering in the next turn down. So holding 100% cash could actually cost you money in nominal terms at some point. You're better off just staying pat.
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Re: Stock scream room

Post by buddtholomew » Mon Apr 01, 2019 3:11 pm

Stocks good, gold bad
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Re: Stock scream room

Post by pmward » Mon Apr 01, 2019 4:03 pm

Until it isn't... and when the tides do inevitably turn (they always do at some point), those who did not capitulate will be rewarded. Every asset class has decade+ time frames that they don't go up. It took stocks 25 years to put in a new high after 1929. As recent as the 2000's we had a "lost decade" in stocks. These things always rotate. Projecting the present infinitely into the future is a mistake, imo. Gold won't be out of favor forever. Stocks won't be in favor forever.
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Re: Stock scream room

Post by sophie » Tue Apr 02, 2019 8:04 am

Instead of trying to predict the market, let me suggest reading books by John Bogle ("Enough", "Common Sense Investing" etc) or Harry Brown ("Why the Best-Laid Investment Plans Usually Go Wrong", "Fail-Safe Investing"). Much more productive and I guarantee you'll save yourself a ton of frustration.
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Re: Stock scream room

Post by jhogue » Tue Apr 02, 2019 7:50 pm

Jeffreyallan,

Being 100% in any one of the HBPP assets is bad. Being 100% in cash is much worse than you think. But don't take my word for it:

Try out Tyler's charts at portfolio.com and enter any portfolio mix you can imagine, including all cash. Even if you don't stuff it all under your mattress, you will find that being 100% in STTs loses you money in real terms 33% of the time!

Basically, being in ALL cash ALL of the time ensures that you will be running in place forever.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Stock scream room

Post by Tyler » Tue Apr 02, 2019 9:31 pm

Jeffreyalan wrote:
Mon Apr 01, 2019 11:16 am
The case for 100% cash is a lot stronger than 100% Gold or Stocks IMO. 100% stocks could easily lose you 50% in a year and make take many, many years to recover. Cash will not ever do that to you unless you are talking about runaway inflation. Correct me if I am wrong on that.

When I say I think about going to cash, I don't mean for a certain period of time and then trying to jump back in. I am thinking of going to cash permanently. I often think instead of putting my money at risk (even if it is a small risk) squeezing a 4-6% return out of the Desert Portfolio, why don't I just keep my money in 2.5% bank accounts and Treasury bills and focus on trying to save more, cutting my cost of living, having no debt, buying things in bulk, taking advantage of special bank offers of promotional rates, working an extra hour of overtime each week? Those would be certain returns instead of hopeful returns.
I understand your fear of taking investing risk. I also understand the allure of cash which is a lot more dynamic an investment than many people give it credit for. But if you're being objective about it, going to all cash isn't necessarily the safest option. This may help explain it in more detail:

https://portfoliocharts.com/2017/05/12/ ... -investor/

IMO, doing all of the cost cutting things you mention while selecting a balanced portfolio (like the PP) will set you on a great path to financial success.
PortfolioCharts.com : a picture is worth a thousand calculations
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Re: Stock scream room

Post by ochotona » Wed Apr 03, 2019 5:22 am

Is a CD cash? I just got my wife a 5 year CD with YTM 2.8%.

How about 10% pure cash (savings, can withdraw at any time), 90% CD ladder, and go 25% after the bottom of the next major bear market?
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Re: Stock scream room

Post by jacksonM » Wed Apr 03, 2019 3:45 pm

Jeffreyalan wrote:
Mon Apr 01, 2019 11:16 am
The case for 100% cash is a lot stronger than 100% Gold or Stocks IMO. 100% stocks could easily lose you 50% in a year and make take many, many years to recover. Cash will not ever do that to you unless you are talking about runaway inflation. Correct me if I am wrong on that.

When I say I think about going to cash, I don't mean for a certain period of time and then trying to jump back in. I am thinking of going to cash permanently. I often think instead of putting my money at risk (even if it is a small risk) squeezing a 4-6% return out of the Desert Portfolio, why don't I just keep my money in 2.5% bank accounts and Treasury bills and focus on trying to save more, cutting my cost of living, having no debt, buying things in bulk, taking advantage of special bank offers of promotional rates, working an extra hour of overtime each week? Those would be certain returns instead of hopeful returns.
My parents were all cash in their retirement, starting with a nest egg of about $300k, accumulated mostly from the sale of property belonging to themselves and my grandparents when they died.

Retiring in the late 70's they were very fortunate to begin with an excellent sequence of returns - perhaps the best ever for cash with CD's paying as much as 18%. Doesn't take long to double your money at that rate.

If they had started today in similar circumstances, I'm reasonably certain they would have run out of money long before they died. As a matter of fact, they almost did thanks to ZIRP. Fortunately there was a little bit left for my sister when my mother died in January at the age of 98. Another year in the nursing home and I think there would have been nothing left.

Still, it would probably work even at today's rates if you have a big enough nest egg to start with and can live within a budget and manage things wisely like my parents did. I think that is actually the recommendation of William Bernstein who recommends nothing but TIPS once you've "won the game". I guess the question is, how do you know when you are there?
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Re: Stock scream room

Post by dualstow » Wed Apr 03, 2019 4:18 pm

18% is nice. What was the inflation rate?
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Re: Stock scream room

Post by jacksonM » Wed Apr 03, 2019 4:29 pm

dualstow wrote:
Wed Apr 03, 2019 4:18 pm
18% is nice. What was the inflation rate?
Don't remember exactly but I know a lot of people thought the world was coming to an end at the time.

Even that was in my parent's favor however - like I said, their nest egg came mostly from the sale of property just when they were ready to downsize for their retirement years. Started with a single wide in Florida, upgraded to a double-wide and then small condos both in Florida and in Ohio. Not a bad retirement really, all things considered with such a small nest egg.
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Re: Stock scream room

Post by Kbg » Wed Apr 03, 2019 6:52 pm

With the exception of truly immediate cash needs (you know actual dollar bills hidden under your mattress for quick access), cash is an evil wasting asset and your goal should be to have none of it or the absolute minimum possible. Note, this is not the same as saying you shouldn't have very safe assets that provide a competitive interest bearing return. And, one should be diligent about getting the most you can out of your cash. I'm a Treasury Direct kinda guy, but CDs, ST bond ETFs, whatever, just ensure your cash is working. You leave a lot on the table if you don't and normally you are in fact losing somewhere between 2-3% annually for anything sitting around doing nothing. 10 years down the road, you got 75%ish of what you had in real terms.
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