Gyroscopic Investing

dutchtraffic wrote:

mathjak107 wrote: what you have to remember is as tried as you think the pp  is it has never experienced what we are in  ever before . low rates , high stock valuations .  that combo can be a huge weight and assets fighting each other does not help the cause since nothing can develop a trend  . as these low rates rise the rise will likely be slowly after a knee jerk reaction and may take many years .that can put gold out of the picture too. for the pp it may be entering the perfect storm.

as I said , I am not trying to talk anyone out of it but I am telling you  take a good hard look at your plan and make sure it still makes sense because this perfect storm may be just getting underway for the pp. and it is possible the last few years it saw pretty much what it is going to see  going forward for quite some  time .

but that is for you all to evaluate , I made my decision ..

ps: your 'perfect storm' would destroy your portfolio more than it would a PP.

I was thinking this as well, can't some of the reasons you think the PP might do worse in the future also be applied to your own portfolio?  Even though many of the people on this forum like to back-test as one form of validation, I think a great deal of respect for the portfolio comes from the fact that it is constructed with asset correlations to economic conditions rather than against other asset classes - that is, it is the PP construction theory that most here are extremely comfortable with rather than just its back-testing history, though its back-testing results alone are certainly quite impressive.  Asset to asset correlation changes over time, asset to economy correlations may change too, but it seems to me that the PP has managed to do what it was set out to do for all of its years without fail.  It is extremely well diversified with nearly zero correlation between asset classes (I don't believe this was a primary intention, to me this is one form of validation that the assets are likely very well correlated with the different economic conditions and thus are extremely well diversified) - this isn't something you see with a typical stock/bond Bogleheads portfolio.  The chart showing positive real return over any 3 years period for the PP is very telling to me.  Perhaps it's not back-tested well enough for your liking, and that's fine, people find comfort in different ways. 

A stock heavy portfolio is betting on continued prosperity throughout your lifetime.  Maybe that will be the case, but just because it has been that way before doesn't mean it will continue to be this way.  This is really the crux of the argument - you believe with an extremely high level of certainty that prosperity will continue on (it seems to me mostly because of back-testing that you feel this way), otherwise you would have some hedges against uncertainty.  History tends to throw a lot of surprise punches, so a lot of us are probably not 100% comfortable betting the whole farm on one or two correlated assets.  Recency bias holds strong due to the stock bulls in our recent past.  To each his own, just realize that many on this forum have other justifications besides back-testing alone for holding a portfolio.

Again...I just think it's funny that you keep saying that the future is going to be so different for the PP without realizing that it could easily be applied the other way around to your own portfolio.  Only time will tell, maybe you are a Nostradamus - I don't know, but at this point in the game we are probably just talking past you as your pounding of the PP does not seem to end - are you on a PP crusade?  Maybe it is a way for you to calm your nerves and reassure yourself since you are about to enter retirement

sixdollars wrote: A stock heavy portfolio is betting on continued prosperity throughout your lifetime.  Maybe that will be the case, but just because it has been that way before doesn't mean it will continue to be this way.  This is really the crux of the argument - you believe with an extremely high level of certainty that prosperity will continue on (it seems to me mostly because of back-testing that you feel this way), otherwise you would have some hedges against uncertainty.  History tends to throw a lot of surprise punches, so a lot of us are probably not 100% comfortable betting the whole farm on one or two correlated assets.  Recency bias holds strong due to the stock bulls in our recent past.  To each his own, just realize that many on this forum have other justifications besides back-testing alone for holding a portfolio.

Again...I just think it's funny that you keep saying that the future is going to be so different for the PP without realizing that it could easily be applied the other way around to your own portfolio.  Only time will tell, maybe you are a Nostradamus - I don't know, but at this point in the game we are probably just talking past you as your pounding of the PP does not seem to end - are you on a PP crusade?  Maybe it is a way for you to calm your nerves and reassure yourself since you are about to enter retirement

In particular, I find it telling that Mathjak admits that none of his pro-stock advice applies to other countries. But there is no particular reason why the USA is immune to the same conditions that caused long stock market underperformance in those places. For example, Mathjak has blamed Japan's decade-long deflation and stock bust on an incompetent central bank making lots of bad decisions. But why couldn't that happen here? Ignoring this possibility is, as you say, doing the same thing that he accuses us of doing: assuming the future is going to be like the past. And while it would be very easy to say something like, "well as soon as the central bank starts making bad decisions, pull out!" But how are you to know that? And what is a bad decision, anyway? Has the U.S. Federal Reserve been particularly hitting it out of the park?

The PP prevents us from having to do this kind of prediction and interpretation. To me, the current stock market look like a huge Fed-fueled bubble, caused by poor returns on fixed income causing ordinarily risk-averse people to jump into the stock market. If I'm right, we're due for a crash at some point soon, perhaps as soon as rates begin to rise to appealing levels again. But am I right? Who knows? I don't have to be. Because I hold gold and cash, if this happens then I'll still be okay, unlike the legions of people who will be contemplating suicide when their stocks and supposedly safe total bond funds tank in unison. And because of the rebalancing mechanism, it's highly likely that I'll end up buying stocks with profits from something that's doing well--perhaps gold.

the reason i contain it to the usa is we have a 146 long term history of conventional investing always being  just fine .

20 years or more and their record holds up no matter what time frame you pick.

when the day comes it is no longer true a different strategy will  have to be used .

in the mean time there is no guarantee the pp will hold up right here as well  to whatever the future throws at us . we can play chicken little and pull visions out of our heads to scenario's but to date conventional investing stood up fine long time to everything we had .

mathjak107 wrote: the reason i contain it to the usa is we have a 146 long term history of conventional investing always being  just fine .

20 years or more and their record holds up no matter what time frame you pick.

That's just backtesting, nothing more. What makes you so confident that the future will resemble the past?

mathjak107 wrote: when the day comes it is no longer true a different strategy will  have to be used .

And how will we know that day has come and it's not just another brief crash that will soon recover?

if the future does not resemble the past the pp  will be just as screwed . does anyone one think if we have a total long term break down here  worse than anything in the past that anyone will be bidding up gold ?  i think that thought would be quite wrong if we have total chaos  and to think that folks will have money to buy gold and bid prices up after all other assets crashed and took their money with it is about in line with these doomsday prepers skewed vision of things . . . ,..

more than likely what your vision is will crash all assets.
for most of the investing world conventional allocations of 40/60 to 60/40  are more than conservative enough  that anything more Conservative may be more mental than useful

mathjak107 wrote: if the future does not resemble the past the pp  will be just as screwed . does anyone one think if we have a total long term break down here  worse than anything in the past that anyone will be bidding up gold ?  i think that thought would be quite wrong if we have total chaos  and to think that folks will have money to buy gold and bid prices up after all other assets crashed and took their money with it is about in line with these doomsday prepers skewed vision of things . . . ,..

You are talking about an SHTF scenario. It's widely accepted that such a thing will destroy all financial assets. You misunderstand what the PP is supposed to protect against: uncertainty and financial crises that stop short of annihilating society or the government. Furthermore, in a government collapse scenario, it is absolutely realistic that gold will skyrocket. Wealthy people will bid up the price to buy some portable stores of wealth they can escape with.

The PP is an agnostic portfolio; it does not rely on the future resembling the past. It is tough for me to imagine a scenario in which US stocks, US long treasuries, US short treasuries, and gold are all screwed that falls short of some sort of global armageddon. Can you explain what you think this scenario looks like?

mathjak107 wrote: for most of the investing world conventional allocations of 40/60 to 60/40  are more than conservative enough  that anything more Conservative may be more mental than useful

I think that if you took a poll among the general investing public and asked if holding 50% gold and 30-year treasuries is "conservative" the answer would be a resounding "no".  They may not believe it is wise, but they wouldn't confuse it as fearful. 

"Conservative" clearly means different things to different people.

BTW, I'll repeat each time you bring up the "146 years of history" that the Fidelity Insights portfolio you personally invest in has only been around since 1987.  Yes, it is mostly stocks.  But using the history of the stock market as a whole to defend the safety of an actively managed portfolio is very misleading.

the point is  conjuring up visions in your head (i don't mean you )  where you are last man standing in some debacle  can create situations  where you develop a false confidence  in your methodology.

you argue the pp covers all the bases and has a 40 year track record. well the same thing apply's you try to tell me , what proof is there that will be worth a darn off in the future ?

it is the same answer , there is none.

soooo we all pick what we are comfortable with . but to have folks argue what  if  scenario's for other allocation's and to think they don't share the same risks is just nonsense .

mathjak107 wrote: you argue the pp covers all the bases and has a 40 year track record. well the same thing apply's you try to tell me , what proof is there that will be worth a darn off in the future ?
it is the same answer , there is none.

It's called common sense.

Common sense tells you that driving 60mph is safer than 180mph, yet the guy doing 60mph could be the one who ends up dead, but his chance of death is still only a fraction of the other guy.

You are only looking at backtests, which aren't very useful for a lot of reasons.

mathjak107 wrote: the point is  conjuring up visions in your head (i don't mean you )  where you are last man standing in some debacle  can create situations  where you develop a false confidence  in your methodology.

you argue the pp covers all the bases and has a 40 year track record. well the same thing apply's you try to tell me , what proof is there that will be worth a darn off in the future ?

it is the same answer , there is none.

soooo we all pick what we are comfortable with . but to have folks argue what  if  scenario's for other allocation's and to think they don't share the same risks is just nonsense .

How is it nonsense? Of course portfolios have different risks. A 100% stock portfolio for example is vulnerable to stock underperformance but not gold underperformance, and the reverse is true. Your asset allocation determines which risks you choose to expose yourself to and in what proportion.

As for proof of what will do well in the future, you're right: there is none. But that goes for your actively-managed stock-heavy portfolio as well. The USA might have a 30-year stock slump. You think this is highly unlikely. I get that. We all get that. You're optimistic about the future. That's great! Optimism is good for you, and you have so much money and so many backups (e.g. social security) that you can afford to lose a lot of it for a long time and still be okay. Not all of us are in the same boat. By this point, everyone here who is still using it has heard your criticisms and has decided for himself that it still makes sense. I think your constant bashing of the PP it is beginning to verge on the disrespectful. You're just saying the same thing over and over again and wearing out your welcome. This is a pretty open-minded place but if all you ever do is criticize the very reason why most of the rest of us are all here, well, that's going to get old.

Your analogy is falsely making an assumption that a 50/50 or 60/40 mix is speeding. Actually history says it is safely cruising the speed limit .

If  what you say is true and slower is better than zero  equity's should be the safest investment for retirement . yet bonds and cd's have had the highest failure rate . way higher than equity's ever did over any retirement time frame.

even 100% equity's has done better then that slower investment of cash and bonds.

the answer is being to conservative may be more harmful than going faster and historically has been .  the pp just may be be going below the speed limit while a 50/50 mix may be going at the speed limit. the pp may actually be more at risk being rear ended then the conventional mix doing the speed limit.


anyway wish you luck with those long term treasury's and gold going forward . we can all compare again next year.  i am done with these silly comparisons.
 
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I settled for a K�kebakker/Desert-portfolio, 35/10/55. I don't think the PP-warranty holds outside the US and anyway see a point in having lower tracking error compared to everyone else.

Half equity global.
10% gold has lifted every portfolio in a backtest, maybe I will have more in the future.
Cash included in the bonds and those are only of a few years duration and some corporate bonds (see Bonds in Sweden).

When the crash(es) comes I expect to be hit hard, but less than others. And more important to me - shorter recovery.

I think the most likely bad scenario is a Japan-ish, and both a PP and the above would have done quite ok there.
If everything goes to crap 10% gold makes you richer than about everyone else.

you are assuming all other asset classes crash , so do you think folks will be trying to spend what little they have left on some metal ?

my guess is gold would crash too from lack of bidders  just like a depression .

mathjak107 wrote: you are assuming all other asset classes crash , so do you think folks will be trying to spend what little they have left on some metal ?

my guess is gold would crash too from lack of bidders  just like a depression .

Blah blah

whatever ! good luck  keeping  the faith is all i can say and keep those visions  going . .  for a portfolio that claims to make no predictions it has an awful lot betting against what was ,what is and what stands a reasonable chance of being .  just my opinion of course.

mathjak107 wrote: whatever ! good luck  keeping  the faith is all i can say and keep those visions  going . .  for a portfolio that claims to make no predictions it has an awful lot betting against what was ,what is and what stands a reasonable chance of being .  just my opinion of course.

Thanks and good luck to you too.

mathjak107 wrote: my guess is gold would crash too from lack of bidders  just like a depression .

Is this true? Do you have any good links for this? I was recently looking at the price for gold during the 1920-1930's depression. Looks like at least for miners it went up during that time.

http://www.gold-eagle.com/article/gold- ... evisited-0

mathjak107 wrote: Your analogy is falsely making an assumption that a 50/50 or 60/40 mix is speeding. Actually history says it is safely cruising the speed limit .

If  what you say is true and slower is better than zero  equity's should be the safest investment for retirement . yet bonds and cd's have had the highest failure rate . way higher than equity's ever did over any retirement time frame.

even 100% equity's has done better then that slower investment of cash and bonds.

the answer is being to conservative may be more harmful than going faster and historically has been .  the pp just may be be going below the speed limit while a 50/50 mix may be going at the speed limit. the pp may actually be more at risk being rear ended then the conventional mix doing the speed limit.


anyway wish you luck with those long term treasury's and gold going forward . we can all compare again next year.  i am done with these silly comparisons.
 
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I'm not sure why you think a 50/50 portfolio is "safely cruising".  At http://www.peaktotrough.com/hbpp.cgi you can see that a 50/50 portfolio performed very poorly in 1973 and 1974 - an approximately 24% loss over those 2 calendar years.  Additionally, the 50/50 has had negative returns for 9 calendar years since 1972. 
The PP, on the other hand, has only been negative 3 calendar years since 1972, and has never had 2 consecutive years that added up to a loss.  In other words, when you look at the PP returns for any 2 consecutive calendar years, there is always a positive gain.  In fact, for each of the three years that the PP had a negative return (the biggest loss was around 6% or less, depending on the indexes being used) the next year was followed up by a big gain.  I, personally, would not feel comfortable in a 50/50 because if the economic conditions of '73 and '74 recurred, there would be the potential for big losses.  I would not ignore what I consider to be recent history when setting up an asset allocation.  That's why I use the PP.

who cares what a long term investment does over the short term'

a 50/50 mix has never lost money over any 15 year period or longer ,  A 50/50 mix has never failed any rolling 30 year time frame here in the usa  while spending down at 4%  inflation adjusted .

what could have  bee safer. we can only talk about the past , no one can predict the future.

want to play around trying to cherry pick short time frames where you may have needed  the money ?  how about the last month where the pp i owned but sold and still track  is down 25k as of yesterday in 4 weeks  and my mix is up 8k.

if folks here said they use the pp for lower volatility and they don't mind the lower gains i would respect that  as it makes sense.

but to call other allocations of long term investments that have already weathered every long time frame risky or reckless is just believing your own bull-sh*t  and is false.

there is no time frame the pp weathered greater than 15 years any better than other allocations. it usually just produced far less reward  with lower volatility to go with it , with few exceptions if any  .

in fact you can't really compare since even the pp'ers favorite time frame the last 15 years,  they use only large cap stocks to measure against . midcaps and small caps did 2x what the s&p did and a total market fund is totally dominated by the s&p 500.  even when there is a 5-6% spread a total market fund will never show  more than 1% or so difference  between itself and the s&p 500 .

the  last 15 years  had decent returns for diversified  40/60 to 60/40 allocations.

you had wellesley returning over 7% the last 15 years .  my own mix was almost 8% by now and 6% over the lost decade.


the pp is low volatility but it has not proven to date to be safer .  calling other successful portfolio's reckless or risky is non sense.

if those pp'ers who are guilty of always trying to draw some comparison showing superiority  just accepted it for what it is instead of bending and twisting time frames , results and creating unrealistic scenario's to prove some superiority at different short term points  i would understand their logic for doing so a whole lot better 

it is almost like a religion with some where they need to claim their religion is the only correct one to go with  and everything is flawed .or the way of the devil..

stop trying to compare the pp  to more aggressive allocations and just except the pp  for what it is  if you are happy with the results  because there is no comparison to date in the usa over the long haul,  not in returns and not in safety , only volatility .

mathjak107 wrote: who cares what a long term investment does over the short term'

Ahh..  Are you familiar with the problem of order of returns of a retirement portfolio?  With a steady drawdown to live off of, a few bad years at the start of a retirement period (which could range from ages 60-90, so a 30 year period) will make a big difference in the outcome.  50/50 portfolios, in fact, any combination of stock & bonds are unable to deal with severe drawdowns at the start of a retirement period, without up'ing your saving rates to ludicrous rates..

It seems that a 3rd (or 4th) asset class that behaves very differently than stocks and bonds is necessary to increase the portfolio survival rates, and gold/cash appears to be the answer.

That's why I'm here, anyways..

Spectre wrote:

mathjak107 wrote: who cares what a long term investment does over the short term'

Ahh..  Are you familiar with the problem of order of returns of a retirement portfolio?  With a steady drawdown to live off of, a few bad years at the start of a retirement period (which could range from ages 60-90, so a 30 year period) will make a big difference in the outcome.  50/50 portfolios, in fact, any combination of stock & bonds are unable to deal with severe drawdowns at the start of a retirement period, without up'ing your saving rates to ludicrous rates..

Not to mention when the long term turned out to be quite short because of unexpected events.

Spectre wrote:

mathjak107 wrote: who cares what a long term investment does over the short term'

Ahh..  Are you familiar with the problem of order of returns of a retirement portfolio?  With a steady drawdown to live off of, a few bad years at the start of a retirement period (which could range from ages 60-90, so a 30 year period) will make a big difference in the outcome.  50/50 portfolios, in fact, any combination of stock & bonds are unable to deal with severe drawdowns at the start of a retirement period, without up'ing your saving rates to ludicrous rates..

It seems that a 3rd (or 4th) asset class that behaves very differently than stocks and bonds is necessary to increase the portfolio survival rates, and gold/cash appears to be the answer.

That's why I'm here, anyways..

sequence of return risk is the biggest risk you face when spending down .

however mathematically  when planning around an initial 4% swr it would take a less than 2% real return average  over the first 15 years to fail.

that has happened only 4x out of 111 rolling 30 year time frames .


those were the unlucky soles that retired in 1907 ,1926 , 1937 and `1966.

however a slight spending adjustment of 1/4% has put them right back on track.

once again it was much ado about nothing historically and as long as you monitor your real return over the crucial first 15 years and adjust a bit if needed  you are worrying about something that still has not happened.

to many of us stifling the growth of our money and not  letting it work more efficiently with a bit more volatility ( i won't say risk since the pp may not be any safer , just less volatile )  is not something many of us choose to do and  conventional portfolio's are neither un-safe nor reckless except in the minds of some of you here .

needing long term money in the short term is bad in either case .

as i said , case in point , if i continued on with the pp it is now 26k in the hole .  my actual mix is still up 3k  so needing money in the short term will be a case by case thing dependent on the point you need it .

in fact over most time frames except cherry picking out a handful of ones as examples you would be so much a head with conventional investing that odds are you could take that loss after at least one up cycle and  still be well a head.

but enough said , if you want to keep believing that the  investment gods will wipe out  all non believers feel free  but you likely will be once again  quite wrong    it just may be the gold that does you in and never lets you see the light of day unless you have decades of time  left to recover and retrace what you gave up by  letting  that money die on the vine..

any way i am out of here and good luck with that gold and long term bonds in the new normal ,  looks like you will need it .


bye .

mathjak107 wrote: conventional portfolio's are neither un-safe nor reckless except in the minds of some of you here .

100% paper portfolios are reckless, no discussion possible.

TennPaGa wrote: mathjak107, I must confess that I really don't understand what you are trying to do here on this forum.

I would say that the message you have been conveying in your numerous posts across a plethora of threads is not much different than what any of us have heard from the financial services industry, or our 401k sponsors at out employers, or in the popular press.

Most of the people on this forum have heard that message, but, for whatever reason, something about it did not resonate with them.  Maybe they were burned in the past.  Maybe they have tremendous savings rates, so they have different goals for their money.  There are a whole list of possibilities.

And so they have chosen to allocate their saving (well, at least some portion of it) to the Permanent Portfolio.

Many, if not most, of your numerous (14 per day!) posts in the 1 month you've been a member here have been aimed at trying to talk people out of the PP.  As Pointedstick said above, I think we've heard your message.  But, from looking at the evolution of responses to your posts, I would say the community is growing weary of your non-stop harping.  This shouldn't be surprising -- it is a forum dedicated to the Permanent Portfolio, after all!

So, as one of the moderators here, I would respectfully ask that you take a break from trying to talk people out of the PP. 

That said, there are many other topics people here enjoy discussing.  Hot stock tip?  Post about it in the Variable Portfolio Discussion forum!  Got a hobby? Plans for what you will be doing in retirement? Want to talk politics or economics? Check out the Other Discussions forum!

I think you will find this to be a vibrant community with a wide range of interests and experiences, and one in which I think you will enjoy participating.

But constant criticism of the PP? Jeez, mon, give it a rest!

I would like to respectfully disagree with this post. I am finding mathjak107's dissenting point of view interesting and helpful. Has it convinced me to drop the Permanent Portfolio? No, but it has provided an alternate perspective which is very useful for anyone trying to make informed decisions. I don't have the benefit of an extended history of investing my hard earned money into the Permanent Portfolio, where I have many years of positive returns at my back, but my money is just that - hard earned, and so it concerns me that in the three years I have used the strategy, two of them have been money losers, and only one has been a decent return. When I started, I was very attracted to a portfolio that had only suffered annual losses three times in 40 years, and now I am facing annual losses twice in three years (admittedly, 2015 is not over yet so things could change). My point is that maybe the economic environment really is different than in the past and a diligent investor ought to consider it. I wish you wouldn't shut mathjak107 down for what you perceive as criticism and instead embrace the diversity of opinion as a moderator whether you agree with it (or like it) or not.

As HB discussed in his book, it's perfectly acceptable to maintain a variable portfolio alongside your permanent portfolio, which I have done and I am thankful I have because over the past three years I have done well with it. If the world collapsed, would my variable portfolio disintegrate while my permanent portfolio remained bulletproof? Maybe, it would. But if the world did not collapse, what's the opportunity cost that I paid for the so-called insurance, and how would that opportunity cost compound over time? I don't know the answer and neither do you because neither of us can know for certain what the future holds, but in the end, investment allocation is a personal decision and judgment call. I'm revisiting my allocation strategy at the moment, and I find the diverse points of view useful. Thank you,

TennPaGa wrote: mathjak107, I must confess that I really don't understand what you are trying to do here on this forum.

I would say that the message you have been conveying in your numerous posts across a plethora of threads is not much different than what any of us have heard from the financial services industry, or our 401k sponsors at out employers, or in the popular press.

Most of the people on this forum have heard that message, but, for whatever reason, something about it did not resonate with them.  Maybe they were burned in the past.  Maybe they have tremendous savings rates, so they have different goals for their money.  There are a whole list of possibilities.

And so they have chosen to allocate their saving (well, at least some portion of it) to the Permanent Portfolio.

Many, if not most, of your numerous (14 per day!) posts in the 1 month you've been a member here have been aimed at trying to talk people out of the PP.  As Pointedstick said above, I think we've heard your message.  But, from looking at the evolution of responses to your posts, I would say the community is growing weary of your non-stop harping.  This shouldn't be surprising -- it is a forum dedicated to the Permanent Portfolio, after all!

So, as one of the moderators here, I would respectfully ask that you take a break from trying to talk people out of the PP. 

That said, there are many other topics people here enjoy discussing.  Hot stock tip?  Post about it in the Variable Portfolio Discussion forum!  Got a hobby? Plans for what you will be doing in retirement? Want to talk politics or economics? Check out the Other Discussions forum!

I think you will find this to be a vibrant community with a wide range of interests and experiences, and one in which I think you will enjoy participating.

But constant criticism of the PP? Jeez, mon, give it a rest!

before i go ,to set the record straight i never intended to talk anyone out of the pp.

i did intend  to get the mis-belief that everything else is reckless and  risk taking cleared up.

but many just want to continue believing their own bull-sh%t  and they will continue to cherry pick events  that make the pp shine when in fact it has produced  far less growth and no greater safety over it's existance over the long term  , it has only been less volatile at a steep price . if that is what you need , great , i get that.  but to call it safer or to  hand  pick out good performing time frames to show how it doesn't lag  is nonsense .

anyway for those who got something out of it and it made them think and do thier own homework great .  for those who continue to believe their way is the only safe way i say good luck.

anyway no point arguing so c-ya .