A popular blogger misses most of it with Gold and the PP

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Kevin K.
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A popular blogger misses most of it with Gold and the PP

Post by Kevin K. » Mon Jan 27, 2020 3:35 pm

This article came my way by a site I actually do respect (caniretireyet.com) but the author clearly spent all of 2 minutes on the Portfolio Charts site and has never read a book on the PP. Still it is sure to be influential and I guess if it gets a few folks thinking non-phobically about including some gold it isn't all bad.

https://earlyretirementnow.com/2020/01/ ... s-part-34/
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Tyler
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Re: A popular blogger misses most of it with Gold and the PP

Post by Tyler » Mon Jan 27, 2020 9:44 pm

Baby steps.

Simply having a reasonably prominent financial blogger admit that gold is objectively helpful in a portfolio is a good start. It's too bad that he couldn't be bothered to give credit to Harry Browne, but hopefully spreading the word about the Permanent Portfolio will point a few people in the right direction.

Everyone is entitled to their own investing opinions, but my biggest factual quibble is that ERN strangely makes no mention of the gold standard and how price fixing completely changes the nature of gold before and after 1971. I personally think it's crazy to argue that portfolios today should be judged based on gold's performance as a hard currency. It's no different than if VTI switched overnight from a stock fund to a stable value fund where every share is always worth $1. Regardless of the name, would anyone honestly argue that it is the same investment?

Still, I'll take the reference. 8) And I'm honored for the GB to be mentioned in the same article as the work of Browne and Dalio. Maybe this is just an indicator that a long-form article on gold might be a good idea to raise awareness on how it works and should be properly studied.
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Re: A popular blogger misses most of it with Gold and the PP

Post by sophie » Tue Jan 28, 2020 8:46 am

Well, at the end the blogger isn't exactly complementary to what is termed "exotic portfolios". But as Tyler said, baby steps. Maybe the knee-jerk responses against the very idea of holding gold will soften up a bit.

Even on this forum - I don't know how many times I've read that canard about gold being barely worthwhile because 1973-74. But least we're all aware that backtests of gold prior to 1972 are invalid.
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Re: A popular blogger misses most of it with Gold and the PP

Post by Kevin K. » Tue Jan 28, 2020 9:07 am

Thanks Tyler and Sophie for your thoughts.

Well if there ever was going to be a comprehensive article on gold you'd probably be the one to write it Tyler - in what must surely be entire minutes of free time leftover after your prodigious ongoing efforts on Portfolio Charts! ;) I just wish writers like this guy would actually take some time to peruse the tools on your site and your commentary but I guess that'd cut into their writing time.

Probably lost in my comment responding to ERN's article was this link to an article by the excellent financial advisor Steven Evanson:

https://www.evansonasset.com/alternativ ... ses-64.htm

I shared it there (and am posting it here) because Evanson is a seasoned FA who while nowhere near as well-known as Larry Swedroe or Rick Ferri is, like them, a major guy in the DFA and MPT advisor universe. But unlike them (and like most of us here on this forum) he really takes the needs of defensive investors to heart having personally seen many high net worth clients with supposedly dialed-in risk tolerances bail like lemmings during the 2008 crisis. And if clients are open to it, he always recommends 15-20% in gold. His short piece is about the only thing I've found from a non gold-bug source that points out the systematic willful misrepresentation of what gold is and how it has performed in the mainstream investment advice universe.

I myself had a complex slice-and-dice portfolio (based on Bob Clyatt's "RIP" allocation) through Evanson during the aforementioned market crisis and watched my 40% equity, backtested-can't-lose-more-than-8% allocation lose nearly 25% of its value. It was that experience that led me to wonder which allocations had survived the meltdown in better shape and only then did I discover Harry Browne and then Craig and Mike's epic thread on the PP over on Bogleheads. All of which is a long-winded way of saying the investment business has a vested interest in making sure that things like the role of gold or the very existence of robust defensive allocations like the PP and GB stay unknown and are smeared when they do become known.
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Re: A popular blogger misses most of it with Gold and the PP

Post by Tyler » Tue Jan 28, 2020 8:51 pm

Kevin K. wrote:
Tue Jan 28, 2020 9:07 am
Probably lost in my comment responding to ERN's article was this link to an article by the excellent financial advisor Steven Evanson:

https://www.evansonasset.com/alternativ ... ses-64.htm

I shared it there (and am posting it here) because Evanson is a seasoned FA who while nowhere near as well-known as Larry Swedroe or Rick Ferri is, like them, a major guy in the DFA and MPT advisor universe. But unlike them (and like most of us here on this forum) he really takes the needs of defensive investors to heart having personally seen many high net worth clients with supposedly dialed-in risk tolerances bail like lemmings during the 2008 crisis. And if clients are open to it, he always recommends 15-20% in gold. His short piece is about the only thing I've found from a non gold-bug source that points out the systematic willful misrepresentation of what gold is and how it has performed in the mainstream investment advice universe.
That's an interesting read. Thanks for sharing.
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Re: A popular blogger misses most of it with Gold and the PP

Post by stpeter » Sat Feb 08, 2020 6:56 pm

Tyler wrote:
Tue Jan 28, 2020 8:51 pm
Kevin K. wrote:
Tue Jan 28, 2020 9:07 am
Probably lost in my comment responding to ERN's article was this link to an article by the excellent financial advisor Steven Evanson:

https://www.evansonasset.com/alternativ ... ses-64.htm
That's an interesting read. Thanks for sharing.
Agreed.

In his conclusion, the author states that "there are really only four basic asset class categories and they've been around a long time; equities, fixed income, real estate, and commodities, including the special case commodity of gold."

The PP seems to avoids real estate, perhaps because many people are already heavily invested through home ownership (I'd need to revisit what HB says). Has anyone here on the forum included REITs or other real estate vehicles in their portfolios?
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Re: A popular blogger misses most of it with Gold and the PP

Post by stpeter » Sat Feb 08, 2020 8:15 pm

stpeter wrote:
Sat Feb 08, 2020 6:56 pm
The PP seems to avoids real estate, perhaps because many people are already heavily invested through home ownership (I'd need to revisit what HB says).
OK, I checked: HB discusses real estate on pages 114-115 of Fail Safe Investing. He focuses on the fact that your home is not an investment - instead it's a consumption good. He also notes that some people approach real estate as a business (e.g., by owning rental properties) and some approach it as a venue for speculation (e.g., by flipping houses). However, he doesn't mention REITs. Did he ever say anything about REITs on his radio show?

Related: https://awealthofcommonsense.com/2018/0 ... set-class/
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Re: A popular blogger misses most of it with Gold and the PP

Post by Kriegsspiel » Sun Feb 09, 2020 8:18 am

I've "flipped" a non-occupied house before, and I plan on doing it again (a live-in flip, ideally), in addition to testing the waters of rentals. I don't think speculation is a good way to think of flipping. Or maybe flipping isn't a good way to think about what I'm talking about... I went and looked at a decrepit abandoned house, estimated the cost of repairing it, estimated the after-repair-value, then bought it for a price that would be profitable if my estimates were correct. Rehabbing is a more appropriate word.

When most people hear "speculation" they think of buying something, then storing/holding it and doing nothing, waiting for the price to just... go up. So you could speculate in land, where you just buy it and keep it as is; you're not really "flipping" the land. You flip things when you add value to them.

Anyways, I don't really incorporate real estate into my asset allocation, I think of it as a small business activity.
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Re: A popular blogger misses most of it with Gold and the PP

Post by glennds » Thu Feb 13, 2020 9:24 am

I believe where real estate as an investment (i.e. rental property, fix and flip) trips people up is the accounting required in order to properly assess what is going on.
For example if you buy a bond, you pay for it once, then you receive interest payments, and then you sell it (or it is redeemed). Simple.

With a property, there are all kinds of costs associated with the asset that are often overlooked. Examples include property taxes, repairs, renovations, insurance, even small trips to Home Depot, selling costs. Even if you take the position that some of these costs are operating expenses as opposed to capital costs, they still need to be accounted for not just for income taxes, but for what I am focusing on here which is a complete assessment of the investment. If there is a mortgage on the property then of course interest and financing costs come into the equation. This is why HB took a dim view of real estate. It is an asset that you are continually buying on a perpetual installment plan, meaning your cost basis is always moving upward.
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Re: A popular blogger misses most of it with Gold and the PP

Post by Tyler » Thu Feb 13, 2020 11:23 am

glennds wrote:
Thu Feb 13, 2020 9:24 am
[Real estate] is an asset that you are continually buying on a perpetual installment plan, meaning your cost basis is always moving upward.
Love that succinct summary! That's a great way to think about it.
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Re: A popular blogger misses most of it with Gold and the PP

Post by jhogue » Thu Feb 13, 2020 1:47 pm

1. A central problem with owning real estate is that it is illiquid, whether it is your own house or a rental property. The four HBPP assets are liquid enough you can sell them all to cash in 1-2 days. Anyone who has tried to sell a house in a down market like 2008-2009 understands the distress of trying to unload a house-- compounded if you are carrying a substantial mortgage on the property.

2. I think it was craigr who pointed out that many of the largest companies in the S&P 500 have substantial commercial real estate holdings.That means an exposure to real property without the managerial risk and expenses associated with selecting and owning an individual REIT.

3. Some people are just better endowed with the skills to maintain and renovate houses. I own my own house, mortgage-free, but that is a lifestyle decision, rather than an investment. I doubt that I could successfully, buy, repair, and sell a house without losing money along the way.
Last edited by jhogue on Thu Feb 13, 2020 3:52 pm, edited 1 time in total.
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Re: A popular blogger misses most of it with Gold and the PP

Post by stpeter » Thu Feb 13, 2020 3:45 pm

jhogue wrote:
Thu Feb 13, 2020 1:47 pm
2. I think it was craigr who pointed out that many of the largest companies in the S&P 500 have substantial commercial real estate holdings.That means an exposure to real property without the managerial risk and expenses associated with selecting and owning an individual REIT.
That's a good point. 7-Eleven is a great example.
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