Gyroscopic Investing

For those of us hoping to have a nice low gold price to rebalance into come January, looks like we are going to get our wish. Not sure to be happy or sad.
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For any PP old timers, I have a rebalancing question. Have any actually made it through to a real 35/15 or 40/10 rebalancing band hit?

I was just sitting here updating my spreadsheet and thinking about it, especially on the downside, for example if gold is 25% and $100k in your portfolio, it would need to rise to $160k or fall to $40k for the 40/10 bands or $140k/$60k for the 35/15 bands.

Especially on the downside, when you look at holdings individually, that is a lot of angst you've got to sit through watching it drop to those levels!

Peak to trough seems to show that waiting for the 40/10 bands has an edge in CAGR vs. annual or 35/15, 30/20 rebalance. Interested in any thoughts on this. I will probably always do annual because I don't think I could watch those levels being hit without acting.

Isn't it obvious?

I needed to place a chalk-mark regarding the location of a drop box containing the name of the target, a handgun, tin snips, and 15,000 euros.

Now for the code phrase: Glittery Jiggly Wiggles.

I believe founder Craig rebalanced out of gold 2-3 times at 35%.

@MangoMan: ask a stupid question...

I do hope gold will remain low in January. Want to put some IAU in my Roth, then sell it for small cap value stock in the future.

Cortopassi wrote:For those of us hoping to have a nice low gold price to rebalance into come January, looks like we are going to get our wish. Not sure to be happy or sad.

I just happened to have worked up my current AA this morning. My highest is stocks 33.3%, lowest gold 16.4%. I've held my PP since 2009, and never rebalanced. And I really have not put in any substantial contributions along the way. Practically speaking, nothing. So on the face of it, that seems far fetched? But I swear it's true. I do have most of the distributions going to cash rather than reinvestment. And we have spent most of those distributions. So that explains it, I guess.

We have downsized our lifestyle and expenses, so cash is starting to accumulate. I do want to start buying gold on a regular basis. If it goes under $1100 I'm going to get off my butt. The recent price drop does not bother me one bit. I love buying things that are beaten down. I would not want to be buying stocks right now.

Cortopassi wrote:...that is a lot of angst you've got to sit through watching it drop to those levels!

I believe Harry Browne chose 15/35 because that reflects the typical amount of downside/upside of the volatile assets before they start to swing in the other direction, thus buying low and selling high.

edit: I've decided to do equal contributions and allow natural rebalancing to take it's course. This way, I avoid weighting towards the dropping asset and under contributing to the rising asset. When a band is hit, I can capture all the movement that's happened and wait for it to come back around.

Sure. But it would be painful.

Say, for example, I was to wait to the 15% gold band to rebalance my PP. It is currently at 23.17% out of 25% with the latest few month drop.

To get that 23.17% down to 15% would put gold at about $645/ounce, with all else remaining equal.

I can virtually guarantee that would be impossible to watch along the way without rebalancing.

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To anyone listening, this brings up a math discussion and I am not sure my math is working the way HB intended.

1) If I were to take my current gold % of 23% (rounded) and current price of $1131, to get the price gold needs to be at to hit 15% (in a vacuum), I setup an equivalent equation: (23%/$1131)=(15%/$x), solve for x and get $732/ounce.

2) But, is this the way to do it, or do you need to relate the 23% and15% numbers to the overall drop of your portfolio value that happens when such a drop occurs? This is where I get a lower number of $645/ounce for the 15%, because as the price of gold drops, the denominator (value) of the portfolio is also dropping 1:1 and I reference all %ages to the current portfolio value.

I am now confused.

I have a pie chart in google sheets with the 4 assets in percentages. changing the numbers around gives a quick visual of the math. I just did a test and gold would indeed lose half it's value (drops to $600) to reach 15%. But that's with all other assets staying static, which should never happen.

Now if another asset doubles, say stocks, gold only needs to drop to $800 to reach 15%. If two assets double, gold would be at $1000 to reach 15%. The reverse is also true. If stocks, bonds, and cash all lose half value, gold would be at 35% just by doing nothing.

Cortopassi wrote:Sure. But it would be painful.

Say, for example, I was to wait to the 15% gold band to rebalance my PP. It is currently at 23.17% out of 25% with the latest few month drop.

To get that 23.17% down to 15% would put gold at about $645/ounce, with all else remaining equal.

I can virtually guarantee that would be impossible to watch along the way without rebalancing.

-------------*************-------------------

To anyone listening, this brings up a math discussion and I am not sure my math is working the way HB intended.

1) If I were to take my current gold % of 23% (rounded) and current price of $1131, to get the price gold needs to be at to hit 15% (in a vacuum), I setup an equivalent equation: (23%/$1131)=(15%/$x), solve for x and get $732/ounce.

2) But, is this the way to do it, or do you need to relate the 23% and15% numbers to the overall drop of your portfolio value that happens when such a drop occurs? This is where I get a lower number of $645/ounce for the 15%, because as the price of gold drops, the denominator (value) of the portfolio is also dropping 1:1 and I reference all %ages to the current portfolio value.

I am now confused.

Number 2.

I just got $662, lol. Let's see if I'm wrong.

1131 is .2317 of 4881, meaning the non-gold is 3750.
3750 is .85 of 4412. With gold being 662.

I could write up the algebra but this was easier.

And yeah, that could be painful. The alternatives would be to sell low, or to buy as it drops. Bill Bernstein in one of his books questions how anyone could have kept rebalancing a 60/40 into stocks in the 1929-30s. You'd have to keep selling your bonds, your safety net, and setting the money on fire by buying falling stocks. I am sure I could not have done it.

I don't quite see gold that way though. But I have not been tested like that.

I think the math would look like this:
.2317X = 1131
.77X = .85Y
Solve for Y.
I think.
Well, that gives me 663, due to rounding.
.77/.2317 x .2317X = .77/.2317 x 1131
.77X = 3758
= .85Y
Y = 4421
4421 - 3758 = 663

Thanks, guys.

I think my hope is not to be tested at the $600s. Hopefully not 3 figures at all. But we never know.

If I go by my poor stock trading history, I never made it to buying lower. I would always sell out, feel good for a few days/weeks/months as it continued further down, then I usually watched what I sold creep back up past the point of where I sold it and I would never get back in.

As Johnny says, other assets should make up for the pain of one and make a rebalancing point generally higher than this static worse case. So that would help.

This always made me laugh:

Cortopassi wrote:Thanks, guys.

I think my hope is not to be tested at the $600s. Hopefully not 3 figures at all. But we never know.

If I go by my poor stock trading history, I never made it to buying lower. I would always sell out, feel good for a few days/weeks/months as it continued further down, then I usually watched what I sold creep back up past the point of where I sold it and I would never get back in.

As Johnny says, other assets should make up for the pain of one and make a rebalancing point generally higher than this static worse case. So that would help.

This always made me laugh:

That is hilarious!

JohnnyFactor wrote:

Cortopassi wrote:...that is a lot of angst you've got to sit through watching it drop to those levels!

I believe Harry Browne chose 15/35 because that reflects the typical amount of downside/upside of the volatile assets before they start to swing in the other direction, thus buying low and selling high.

I'm just guessing, but I think it has more to do with keeping the share of each asset large enough to count but small enough to not be overwhelming.

You could very well rebalance "out" of the same asset three times in a row (wouldnt it be nice?), each time banking your gains and returning that asset to a manageable 25%. Ready for more gains OR the inevitable drop.

MangoMan wrote: What were you doing at a strip club?
...
lovingly yank

oops, I deleted more lines than I meant to.

I wonder if we are getting to the end of the retracement from the 2011 gold highs. I wonder if $1040 is as good as we get. Trump is going to cause all kinds of turmoil, that man is just plain trouble, I think maybe gold is not going to get any lower.

I'll probably regret this, but it's a bit interesting that gold is now up 5% in a couple of weeks even as the USD is strong.

Today I get the impression that there is going to be an effort to talk down the dollar.

Gold's back on sale, thank heavens.

US Dollar index below 100, bullish for gold

ochotona wrote:US Dollar index below 100, bullish for gold

Had to say that, didn't you! Now look what you've done.

Yes, incurring the wrath of the gold pricing gods is always a bad idea!

Wow. Well, just in time for my tax refund.

Well, gold's now higher than I want to pay for it. I'm watching the train leave without me having not yet finished my buys. I'll lie in wait and see if it comes back below $1200.

ochotona wrote:Well, gold's now higher than I want to pay for it. I'm watching the train leave without me having not yet finished my buys. I'll lie in wait and see if it comes back below $1200.

I'm waiting for $250. Harry Dent guarantees it!

Libertarian666 wrote:

ochotona wrote:Well, gold's now higher than I want to pay for it. I'm watching the train leave without me having not yet finished my buys. I'll lie in wait and see if it comes back below $1200.

I'm waiting for $250. Harry Dent guarantees it!

It is guaranteed. You can count on it.

i would not even believe harry's name is harry . he has had so many poor calls it is amazing anyone reads his stuff . his predictions should have started with "once upon a time " .

in fact look at my track record here last year . i called it better than he did ,. maybe i should do my own predictions and sell em . i can't do worse than some of these soothsayers .