Holding PP While Middle East Is Blowing Up, Makes Me Feel Safer

[Coffee]

I feel really good right now.  Surprisingly.  Just feel like my investments are much better positioned to ride out ME turmoil, than they ever were in the past.

[moda0306]

I know, Coffee.  This is my first event (Libya/oil crisis & Egypt) of significance since having the PP as my portfolio, and I already can't explain the feeling of seeing the assets that should perform actually perform when I need them to.

It's an interesting feeling to not be constantly questioning yourself.

[Lone Wolf]

I agree.  The PP banks on me not having any idea what course events will take.

Speaking only for myself, I'd say it's a good bet.

[moda0306]

My dad's financial advisor (soon to be replaced by a functioning PP) called him and asked him if he wanted to buy on the dip.  That indicates the following:

She believes that the market was NOT overpriced before the fall (or at least that the game of musical chairs will continue for a while), and that the mideast turmoil is being overreacted by the market.  Does she study politics, the middle east, or even macro-economics?  I'd like to see if she did even the slightest bit of market analysis to come to the conclusion that the market is underpriced when the political atmosphere of much of the middle east is at question.  Most people don't have the balls to ask these questions.

[Gumby]

My dad's financial advisor (soon to be replaced by a functioning PP) called him and asked him if he wanted to buy on the dip.  That indicates the following:

She believes that the market was NOT overpriced before the fall (or at least that the game of musical chairs will continue for a while), and that the mideast turmoil is being overreacted by the market.  Does she study politics, the middle east, or even macro-economics?  I'd like to see if she did even the slightest bit of market analysis to come to the conclusion that the market is underpriced when the political atmosphere of much of the middle east is at question.  Most people don't have the balls to ask these questions.

It's all smoke and mirrors.

Just for kicks I listened to a nationally syndicated investment radio show last week to see what they were saying to listeners. They were sounding gongs and party whistles because the S&P 500 had doubled since its 2008 dip. They were patting themselves on the back for recommending their stock-heavy index portfolios all along — right through the 2008 crisis. They had been calling it the "greatest buying opportunity in a generation" since the big dip. Not that anyone had the balls (or money) to pour into any portfolios then. Then they proceeded to go back and replay over a dozen sound bites of them — from over the past two years — telling listeners to put their money into their stock-heavy index portfolios and just stay the course. You could almost sense all of their listeners nodding along to the replays in agreement.

Then they talked about how their own clients will pay them — not for their amazing index portfolios, which are freely available to anyone — but mostly for the personal phone calls, hand-holding, and guidance they offer by convincing their clients to stay the course when the market gets tough. Basically, whenever the market crashes, they're pleading with clients not to withdraw their money and then telling them how right they were when the markets finally rebound.

And then a few days later, the cycle begins again.

[moda0306]

Basically, whenever the market crashes, they're pleading with clients not to withdraw their money and then telling them how right they were when the markets finally rebound.

And then a few days later, the cycle begins again.

That's basically it.  If they'd told their clients to get out before the crash AND to get back in after... I'd be impressed.  Did they tell their clients to do that?  Did they tell their clients not to buy a home in 2006?  Did they get their clients into gold any time in the last 15 years?  What do they have in their clients' portfolios to hedge against stock losses?  High-yield corporates or munis?  What would they say to the fact that of the last 50 years, the stock market has been flat for 2 periods totaling 25 of those years?

[Gumby]

Did they get their clients into gold any time in the last 15 years?

I know this is rhetorical, but this is an interesting question. They spent a decent amount of time telling listeners that they don't need to pour their money into risky gold. The guest on the program was David M. Walker, the former U.S. Comptroller General. Walker usually talks about fiscal responsibility and how important it is to cut spending or else the country will go bankrupt.

After Walker talks about his continuing desire to create a national dialog on fiscal responsibility, the host asks him what he's investing in since Walker is warning that there's so much gloom and doom ahead. Walker responds by saying that he has foreign and domestic funds, he doesn't hold any US Treasuries, and that while he does have some alternative investments to protect himself from what he sees as impending inflation, he is "not a gold bug."

Ok, fine.

Instead of the host talking about the virtues of holding some alternative investments to ward off inflation, the host quickly interrupts him and says... "so what you're saying is that investors don't need to pour all of their money into gold, right?" really pressuring him on this one point.

Walker, being cordial, agrees and replies, "absolutely not."

It was as if recommending even a little bit of gold would have been some evil and terrible thing — even though the guest clearly believed in holding some. It was very weird.

[moda0306]

What a hyperbolic, pointless statement, "pouring all your money into gold."  Most gold bugs don't even recommend that.  It's a cheap way of throwing up a straw man just to knock him back down and then pat yourself on your back.  

I love how some people try to microdiversify within stocks to build themselves what they like to think of as a stock PP, and think they can ignore other assets:

Inflation: Foreign, Emerging Markets, Oil Companies, REITs
Deflation & Recession: Consumer Staples, Blue Chips
Prosperity: Technology, Financials

Tadaaa: Diversification.  It's like putting Al Qaeda, Hamas, Contra rebels, and Tim McVeigh at a round table for a diverse discussion on how domestic and foreign policy should be handled.

MAYBE they'll invest in some corporate, junk or muni bonds for some "guaranteed" income.  But they hate treasuries because of low yields and US defecits, and they hate gold because it sits in a vault (and doesn't make promises and write contracts that will be no good if world events start to fall the wrong way).

[moda0306]

Even over the radio you can smell the scent of a used car on these financial gurus.  Disgusting.  Almost criminal.

[6 Iron]

What a hyperbolic, pointless statement, "pouring all your money into gold."  

This kind of statement is reflexive in much of the investing community whenever the subject of Au is brought up. It bothered me when I first started my permanent portfolio, but now, not any. I recently rolled a 401k into an IRA, and was initially told that I would have to liquidate my self managed brokerage account-the thought of temporarily voiding my permanent portfolio warranty for a couple of weeks was uncomfortable, but fortunately, not necessary. Really brought into focus for me how comfortable I am being so effectively diversified.

[Storm]

You know what I find extremely hilarious?  On Thursday, right after the market took a huge dive and oil shot up over $100 a barrel, I get a Fidelity newsletter in my inbox with this hilarious article linked to it:

https://guidance.fidelity.com/viewpoint ... pable-bull

LOL! 

And the date on that article was Wednesday, the 23rd, which, if I'm not mistaken, was probably one of the biggest point drops we've seen since the flash crash last year.

How does he even write this stuff with a straight face?

Can anything kill this bull market? It does not appear so. A huge spike in Treasury yields? Yawn. Out of control food prices? Not a factor. Riots in Egypt? Nope. Technical divergences? Not interested. Or so it seems as I watch the stock market continue to go up.

[MediumTex]

I think that all investors go through a maturation process (though I think many never really get to a good place), but one of the humorous stages that I think everyone goes through is something along the lines of: "I like to buy stocks, mainly the ones that are about to go up.  I try to stay away from the ones that are about to go down."

One of the many troubling things about this common investment outlook is that people seem not to understand that everyone else is trying to do the same thing, which means it simply can't work for everyone.

Another common investing mistake is looking back at history and talking about how easy it would have been to buy something when it was cheap.  Who wanted to own gold in 1999?  Who wanted to own stocks in March of 2009?

The PP provides the investor with the confidence, discipline and structure to buy the asset everyone hates when they are cheap and to sell the assets everyone loves when they are expensive.

When I hear people talking about buying gold outside the PP structure I just shake my head, because I know that most of these people will bail at the first serious price decline, and even if they see some nice gains I wonder how they will know when it's time to sell. 

With the benefit of having been in the PP for several years, I marvel at the enormous amounts of risk people take (often without even realizing it) with their investments.  Harry Browne made a great point in Fail Safe Investing about how people will have a high level of skill in their professional lives, and then somehow forget all of those critical thinking skills when it comes to their investments and go off and bet all of their life savings on something Robert Prechter or Peter Schiff said on TV.  It would be sort of like telling an engineer "yeah, all of those principles are good and everything, but I still think that gravity is more of an opinion than a fact."  An engineer would laugh at something so dumb, and yet the same person will often accept the most ridiculous investment theories without a second thought.  "My advisor has me set up with a hybrid K-wave strategy leveraged to the mid-millenial sun spot cycle.  They've got this computer that models it all and it's got a 99th percentile success probability factor.  Most people don't have access to this technology; I was just lucky to get hooked in with these guys.  No one else is doing anything like this.  It's really advanced stuff."

[sigh] 

[AdamA]

Harry Browne made a great point in Fail Safe Investing about how people will have a high level of skill in their professional lives, and then somehow forget all of those critical thinking skills when it comes to their investments and go off and bet all of their life savings on something Robert Prechter or Peter Schiff said on TV.

Funny...I used to be the poster boy for this, and it was Peter Schiff and Robert Prechter specifically to whom I would listen.  I heard a great debate between the two of them and realized how truly unknowable the future is. 

[moda0306]

Even if one were to be able to amazingly analyze what goes on in the world of investing and advise accordingly, that still leaves you open to a bunch of Saudis with box cutters shocking the market, and the subsequent colonialism that follows and its effect on inflation, defecits, business, oil, airlines, liberty, private property, etc.

If 20 Saudis with boxcutters can alter what is hypothetially a predictable economy the way they have the last 10 years, how does anyone, ever hope to be able to predict the future to the point of making blanket statements about the market.  There's simply too many moving pieces.

[moda0306]

If you look at the facts surrounding our economic/political future relating to our foes, you may realize how many questions there really are about how things may end up.

1) It is much easier to destroy than to create,
2) Stock performance, overall, depends on prosperity, production, and property... therefore, "creation."
3) The main foes of the developed world have made it their point that they are willing to destroy for the sake of destroying, including themselves as martyrs. 
4) These same people tend to occupy countries with vast oil reserves.
5) These same people's main two gripes with the US is a) our support or complacency of the expansion of Israeli settlements and b) our occupying middle-eastern countries... two things that we tend to do more of as the threat of terrorism rises.  A feedback loop seems to have initiated itself.
6) Never have we had so many weapons that can destroy so much so proliferated throughout the world.

Unless an investment advisor doubles as an expert on middle eastern politics, I don't think I'd take their opinions on the direction of stocks with much more than a grain of salt.

[AdamA]

Unless an investment advisor doubles as an expert on middle eastern politics, I don't think I'd take their opinions on the direction of stocks with much more than a grain of salt.

Even if they were, I'd still be hesitant.  There are so many different theories as to what causes conflicts that even the experts can't agree.

[moda0306]

Unless an investment advisor doubles as an expert on middle eastern politics, I don't think I'd take their opinions on the direction of stocks with much more than a grain of salt.

Even if they were, I'd still be hesitant.  There are so many different theories as to what causes conflicts that even the experts can't agree.

Agreed.  Though I think most that study the middle east, whether they knew much about investing or not, would be as bearish on stocks right now as PP investors are.  They tend not to be the most optimistic people you'd want to meet.

[dualstow]

I think that all investors go through a maturation process (though I think many never really get to a good place), but one of the humorous stages that I think everyone goes through is something along the lines of: "I like to buy stocks, mainly the ones that are about to go up.  I try to stay away from the ones that are about to go down."
...

It's like Will Rogers said. "Only buy stocks that are going to go up. If they don't go up, don't buy 'em." ;-)

[julian]

This just reinforces not trying to make predictions. So many ppl threw out the TLT in Jan not realizing it could be the asset that saves us all.