Or stated another way who is hedging their PP with their VP? And what is your strategy?
chicken or egg?
Moderator: Global Moderator
chicken or egg?
Is anyone fashioning their variable portfolio to be "safer" than their 4x25 "permanent portfolio" because they are not convinced that 4x25 is the safest combination possible?
Or stated another way who is hedging their PP with their VP? And what is your strategy?
Or stated another way who is hedging their PP with their VP? And what is your strategy?
"Markets can remain irrational longer than you can remain solvent"
Re: chicken or egg?
I think that pattern is probably common right now just because fear is still pretty prevalent among investors. As fear begins to wane, however, I imagine that risk appetite will steadily return and the perception of the PP will once again shift from being too risky to being too conservative.
The degree to which emotion periodically overwhelms rationality (sometimes for long periods) ought to humble us all. I think it is out of that humility that the wisdom and prudence of the PP approach begins to be more easily observed.
It is ironic that right now the humility I am describing is probably driving a lot of the current interest in the PP approach, but once greed begins to displace fear on a large scale, I imagine that a lot of that hard-earned humility will go out the window too, and the PP will once again look overly simplistic and conservative for much of the investing herd.
I don't have a VP. I just use the PP. If I did do a VP I would probably focus on oil service companies. The investment thesis there is strong and can be validated under a range of economic environments (i.e., both inflation and prosperity).
The degree to which emotion periodically overwhelms rationality (sometimes for long periods) ought to humble us all. I think it is out of that humility that the wisdom and prudence of the PP approach begins to be more easily observed.
It is ironic that right now the humility I am describing is probably driving a lot of the current interest in the PP approach, but once greed begins to displace fear on a large scale, I imagine that a lot of that hard-earned humility will go out the window too, and the PP will once again look overly simplistic and conservative for much of the investing herd.
I don't have a VP. I just use the PP. If I did do a VP I would probably focus on oil service companies. The investment thesis there is strong and can be validated under a range of economic environments (i.e., both inflation and prosperity).
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
-
macclary
Re: chicken or egg?
I am not doing exactly what you ask Doug, but I do have a slightly modified strategy since the PP isn't the safest portfolio approach possible ;-> The PP is very good and it uses two tricks well: truly broad diversification, and recognizing the value of physical gold.
There are some other tricks available for building portfolios though, one for defense and one for offense. First is defensive market timing, it is trivial to improve on the risk-adjusted returns of stocks with almost any mechanical system that involves selling when a market is hinky and buying when its headed up. The second is to go on offense and bring more money into the portfolio, but employ less capital. This is the Taleb / Swedroe / risk-parity approach that says basically "more potent assets can make a portfolio safer than a portfolio that lacks those assets."
I don't think it is very compelling to time in and out of cash, gold, or long bonds. The reasoning is that cash/bonds aren't all that volatile so there aren't that big of moves to catch. Gold does swing, but you never want to be without it especially when it is going through volatility ;-> The stock allocation on the other hand is ripe for improvement from my point of view. Let's talk about tilting first, this tilted portfolio is an objectively safer portfolio than the standard 4x25 based on two criteria:
1) Better historical drawdown
2) Lower chance of running out of money during retirement with 4% draw over inflation
Portfolio Allocation: 30.4% GOLD , 25.7% LTGB , 14.0% ST Trsry , 18.4% SCV , 11.5% EM
Compound return = 12.00% (4x25 comes in around 9.75%)
Worst year: 1994 -3.96%
This portfolio also uses less cash, which makes sense because cash doesn't do anything that great to counterbalance the other significant moving parts. Interestingly selling cash can make a portfolio safer.
As far as trend-following or market timing in equities; many people say loudly that it is impossible, at the very same time that others go right along making a living at this endeavor. I built an ETF trading system similar to the one outlined in this blog post, but mine is better :-)
http://www.mebanefaber.com/2009/06/25/c ... g-systems/
In order to earn higher returns than the market you do need an edge. Here are the people you have to outsmart in order of easiest to hardest: criminal managers of real-money institutions like CALPERS, small retail investors who watch CNBC and Cramer before trading LOL, small retail investors who don't watch CNBC, long only mutual fund managers that are more cheerleaders than financiers, and hedgies who happen to frequently use MS Excel as their primary forecasting tool and blow up often, hedgies who trade by their gut-feeling about macro research, systematic hedgies / CTAs.
As an engineer I have built a race car that drives itself autonomously, a silicon electromagnetic prediction tool, the main interactive robotics attraction at a science museum, etc. Honestly building a reliable trading system is not as hard or time consuming as those other endeavors. It does take some emotional fortitude to trust what the data says and take a chance on something you have built, yet you also have to avoid being greedy and "going for broke" or you will go broke. What I am doing right now is holding 25% each cash/bonds/gold, then I am trading the equity slice once a month with a system that can go long or short using various ETFs. So far so good, but there is a lot of trail ahead. For one thing though; it is kind of nice to anticipate being able to make money on the short side during a market crash instead of anticipating trying to virtuously hold onto a plunging S&P 500 fund all the way down like the PP suggests ;->
There are some other tricks available for building portfolios though, one for defense and one for offense. First is defensive market timing, it is trivial to improve on the risk-adjusted returns of stocks with almost any mechanical system that involves selling when a market is hinky and buying when its headed up. The second is to go on offense and bring more money into the portfolio, but employ less capital. This is the Taleb / Swedroe / risk-parity approach that says basically "more potent assets can make a portfolio safer than a portfolio that lacks those assets."
I don't think it is very compelling to time in and out of cash, gold, or long bonds. The reasoning is that cash/bonds aren't all that volatile so there aren't that big of moves to catch. Gold does swing, but you never want to be without it especially when it is going through volatility ;-> The stock allocation on the other hand is ripe for improvement from my point of view. Let's talk about tilting first, this tilted portfolio is an objectively safer portfolio than the standard 4x25 based on two criteria:
1) Better historical drawdown
2) Lower chance of running out of money during retirement with 4% draw over inflation
Portfolio Allocation: 30.4% GOLD , 25.7% LTGB , 14.0% ST Trsry , 18.4% SCV , 11.5% EM
Compound return = 12.00% (4x25 comes in around 9.75%)
Worst year: 1994 -3.96%
This portfolio also uses less cash, which makes sense because cash doesn't do anything that great to counterbalance the other significant moving parts. Interestingly selling cash can make a portfolio safer.
As far as trend-following or market timing in equities; many people say loudly that it is impossible, at the very same time that others go right along making a living at this endeavor. I built an ETF trading system similar to the one outlined in this blog post, but mine is better :-)
http://www.mebanefaber.com/2009/06/25/c ... g-systems/
In order to earn higher returns than the market you do need an edge. Here are the people you have to outsmart in order of easiest to hardest: criminal managers of real-money institutions like CALPERS, small retail investors who watch CNBC and Cramer before trading LOL, small retail investors who don't watch CNBC, long only mutual fund managers that are more cheerleaders than financiers, and hedgies who happen to frequently use MS Excel as their primary forecasting tool and blow up often, hedgies who trade by their gut-feeling about macro research, systematic hedgies / CTAs.
As an engineer I have built a race car that drives itself autonomously, a silicon electromagnetic prediction tool, the main interactive robotics attraction at a science museum, etc. Honestly building a reliable trading system is not as hard or time consuming as those other endeavors. It does take some emotional fortitude to trust what the data says and take a chance on something you have built, yet you also have to avoid being greedy and "going for broke" or you will go broke. What I am doing right now is holding 25% each cash/bonds/gold, then I am trading the equity slice once a month with a system that can go long or short using various ETFs. So far so good, but there is a lot of trail ahead. For one thing though; it is kind of nice to anticipate being able to make money on the short side during a market crash instead of anticipating trying to virtuously hold onto a plunging S&P 500 fund all the way down like the PP suggests ;->