Gyroscopic Investing

I don't know why you keep accusing the PP of having poor returns.  It doesn't.  It hasn't.  Here's a chart I found real quick: http://gyroscopicinvesting.com/forum/pe ... vs-sp-500/
It doesn't include the past handful of years, during which stocks have been on a tear, but they're probably due to come back to reality.

Also, thank for finally admitting that it "depends on what you need".  It's the first hint of recognition that not every investor is you, and a welcome change from the "PP is always bad" refrain.

two issues , you couldn't own gold until 1975 unless you were a coin collector  so it  wasn't something typical investors owned  and the pp didn't exist  until harry brought it public in the 1980's . no one could have done it until then .  nice cherry picking who ever  ran it .

i will give you a break though .  have someone rerun it from 1975 until 12/31/2014 for the big picture  even though the pp didn't exist yet , that way you can at least include some of the best years for gold because by the time the concept came out the best years were already trending down ,.

from jan 1975 to dec 2014 inflation adjusted the s&p 500 returned 2,245.00 from that 100 bucks . in nominal terms it was 10,154.00 from the original 100

what was the pp up to dec 2014 ?

mathjak107 wrote: two issues , you couldn't own gold until 1975 unless you were a coin collector  so it  wasn't something typical investors owned  and the pp didn't exist  until harry brought it public in the 1980's . no one could have done it until then .  nice cherry picking who ever  ran it .

One could say the same thing about basically all investments. Prior to 401Ks, almost nobody could feasibly own stocks and bonds in the first place except for very wealthy people. The entire phenomenon of the small retail investor is very modern. When we backtest any investment portfolio to anywhere before the 80s, we're always fudging a bit by ignoring the facts on the ground of earlier eras that resulted in most people doing most of their liquid saving with savings accounts and bank CDs. If there had been a large retail investor class back then, the returns of all assets would have been altered in unknowable ways. In order to do such backtests, we voluntarily agree to forget about this.

running it before 1975 is just disingenuous , why not start when it was 35 bucks as well , you can make the pp look even better . . should we start counting  the stocks from when they were initial ipo's before the general public could buy the stocks ? .

if you want to compare at least be fair about it .  the pp didn't exist yet before the 1980's so i will let that slide  , great you want to track a strategy  to see how investors would have done in it only it wasn't  known yet  ..

at least be  fair and compare apple to apples if you are going to compare without smoke and mirrors .

mathjak107 wrote: running it before 1975 is just disingenuous , why not start when it was 35 bucks as well , you can make the pp look even better . . should we start counting  the stocks from when they were initial ipo's before the general public could buy the stocks ? .

if you want to compare at least be fair about it .  the pp didn't exist yet before the 1980's so i will let that slide

The assets that constitute a PP existed before 1980. Why does the fact that nobody thought of it earlier matter at all?

At a certain point, nobody had thought of a 50/50 portfolio, either. Should we ignore backtest results to before that point even though both stocks and bonds existed?

because it was a total  off the wall  concept  in those days and not just an allocation that was brought to light by harry brown .    main stream investing was just stocks and bonds which folks have been putting in to all kinds of allocations for 146 years .

but i said okay , i would accept 1975 on .

Desert wrote: I agree with MJ on this.  While all backtesting has problems (as PS pointed out), pointing to pre-1975 backtesting for gold-containing portfolios is really misleading.  Sure, retail investors were much more limited in the 70's than they are now, but at least it would have been theoretically possible to invest in something approximating a TSM fund back then.  But to include years when it was illegal for U.S. investors to own gold just makes no sense to me.  So when I backtest portfolios containing gold, I start in 1975.

what were the pp returns from  jan 1975 to  dec 2014 . ?  100 dollars equals what ?  the s&p 500 was easy to get , we know that is  10,154.00 nominal , 2245.00 inflation adjusted .

comparing the fund prpfx  , from 1982 which is where morningstar starts  until dec 2014 the prpfx was worth 71,842 starting with 10k.

the s&p 500 is 332,000.00

You keep talking about the 4x25 PP not existing before 1980, but PRPFX is not a 4x25PP.

Hello All,

Been following this thread with interest.

Few quick thoughts

1. In Australia, the AUD has gone from ~1.10USD to 0.7USD. So I am happy to hold some gold. (Could alternatively hold USD I suppose, not sure how though….)

2.Mathjak's approach to low volatility seems to be borne out by this article http://idiosyncraticwhisk.blogspot.com. ... short.html

but other charts suggest that bonds could be replaced by gold
http://actuary-info.blogspot.com.au/201 ... escue.html

3.Have a read of all three parts of this article. Found it quite enlightening
http://keithweinereconomics.com/2014/03 ... commodity/

From the recent currency moves, I a starting to question if the PP cash should be only in USD if your own countries economy is very small. Or perhaps as another poster noted. Gold is the No2 Reserve Currency - could be why the PP has USD and Gold….

Keep up the interesting discussions,
Hal

Update: https://www.youtube.com/watch?v=R2LrlzGB23U  Now I understand why Mathjak talks about a large equity exposure for "investing" (not to be confused with saving)

Desert wrote: HBPP CAGR since 1975 was ~ 8.40 percent.

The 30/60/10 (TSM/10YT/gold) returned ~9.30 percent over the same period. 

And a 50/50 TSM/TBM returned ~10.35 percent, with higher volatility.

so  50/50 would be 25% more . does that include dividends reinvested ?

mathjak107 wrote: so if you want to bet the odds what do the odds say ?    do you really think that ownership in  the largest company's in the world  will not stand the best chance in the long term ?

T-Bills beat out stocks over the past 20 years.

T-Bonds will beat out stocks over the next 10 years.

The odds say: STARTING VALUATION MATTERS.

mathjak107 wrote: risk losing eveything ?  when has a 50/50 mix ever lost money over even a 10 year , 20 year  tiime frame ?  forget about losing everything , , that is nonsense .

You do realize that T-Bonds hit a -80% maximum drawdown in real terms during its 40-year bear market while stocks were recovering from the depths of the Great Depression?

mathjak107 wrote: great then if you had all the gold money in t-bills you would have had a better inflation hedge the last 40 years .

Gold isn't an inflation hedge.  It's terrible at it, in fact.  That's not why we hold it, despite gold bug delusions to the contrary.

mathjak107 wrote: a 50/50 mix  can produce a nice return with only 5-6% equity returns and 3% interest on bonds , the pp likely will not be able to lift it's own weight with those returns if they happen . . ,.  in either case we are both betting on something being in place that my not happen and that is my point

You're not accounting for the capital gains with the bonds.  I see you're looking at this as a retirement portfolio where you simply don't care about the capital fluctuations except with equities.  Do you really understand the PP at all?

mathjak107 wrote: two issues , you couldn't own gold until 1975 unless you were a coin collector  so it  wasn't something typical investors owned  and the pp didn't exist  until harry brought it public in the 1980's . no one could have done it until then .  nice cherry picking who ever  ran it .

i will give you a break though .  have someone rerun it from 1975 until 12/31/2014 for the big picture  even though the pp didn't exist yet , that way you can at least include some of the best years for gold because by the time the concept came out the best years were already trending down ,.

from jan 1975 to dec 2014 inflation adjusted the s&p 500 returned 2,245.00 from that 100 bucks . in nominal terms it was 10,154.00 from the original 100

what was the pp up to dec 2014 ?

Here is the PP's performance, rebalanced annually, since 1988 which is all OUT OF SAMPLE as the book was released in October 1987:

Does every thread have to devolve into the same debate by the same people?

MachineGhost wrote:

mathjak107 wrote: a 50/50 mix  can produce a nice return with only 5-6% equity returns and 3% interest on bonds , the pp likely will not be able to lift it's own weight with those returns if they happen . . ,.  in either case we are both betting on something being in place that my not happen and that is my point

You're not accounting for the capital gains with the bonds.  I see you're looking at this as a retirement portfolio where you simply don't care about the capital fluctuations except with equities.  Do you really understand the PP at all?

at these levels bonds will likely maintain just their coupon rates . anything better would be an upside surprise .

as well as any bonds you sell  to reap the gains will no longer produce interest so in the end it will be close to a wash .

mathjak107 wrote: as well as any bonds you sell  to reap the gains will no longer produce interest so in the end it will be close to a wash .

Yes, and any stocks you sell will no longer produce dividends, so that too will be a wash. 

i tend to reinvest the dividends letting them grow while spending down cash and bonds first .  delaying spending the dividends gives you a bit more money at the end of the day then spending them up front and not letting them grow.

it works because what happens is you have a slight rising glide path in equity's as the equity's level gets higher as you spend down cash and bonds  so before you actually refill at some point you will have a higher equity allocation  for a while .

I Shrugged wrote: Does every thread have to devolve into the same debate by the same people?

Apparently.