Changing to global stocks and gold only

[Marc De Mesel]

Tyler, that is 2008 included. You can see my returns year per year here: http://europeanpermanentportfolio.blogspot.com/      (top page column 'My portfolio')

My returns are expressed in € but exchange rate vs $ stayed about the same since start 2008, dollar went up around 5% over whole period.

Could you review your post and see if your critique still stands?

Marc, did you begin your blog in July, 2009? What were you were invested in for the 2nd half of 2008 into 2009?

Reub, here you can see in detail what I was invested in in 2008 (it's dutch article but table is english): http://www.marcdemesel.be/2012/02/mijn- ... -2011.html

Basically I had a PP for the most part, and some speculations, a portfolio with stocks by Puplava securities as well as physical silver, both tanked hard, but thanks to a limited exposure my losses for the year were considerably less than the average investor, -12%, which inspired me to start my blog in 2009.

I had been predicting the bank crises and rise of precious metals since 2005 and build confidence seeing it all pan out. However part of me was also very discouraged losing money in 2008 which led me to abandoning speculation for the most part, selling most of my silver, and putting it all in a pp, which costed me a lot of missed opportunity in the years 2009 and 2010.

[Marc De Mesel]

Sure.  Thanks for the data.  Looks like you did alright in 2008 -- nice work.

Still, if you invested $10k in the traditional PP and $10k in your portfolio in January 2008 (I presume when your data starts), then by January 2013 the PP would have $14k while your portfolio would have under $13k.  You beat the PP in 2 out of 5 years.  Let's just call that similar returns, which makes sense seeing that your blog promotes the PP and you started with that as a baseline.  Were you unhappy with your portfolio this time a year ago? 

In my opinion, a 102% return in 2013 is an obvious outlier that completely skews everything else so your averages don't tell the whole story.  But if you feel like you discovered something in the past year you believe you can dependably repeat and that overshadows your previous record, more power to ya.  I'm not one to begrudge a good speculative investment that worked out.  I just perhaps wouldn't be so quick to dismiss what worked for you pre-2013.

Happy investing.

Thanks. Indeed my total returns have been the same as the PP up until last year. Only thanks to this year I succeeded in outperforming the PP, but that is how it goes in speculation and entrepreneurship. You are mostly behind the ones that take the safe route, failing and paying a lot for hard earned lessons (also fighting nay sayers), but if you succeed you will pass them jet speed and they have no chance to catch up. Some will admit they were wrong to say nay and will learn to fly as well, while others will make up excuses for your success and hope you fuck up.

I was happy with the safety the PP provided but unhappy with the opportunities I had missed. I also started criticizing many of the ideas that come with the PP all before succeeding in speculation. See my interviews of 2012. But I was also not happy about my speculative performance and realized very well I had not proven yet to be able to outperform the PP.

Although you say you respect a good speculative performance, what you do is dismissing it as an outlier and still calling my performance similar to the PP. 

You have also not yet withdrawn your incorrect calculations.

[Marc De Mesel]

You say your impression was that Harry Browne also saw it as such, do you remember specific things he said that confirm this, since many see this very different.

It was in the first few episodes, but since I was driving while listening I was not able to make notes.
I do remember quite distinctly that he said something to the effect: "The PP is meant to safeguard your precious money, if you want to increase your wealth you should look for other means."

Thanks so much for making me aware of this.

MediumTex, Craig, and all the others suggesting PP is for growth as well, seems even Harry Browne did not see nor sell it as such.

And I am being fought for saying exactly the same. Feeling pretty pissed about this. 

[Marc De Mesel]

The hard thing for me now is to find enough good speculations. Since I'm fully occupied with bitcoin myself, I would prefer to outsource this and find a bunch of newsletters, hedge funds or mutual funds that have proven to outperform the PP in the past. But they are so hard to find.

Maybe time for a confession here: I have at times used newsletters, some of them were decent, some bad and some had spectacular returns. But all of them failed over the long haul. TDL (The Dines Letter) for example has identified trends well before they became mainstream and has had spectacular stock picks. But it failed at capitalizing on these gains. Of course every newsletter always stresses they they are not responsible for your returns (and they are right in this). But after trying maybe 6 or 7 NL's I have come to the conclusion that they just don't work for me. Though I also admit that I have learned quite a bit from them, so it was not all wasted money.

There is only one method that has always paid me well whenever I tried it: Automatic Investment Management (AIM). It was developed by R. Lichello in the 1970's. This is also where I will return to once I get back into investing. AIM will sell on the way up, and buy on the way down. In a nutshell: It splits the portfolio in 50% cash and 50% investments. Then as the investments go up it starts selling, but never sells out completely. As the investments go down it starts buying, but it will not spend all the cash in one fell swoop. It uses a simple algorithm (1 minute work on paper, a few milliseconds using a spreadsheet) to determine the size of the sell resp buy. Or with a little more arithmetic it can calculate the GTC buy and sell orders (this is what I always used).

AIM thus tries to capture volatility. And it is reasonably good at it imo. The proceeds of this capture flow into the investment as well as the cash portion.

I am currently considering what would happen if I cross AIM with PP. It should be possible to AIM each sector, Stocks, Bonds and Gold individually using the cash portion as the reserve for AIM. The idea is that as one sector goes up, it would generate additional cash (through AIM directed sell's) it could use for AIM directed buy's in the other declining sectors. The original 25% reserve would act as a buffer because the buys and sells will of course never be synchronous.
When any one sector gets too big (or small) it would be rebalanced according to the PP principles.

I am hoping this would give a portfolio with both qualities: growth and protection.

Of course I will need to make a simulation of this and see how it would have worked in the past. This however will need to wait until my live stabilizes a little after the current events (buying a house & becoming an entrepreneur).

When I have results, I will post them to this forum. But don't hold your breath until that happens.

I think harvesting volatility is an illusion as Kshartle proves.

The only thing that balancing offers is less volatility but NOT higher returns.

Therefore, selling on the way up, and buying on the way down will only make your portfolio less volatile, but not a higher return. So no extra growth will come from this.

Applying this AIM technique to stocks/bonds/gold seems what the PP is already doing.

I don't see how you will achieve more growth with this technique.


Having a look at AIM, it could well be that Harry Browne got his balancing idea from there and just added some assets to the mix.

[jay]

I think harvesting volatility is an illusion as Kshartle proves.

Just a point about re balancing and I know it has been beaten to death: I think what Ksharlte showed is that re-balancing is not guaranteed to add extra returns (due to capturing volatility), even during a 30 year period. I thought it was interesting. I wouldn't have guessed.

But that is just one test.  To say that harvesting volatility is an illusion is to say that markets are 100% efficient

Most people are not in the market for 30 years. A good test IMO would be to take all the different rolling 10 and 20 year periods (monthly data) and see if rebalancing (say 15/35) helped the return or not. It is a question of odds in the end and I have a feeling that the odds would favour re-balancing.

Would someone be kind enough to point me to such results or be able to run them?

thank

[Rien]

Applying this AIM technique to stocks/bonds/gold seems what the PP is already doing.

Then I probably have not communicated my idea correctly.
I meant that one has three AIM positions:
Bonds/Cash,
Stocks/Cash,
Gold/Cash.

These three AIM positions are AIMed the usual way, i.e. with volatility capture.

Normally this would result in: 16.7% bonds, 16.7% stocks, 16.7% gold and 50% cash (total, 3 x 16.7%).

However it should be possible to reduce the cash to the usual 25% because the three AIM positions would at least partly offset each other in the cash department. I.e. bonds would be selling while gold would be buying. This suggest to me that reducing cash to 25% should be safe.

But as I said, I will do simulations before I would even try this. Currently its just a thought.

[AdamA]

Thanks so much for making me aware of this.

MediumTex, Craig, and all the others suggesting PP is for growth as well, seems even Harry Browne did not see nor sell it as such.

And I am being fought for saying exactly the same. Feeling pretty pissed about this. 

Why does this bother you?

[Tyler]

Thanks. Indeed my total returns have been the same as the PP up until last year. Only thanks to this year I succeeded in outperforming the PP, but that is how it goes in speculation and entrepreneurship. You are mostly behind the ones that take the safe route, failing and paying a lot for hard earned lessons (also fighting nay sayers), but if you succeed you will pass them jet speed and they have no chance to catch up. Some will admit they were wrong to say nay and will learn to fly as well, while others will make up excuses for your success and hope you fuck up.

I was happy with the safety the PP provided but unhappy with the opportunities I had missed. I also started criticizing many of the ideas that come with the PP all before succeeding in speculation. See my interviews of 2012. But I was also not happy about my speculative performance and realized very well I had not proven yet to be able to outperform the PP.

Although you say you respect a good speculative performance, what you do is dismissing it as an outlier and still calling my performance similar to the PP. 

You have also not yet withdrawn your incorrect calculations.

Let me correct my statement -- you beat the S&P by quite a lot since Jan 1 2008 by following a tweaked Permanent Portfolio that slightly lagged the traditional one for 5 years until you speculated heavily (on Bitcoin based on scanning your blog) in 2013 and doubled your money.

You believe that one year makes you a successful entrepreneurial speculator.  I'd attribute it more to luck, but wish you all the best.  I absolutely want you to succeed and come back in 10 years to teach us how you kept it up over time.

[Gumby]

I'd attribute it more to luck, but wish you all the best.  I absolutely want you to succeed and come back in 10 years to teach us how you kept it up over time.

That.

Even Harry Browne, whom we all respect here, admitted decades later that his famous Nixon Shock call was "luck" — even though he figured it out with sound reason and logic. He said it was "luck" because he didn't know when his well thought out predictions would come true.

I remember Browne once saying on his radio show that a self-made guru can "dine out the rest of his life" on a single prediction that comes true — as he did. And all someone needs to do is make thousands of wild predictions in order to land that one that comes right — and then they can call themselves a guru.

All of Marc's talk of tulips Bitcoins and his one year success reminds me of that.

[Xan]

And this talk of newsletters being able to beat the PP being out there but hard to find.  Well sure they are!  Let's say that 10% of newsletters' advice will beat the PP in any given year.  The problem is that you have no idea which 10% it will be, AND that which 10% beat the PP will change every year.

Looking back, you'll be able to say "I should have been with Newsletter A in 2013, Newsletter B in 2012, Newsletter C in 2011."  You might conclude that it's therefore possible to beat the PP.  In fact your odds of picking the right newsletter all three years is (1/10)^3, or 1/1000.  And that's just over three years.

[Reub]

Tyler, that is 2008 included. You can see my returns year per year here: http://europeanpermanentportfolio.blogspot.com/      (top page column 'My portfolio')

My returns are expressed in € but exchange rate vs $ stayed about the same since start 2008, dollar went up around 5% over whole period.

Could you review your post and see if your critique still stands?

Marc, did you begin your blog in July, 2009? What were you were invested in for the 2nd half of 2008 into 2009?

Reub, here you can see in detail what I was invested in in 2008 (it's dutch article but table is english): http://www.marcdemesel.be/2012/02/mijn- ... -2011.html

Basically I had a PP for the most part, and some speculations, a portfolio with stocks by Puplava securities as well as physical silver, both tanked hard, but thanks to a limited exposure my losses for the year were considerably less than the average investor, -12%, which inspired me to start my blog in 2009.

I had been predicting the bank crises and rise of precious metals since 2005 and build confidence seeing it all pan out. However part of me was also very discouraged losing money in 2008 which led me to abandoning speculation for the most part, selling most of my silver, and putting it all in a pp, which costed me a lot of missed opportunity in the years 2009 and 2010.

Marc, that link shows your portfolio alright, but you wrote that blog in 2012. So all of your public data showing how well you have done was published by you from July, 2009 forward? Not that I'm doubting you, but I could publish a blog today showing how I made a 300% profit since 2008, itemizing my holdings and trades. It wouldn't mean that it was actually true, of course! 

[Marc De Mesel]

Marc, did you begin your blog in July, 2009? What were you were invested in for the 2nd half of 2008 into 2009?

Reub, here you can see in detail what I was invested in in 2008 (it's dutch article but table is english): http://www.marcdemesel.be/2012/02/mijn- ... -2011.html

Basically I had a PP for the most part, and some speculations, a portfolio with stocks by Puplava securities as well as physical silver, both tanked hard, but thanks to a limited exposure my losses for the year were considerably less than the average investor, -12%, which inspired me to start my blog in 2009.

I had been predicting the bank crises and rise of precious metals since 2005 and build confidence seeing it all pan out. However part of me was also very discouraged losing money in 2008 which led me to abandoning speculation for the most part, selling most of my silver, and putting it all in a pp, which costed me a lot of missed opportunity in the years 2009 and 2010.

Marc, that link shows your portfolio alright, but you wrote that blog in 2012. So all of your public data showing how well you have done was published by you from July, 2009 forward? Not that I'm doubting you, but I could publish a blog today showing how I made a 300% profit since 2008, itemizing my holdings and trades. It wouldn't mean that it was actually true, of course!

Yes, when I started my blog in 2009 I immediately shared my results of 2008 as well as my exact portfolio composition. For example in this article. The past month I cancelled the detailed view of my portfolio and I might even stop publishing my results. But I have from 2009 till a month back shared my portfolio in detail. Many dutch readers can testify to that, and there should be people here also that have seen my detailed portfolio over the years.

It's not that I just now start sharing my results since 2008.  But agreed that I could have lied about my 2008 results but not so much about 2009 till recently since I had an open portfolio.

I can say my 2008 results are accurate. I even excluded my real estate that went up for the year, and my relative big position in silver and puplava stocks was partly motivated by my relative large real estate exposure.

[Thomas Hoog]

Reub, here you can see in detail what I was invested in in 2008 (it's dutch article but table is english): http://www.marcdemesel.be/2012/02/mijn- ... -2011.html

Basically I had a PP for the most part, and some speculations, a portfolio with stocks by Puplava securities as well as physical silver, both tanked hard, but thanks to a limited exposure my losses for the year were considerably less than the average investor, -12%, which inspired me to start my blog in 2009.

I had been predicting the bank crises and rise of precious metals since 2005 and build confidence seeing it all pan out. However part of me was also very discouraged losing money in 2008 which led me to abandoning speculation for the most part, selling most of my silver, and putting it all in a pp, which costed me a lot of missed opportunity in the years 2009 and 2010.

Marc, that link shows your portfolio alright, but you wrote that blog in 2012. So all of your public data showing how well you have done was published by you from July, 2009 forward? Not that I'm doubting you, but I could publish a blog today showing how I made a 300% profit since 2008, itemizing my holdings and trades. It wouldn't mean that it was actually true, of course!

Yes, when I started my blog in 2009 I immediately shared my results of 2008 as well as my exact portfolio composition. For example in this article. The past month I cancelled the detailed view of my portfolio and I might even stop publishing my results. But I have from 2009 till a month back shared my portfolio in detail. Many dutch readers can testify to that, and there should be people here also that have seen my detailed portfolio over the years.

It's not that I just now start sharing my results since 2008.  But agreed that I could have lied about my 2008 results but not so much about 2009 till recently since I had an open portfolio.

I can say my 2008 results are accurate. I even excluded my real estate that went up for the year, and my relative big position in silver and puplava stocks was partly motivated by my relative large real estate exposure.

Confirmed. And a pity you don't show your actual portfolio anymore. Why ? Privacy ?

[Marc De Mesel]

Thanks so much for making me aware of this.

MediumTex, Craig, and all the others suggesting PP is for growth as well, seems even Harry Browne did not see nor sell it as such.

And I am being fought for saying exactly the same. Feeling pretty pissed about this. 

Why does this bother you?

Thanks for asking.

It angers me because it is misleading and has costed me in missing an opportunity I clearly saw.

You may be familiar with the anger you feel when losing money due to poor speculative decisions?

The inverse is equally true. Not putting money on an opportunity you clearly see hurts when it comes to fruition and you miss out.

[frommi]

Thanks for asking.

It angers me because it is misleading and has costed me in missing an opportunity I clearly saw.

You may be familiar with the anger you feel when losing money due to poor speculative decisions?

The inverse is equally true. Not putting money on an opportunity you clearly see hurts when it comes to fruition and you miss out.

This is an emotional trap. You just don`t remember the opportunities where you where wrong and would have lost money.
It doesn`t even anger me that i lost a big amount of money in gold this year. Thats just the way it goes in investing. Emotions and investing are two things that don`t fit together.

[Pointedstick]

This is an emotional trap. You just don`t remember the opportunities where you where wrong and would have lost money.
It doesn`t even anger me that i lost a big amount of money in gold this year. Thats just the way it goes in investing. Emotions and investing are two things that don`t fit together.

Agreed.

[AdamA]

It angers me because it is misleading and has costed me in missing an opportunity I clearly saw.

But if you clearly saw it, then why didn't you do it?  How did the PP interfere with the decision?

[Marc De Mesel]

It angers me because it is misleading and has costed me in missing an opportunity I clearly saw.

But if you clearly saw it, then why didn't you do it?  How did the PP interfere with the decision?

I self attacked after failing with silver and precious mining stocks in 2008. I threw in the towel. Said things to myself like 'how the fuck did I get this wrong again', 'speculation is just so hard', 'I can't afford to lose this money'. Indeed I started doubting myself. Did not dare to trust my logic anymore.

When discovering the PP philosophy I liked hearing what was said 'speculation is a game of luck', 'you can't predict the future', 'better to focus on your job or company'. And the returns were not bad, 9% on average.

So I sold most of my silver and put almost everything in the PP. I take full responsibility for my actions. I think my biggest mistake was self attacking, insulting myself for losing.  But also not being critical and just taking everything that was said in the PP community as true.

What I needed to give myself, or get from others, was sympathy for my loss, encouragement, and trust for what I was doing. Instead I chose to follow my inner critic, who is fearful and non forgiving. Who prefers safety over growth. I should have continued to listen to all my parts, instead of just the one that takes me over.

Today I risk the inverse, that my growth/greedy part takes me over since things are going so well on the speculation front. So I often check in with my safety part to see if he continues to be satisfied. 

It's mainly thanks to therapy that I learn to deal better with my different parts, needs and desires. The PP philosophy just satisfies the safety part but it does so by trashing the growth part. That is not necessary and harmful I think.

[Thomas Hoog]

It angers me because it is misleading and has costed me in missing an opportunity I clearly saw.

But if you clearly saw it, then why didn't you do it?  How did the PP interfere with the decision?

I self attacked after failing with silver and precious mining stocks in 2008. I threw in the towel. Said things to myself like 'how the fuck did I get this wrong again', 'speculation is just so hard', 'I can't afford to lose this money'. Indeed I started doubting myself. Did not dare to trust my logic anymore.

When discovering the PP philosophy I liked hearing what was said 'speculation is a game of luck', 'you can't predict the future', 'better to focus on your job or company'. And the returns were not bad, 9% on average.

So I sold most of my silver and put almost everything in the PP. I take full responsibility for my actions. I think my biggest mistake was self attacking, insulting myself for losing.  But also not being critical and just taking everything that was said in the PP community as true.

What I needed to give myself, or get from others, was sympathy for my loss, encouragement, and trust for what I was doing. Instead I chose to follow my inner critic, who is fearful and non forgiving. Who prefers safety over growth. I should have continued to listen to all my parts, instead of just the one that takes me over.

Today I risk the inverse, that my growth/greedy part takes me over since things are going so well on the speculation front. So I often check in with my safety part to see if he continues to be satisfied. 

It's mainly thanks to therapy that I learn to deal better with my different parts, needs and desires. The PP philosophy just satisfies the safety part but it does so by trashing the growth part. That is not necessary and harmful I think.

Well, you have solved  that yourself !
HB principles are just guidelines:
The 4x25 allocations can be adjusted to 10, 30, 30, 30 or 40, 20, 20, 20. Of course the behaviour will be different, but people are all different.
The same with the allocation PP en VP. You can adjust to 50/50 if that reflects your personality. Or some people just wants to sleep without thinking: "should I sell the bicoins or not" and take a 100 % PP.
I have 3 portfolios:
1) A tweaked 10,20,30,40 PP portfolio (80%)
2) A VP for experimental Portfolios (max 10 %)
3) A dividend portfolio for fun and income when retired (no max allocation, now 10%).
My main personal reluctance is the dilemma: "To sell or no to sell". I just hate that. With my portfolio's I don't have that problem.

I don't think HB will be upset about it.

[AdamA]

I self attacked after failing with silver and precious mining stocks in 2008. I threw in the towel. Said things to myself like 'how the fuck did I get this wrong again', 'speculation is just so hard', 'I can't afford to lose this money'. Indeed I started doubting myself. Did not dare to trust my logic anymore.

Do you think that this could happen to you again with your current strategy?

[Kshartle]

The intrinsic value is zero. And so is the intrinsic value of gold zero.

Exactly.
I always have great difficulty with the words 'intrinsic' and 'value'. Especially when used together
Value only exists in the mind while intrinsic wants to bestow an external property to value. For me, that simply does not work.

It always seemed to me that the only types of items with real intrinsic value were things like food, shelter, and fuel.

Those are examples of items with extrinsic or utility value. They are not ends unto themselves and held for their own sake like gold but instead are purchased for use. They don't have intrinsic value, they have extrinsic value. Their value stems from what they do for us, feed us, keep us safe from the elements, heat us, run our machines and cars etc. This is very different from a gold coin that is put in a safe or vault for years and years to store value and never be consumed.

Things with intrinsic value like gold can also have utility value and be consumed, but the more the price is based on intrinsic properties the more likely substitues will be found for those utilities. The demand for something like oil is a reflection of how much people want to consume it. With something like gold.....the higher the demand drives the price the LESS likely anyone is to consume it. They might even un-consume by pulling it out of computers or their mouth (or other peoples).

This concept is not well understood since there are so few things we actually own or buy that have intrinsic value. Almost everything we buy has utility value because we have scarce purchasing power and need to use it wisely to meet our needs.

[LC475]

Extrinsic or intrinsic, all value is subjective.  It consists of preferences in the mind of an actor.  Perhaps the minds of many actors.  But no matter how many minds you're taking into consideration, the preferences in them are just as subjective as those within a single mind.

[Kshartle]

Extrinsic or intrinsic, all value is subjective.  It consists of preferences in the mind of an actor.  Perhaps the minds of many actors.  But no matter how many minds you're taking into consideration, the preferences in them are just as subjective as those within a single mind.

Yes value requires a human to have the opinion that something has value. Since humans are around though we don't need to worry about it too much. If humans dissapear it won't matter that nothing has value!

[LC475]

Yes value requires a human to have the opinion that something has value. Since humans are around though we don't need to worry about it too much. If humans dissapear it won't matter that nothing has value!

Indeed.  Something will always have some value, because humans will always value something, even if only nirvana.  Is nirvana really something?  Anyway, the possibility of all value disappearing not a pressing practical issue, is it?

The useful take-away for investing is that any particular item may cease to have value.  All gold's value could disappear.  All the value of a certain stock could disappear.  Even all the value of all US stocks could disappear, if the economy were nationalized or stock ownership outlawed.  All the value of bonds could disappear.  Any of these could happen.

So what is the practical take-away advice?  Be prepared for anything.  Going to zero is just an extreme example of going down, something that happens to investment products all the time.

[Kshartle]

All gold's value could disappear. 

It's obvious why a currency could go to zero or a stock....but how could gold become worthless in your opinion?