What goal do you pursue with your Variable Portfolio

[MediumTex]

Of course, in the end, it's all just a crapshoot, isn't it?

...or stated differently, gambling.

[dragoncar]

Of course, in the end, it's all just a crapshoot, isn't it?

...or stated differently, gambling.

Have you tried spread betting?  Can you do this in the US?

Edit: Apparently illegal in the US, although it's conceptually similar to certain options trades.

[MediumTex]

Of course, in the end, it's all just a crapshoot, isn't it?

...or stated differently, gambling.

Have you tried spread betting?  Can you do this in the US?

I'm not saying that there aren't forms of gambling that can be entertaining or even profitable.

I'm just saying that 99% of day trading is basically gambling.  If it was that easy to reliably pull money out of the market everyone would be doing it.

I have not tried spread betting.

[Figuring It Out]

How about this - if I do decide to start doing it again, I'll post what I do and we can see where it leads.

[MachineGhost]

I'm just saying that 99% of day trading is basically gambling.  If it was that easy to reliably pull money out of the market everyone would be doing it.

But 99% of everyone wants to do it for the rush.  Profitable daytrading is boring and profitable patterns are infrequent.  The sizzle vs the steak.

[MediumTex]

How about this - if I do decide to start doing it again, I'll post what I do and we can see where it leads.

Please keep us posted.

I've just seen too many day trading plans end badly, but that's not to say that they ALL end badly.

[AdamA]

How about this - if I do decide to start doing it again, I'll post what I do and we can see where it leads.

I would be curious to see.

[dualstow]

The rush is more from the feeling that I'm getting away with something than from a "gambler's" rush. (Although, since I've never gambled in the way I think you're implying, I couldn't say for sure.) Of course, in the end, it's all just a crapshoot, isn't it?

I feel like I'm getting away with something just sitting around and watching my portfolio grow. I'm not being flippant. Of course, there are down days, even down years. But, the thing just keeps growing like a mushroom after a rainy night.

I'm done spearfishing for the most part; I'm going to cast my nets wide.

[Pointedstick]

The rush is more from the feeling that I'm getting away with something than from a "gambler's" rush. (Although, since I've never gambled in the way I think you're implying, I couldn't say for sure.) Of course, in the end, it's all just a crapshoot, isn't it?

I feel like I'm getting away with something just sitting around and watching my portfolio grow. I'm not being flippant. Of course, there are down days, even down years. But, the thing just keeps growing like a mushroom after a rainy night.

I'm done spearfishing for the most part; I'm going to cast my nets wide.

I feel the same way. Today while I did work for my employer, my fledgling PP generated several hundred dollars seemingly out of thin air without my having to do a blessed thing. Most days aren't like this, of course, but I feel the same way.

[MediumTex]

The rush is more from the feeling that I'm getting away with something than from a "gambler's" rush. (Although, since I've never gambled in the way I think you're implying, I couldn't say for sure.) Of course, in the end, it's all just a crapshoot, isn't it?

I feel like I'm getting away with something just sitting around and watching my portfolio grow. I'm not being flippant. Of course, there are down days, even down years. But, the thing just keeps growing like a mushroom after a rainy night.

I'm done spearfishing for the most part; I'm going to cast my nets wide.

I feel the same way. Today while I did work for my employer, my fledgling PP generated several hundred dollars seemingly out of thin air without my having to do a blessed thing. Most days aren't like this, of course, but I feel the same way.

And with the PP you don't have that nagging feeling that the market is just going to take it all back when you least expect it.

[Pointedstick]

And with the PP you don't have that nagging feeling that the market is just going to take it all back when you least expect it.

Yup. That's why I love these unusually large up days so much. It's so hard for it to fall down as quickly!

[MachineGhost]

And with the PP you don't have that nagging feeling that the market is just going to take it all back when you least expect it.

Did anyone expect the market to take it all back in 1981?

[MediumTex]

And with the PP you don't have that nagging feeling that the market is just going to take it all back when you least expect it.

Did anyone expect the market to take it all back in 1981?

Relative to other strategies, I would say the PP did pretty well in 1981.  When you look at the 1980-1982 period, the PP did fine.

Nothing is perfect, but I have found that I can enjoy the PP's gains more because I feel that they are less likely to be taken away from me the next time the market gets into a bad mood.

[stone]

Clive, a problem with borrowing as a way to cope with high inflation might arise if debts get reset by government dictat into a new currency as described by AuAgMoney about 1920s Germany
Re: When Money Dies
« Reply #2 on: September 01, 2012, 08:57:50 PM »

Oh, and lest you think debtors made out like bandits...  After 1924 the government restated debts in the new currency.  They did not do it at 1,000,000,000,000 to 1.  Mortgages were restated at 25% of original face value (4:1) if they were at least 5 years old.  Government bonds, on the other hand, only paid out 2.5% of face value (40:1).  Many people and companies went bankrupt because they trusted gov't bonds instead of paying off their debts.

The examples you give are of periods (1919 and 1930s to 1950s) of world wars and their aftermaths. It  seems to me very likely that both leveraged ETFs and inflation linked government bonds could fall apart in a war scenario. I'm also suprised that the UK PP would have done so badly in 1919. Britain came off the gold standard in 1919 and so I thought the inflation you mention was a devaluation relative to gold

[AgAuMoney]

What do you see as the PP weaknesses?

Part of the reason is my PP at about 40% of my portfolio is inside a tax deferred IRA.  I need assets accessible outside the IRA for emergency and 'end of the world as I know it' availability.

There are two primary areas I'm adding in my VP.  Call them shoring up PP weaknesses or what you will.

First the PP does not generate sufficient income.  I want to minimize asset divestiture during retirement and so I want my investments generating income.  Ideally I'd like 4% overall, but that seems unlikely at least today.  In my VP I have additional dividend growth stocks, approximate 2x what I hold in the PP.

Second I hold additional gold and silver.  I am concerned about the U.S. and world financial system.  While I recognize that I will likely be wrong (and I hope I am) and the additional Ag+Au will probably hurt me, if I am right the consequences are so dire that I believe the additional insurance to be worthwhile just in case.  My VP originally had about the same dollar value as did the Au in my PP but it is now about 150%.  (And I've broken the rules and picked up some Ag in the PP now as well.)

Finally, I have added about 80% more cash.  Partially this is waiting investment opportunities (e.g. I picked up some WAG and some SPLS recently at special savings prices) and partially this is emergency money.

My VP cash is in long-term CDs, I Bonds, in each 72 hour backpack, in each vehicle, in the fireproof safe, and distributed among 5 differently titled brokerage accounts (wife, mine, joint, and his+hers Roth IRAs) which also hold the additional dividend growth stocks and most of the AgAu.

Such a lifestyle choice might provide reasonable security together with a reasonable standard of living and low drawdown of overall total capital wealth (and perhaps even wealth expansion). Work becomes an occupation (something you do to keep yourself occupied) that also pays for some additional luxuries.

I like it.  A lot.  That is my goal, but I hope I can replicate it without the headache of rental properties.

[sophie]

There are two primary areas I'm adding in my VP.  Call them shoring up PP weaknesses or what you will.

First the PP does not generate sufficient income.  I want to minimize asset divestiture during retirement and so I want my investments generating income.  Ideally I'd like 4% overall, but that seems unlikely at least today.  In my VP I have additional dividend growth stocks, approximate 2x what I hold in the pp.

The PP does generate income.  It is just that some of it is capital appreciation which gets better yax treatment.  Makes much more sense when you think about it.  Harry Browne was a smart man.

[MachineGhost]

What do you see as the PP weaknesses?

I see troubling multi-decade periods where the real return was negative.  While all took place before 1971, I think it is instructive that what transpired during those periods were government intervention in the form of manipulating interest rates or war.  This resulted in none of the four assets outpacing inflation or deflation.

Perhaps its inaccurate to say the PP has weaknesses.  The MPT concept is quite solid, but HB's simplistic asset selection is a little lacking for dealing with the above scenarios.

As I evolved the Post-Modern PP, it seems I've already been addressing the above scenarios in like manner as you've recommended, i.e. replace cash with I-Bonds/E-Bonds, diversify the gold into other real assets and use market timing to avoid unfavorable periods.

Unlike most, I need to live off the PP and cannot afford capital losses in real terms, so my risk tolerance is even lower than that of the HBPP.  I do believe I've squeezed as much blood as I can from the concept by now.  So, I think the VP would be a useful pressure-releasing valve.  There's certainly much better investments out there right now than the capital-weighted indexes, but to put the entire PP at risk on a lack of long-term historical evidence is just too risky.

[sophie]

What asset would you have invested in during the 70s to beat inflation?  Obviously the answer is gold, but that's with the benefit of hindsight.  Would you have known enough to put your entire portfolio into gold at the time?

Staying above water in the 1970s would have been a real accomplishment.  HB did it, and afterwards stated very clearly that he just got lucky.

[MachineGhost]

What asset would you have invested in during the 70s to beat inflation?   Obviously the answer is gold, but that's with the benefit of hindsight.  Would you have known enough to put your entire portfolio into gold at the time?

Staying above water in the 1970s would have been a real accomplishment.  HB did it, and afterwards stated very clearly that he just got lucky.

It wasn't until 1975 (when gold also started its 50% drop) that it was legal to own gold again (due largely to the efforts of Ron Paul), so if you were concerned about inflation before that, other real assets had to take up the slack:

1968-1979
19.4% Gold
19.1% Chinese ceramics
18.9% Stamps
15.7% Rare books
13.7% Silver
12.7% Coins (U.S. non-gold)
12.5% Old masters’ paintings
11.8% Diamonds
11.3% Farmland
9.6% Single-family homes
6.5% Inflation (CPI)
6.4% Foreign currencies
5.8% High-grade corporate bonds
3.1% Stocks

Chinese ceramics was likely the Beanie Babies of its time.  That's where the VP could come in handy.

I believe we are currently in an analogous period akin to post-1968 and pre-1975.  A new recession would see gold hammered, then setup for a bubble of the likes the world has never seen before.  But its also quite possible that 1981 is just around the corner (say, 2014 when the Fed will says it will be free to raise rates again) if major restructuring takes place (say, if Romeny wins and pulls it off).  Either way, gold loses.

I think most people were probably semi-aware of the inflation in the early 1970's just due to Gresham's Law.  There was plenty of pre-1965 coins and Peace and Morgan silver dollars hoarded away.  The difference is PP enforces a whopping 25% compared to a hobby or fuzzy wuzzyness.

[AgAuMoney]

There are two primary areas I'm adding in my VP.  Call them shoring up PP weaknesses or what you will.

First the PP does not generate sufficient income.  I want to minimize asset divestiture during retirement and so I want my investments generating income.  Ideally I'd like 4% overall, but that seems unlikely at least today.  In my VP I have additional dividend growth stocks, approximate 2x what I hold in the pp.

The PP does generate income.  It is just that some of it is capital appreciation which gets better yax treatment.  Makes much more sense when you think about it.  Harry Browne was a smart man.

The PP does not generate sufficient income.  Do I really need to put "for me" on the end to be sufficiently clear?

Cap gains are not income and must be converted (by selling assets) just like cap loss isn't realized until you sell.  The PP cash cushion helps mitigate the need to sell, but selling still can be required and selling can have some huge disadvantages (e.g. market closure).  This becomes even more critical when the assets are not physical and in hand useful for barter, but are stuck in an electronic account or other inaccessible storage.  I have learned this lesson thru over 20 years hands-on experience, and far more than that vicariously.  Thus I wrote (emp. added):

I want to minimize asset divestiture.  (Hard to see how that could be any more clear.)

[Xan]

It's clear enough, it just doesn't make any sense.  Do you have an example of a scenario where this distinction was important?

[stone]

Hi Stone. 2x funds in effect borrow (roll) on a daily basis only and the most you can lose is 12.5% assuming you wanted 25% exposure to the underlying via a 2x ETF (excluding any additional amounts you might inject under rebalance conditions).  Borrowing that way is more like a Call Option, finite downside risk, unlimited upside potential.

Clive, your historical stress test was including extreme war time conditions. I agree your leveraged ETF set up works fine in benign times but so does the standard PP. What I'm doubtful about is the leveraged set up not falling apart during war etc and that seems to be the time that you have designed it for. No ETF company employee is going to be battling past shell fire in order to conduct the complicated daily trades required to manage a leveraged ETF. The thing would just get abandoned. Think of that person who buried gold coins in a London garden in 1939 on route to an internment camp when escaping Nazi Germany. In that kind of scenario, what would become of a leveraged ETF? Even a full on banking/currency collapse might be expected to make the wheels come off the leveraged set up.

[HB Reader]

What asset would you have invested in during the 70s to beat inflation?   Obviously the answer is gold, but that's with the benefit of hindsight.  Would you have known enough to put your entire portfolio into gold at the time?

Staying above water in the 1970s would have been a real accomplishment.  HB did it, and afterwards stated very clearly that he just got lucky.

It wasn't until 1975 (when gold also started its 50% drop) that it was legal to own gold again (due largely to the efforts of Ron Paul), so if you were concerned about inflation before that, other real assets hard to take up the slack:

Minor correction:  Before 1975 it was legal to own certain low premium gold bullion coins, like the Mexican 50 peso piece and the British sovereign.  I still have some that I bought in the early 1970's.  There were always a few loopholes in the gold ownership prohibitions.

[MachineGhost]

Minor correction:  Before 1975 it was legal to own certain low premium gold bullion coins, like the Mexican 50 peso piece and the British sovereign.  I still have some that I bought in the early 1970's.  There were always a few loopholes in the gold ownership prohibitions.

That's interesting.  Were the prices free to flunctuate or did they remain fixed at the USD$42 equivalent?

[Gosso]

Hi Stone. 2x funds in effect borrow (roll) on a daily basis only and the most you can lose is 12.5% assuming you wanted 25% exposure to the underlying via a 2x ETF (excluding any additional amounts you might inject under rebalance conditions).  Borrowing that way is more like a Call Option, finite downside risk, unlimited upside potential.

Am I correct to assume that LETF's also provide 2x or 3x dividends.  I ran a comparison between the adjusted closing prices (ie, adjusted for dividends and splits) of SPY, SSO and UPRO, and found that the following equations worked very well to fit the lines:

SSO = (2 x SPY) - (LIBOR/252) - (0.7%/252)

UPRO = (3 x SPY) - (LIBOR*2/252) - (0.7%/252)

I'm kinda surprised that they can capture the dividends, but I will like them even more if this is the case.