Gyroscopic Investing

metta2006 wrote:

MachineGhost wrote: As gold is the most volatile of the 4 assets, the negative real return risk can only be mitigated by using market timing or normalizing the risk of the portfolio assets.

I believe the [economic] situation is especially perilous at the moment with stocks still overvalued, bond yields near historical lows and gold up 10 years in a row.  A year or two of deflation would not be unusual.  There is no way 25% in long term Treasuries will make up for 50% of gold & stocks declining.  Recognize this and find a way to deal, whether that is sticking to the plan or being proactive.

MG

I feel the same way. I believe the reason why HB PP did so well in the last several years is the gold. Now gold is dropping everyday together with stocks and LTT is not enough to mitigate this with cash yield almost nothing. Especially Canadian LTT is not even as powerful as US LTT. Perhaps reduce gold allocation? PP seems more volatile than 40/60 bonds/stocks portfolio.

Canadian LTT have achieved a similar return as TLT since April 4, 2011:

TLT = 29.6% (return would increase by an additional 5% because of currency fluctuations, but then again this doesn't factor in the forex costs)
CAN LTT (30 Year) = 28.0%

XIC and XWD have seen a different return over the same period:

XIC = -17%
XWD = -3.9%

Would you feel better if you added 5% XWD and 5% TLT?  Backtesting shows this decreases volatility for a CAPP.

metta2006 wrote: Would you say this time is different?

It could be different this time, but I'm not sure what else we could do...go all to cash?  But then you're placing your money in an asset that has a negative real return, and you would miss out on any upside potential in other financial assets.  Personally I think 100% cash is more risky than the PP (over a period of a few years).

If the PP fails then just about every other portfolio will be doing just as bad or worse.

metta2006 wrote:

MachineGhost wrote: As gold is the most volatile of the 4 assets, the negative real return risk can only be mitigated by using market timing or normalizing the risk of the portfolio assets.

I believe the [economic] situation is especially perilous at the moment with stocks still overvalued, bond yields near historical lows and gold up 10 years in a row.  A year or two of deflation would not be unusual.  There is no way 25% in long term Treasuries will make up for 50% of gold & stocks declining.  Recognize this and find a way to deal, whether that is sticking to the plan or being proactive.

MG

I feel the same way. I believe the reason why HB PP did so well in the last several years is the gold. Now gold is dropping everyday together with stocks and LTT is not enough to mitigate this with cash yield almost nothing. Especially Canadian LTT is not even as powerful as US LTT. Perhaps reduce gold allocation? PP seems more volatile than 40/60 bonds/stocks portfolio. Would you say this time is different?

Metta...I like the PP because it tells me I should be buying the assett when the price is down (just like buying something when its on sale at the store). Of course, this is easier said than done. If you reduce your gold now...how will you know when its time to increase allocation? Why do you think you won't be selling at the low?

murphy_p_t wrote:

metta2006 wrote:

MachineGhost wrote: As gold is the most volatile of the 4 assets, the negative real return risk can only be mitigated by using market timing or normalizing the risk of the portfolio assets.

I believe the [economic] situation is especially perilous at the moment with stocks still overvalued, bond yields near historical lows and gold up 10 years in a row.  A year or two of deflation would not be unusual.  There is no way 25% in long term Treasuries will make up for 50% of gold & stocks declining.  Recognize this and find a way to deal, whether that is sticking to the plan or being proactive.

MG

I feel the same way. I believe the reason why HB PP did so well in the last several years is the gold. Now gold is dropping everyday together with stocks and LTT is not enough to mitigate this with cash yield almost nothing. Especially Canadian LTT is not even as powerful as US LTT. Perhaps reduce gold allocation? PP seems more volatile than 40/60 bonds/stocks portfolio. Would you say this time is different?

Metta...I like the PP because it tells me I should be buying the assett when the price is down (just like buying something when its on sale at the store). Of course, this is easier said than done. If you reduce your gold now...how will you know when its time to increase allocation? Why do you think you won't be selling at the low?

The counter-argument is, I could potentially rebalance into a lagging asset class until all available funds are exhausted.

buddtholomew wrote:

murphy_p_t wrote:

metta2006 wrote: I feel the same way. I believe the reason why HB PP did so well in the last several years is the gold. Now gold is dropping everyday together with stocks and LTT is not enough to mitigate this with cash yield almost nothing. Especially Canadian LTT is not even as powerful as US LTT. Perhaps reduce gold allocation? PP seems more volatile than 40/60 bonds/stocks portfolio. Would you say this time is different?

Metta...I like the PP because it tells me I should be buying the assett when the price is down (just like buying something when its on sale at the store). Of course, this is easier said than done. If you reduce your gold now...how will you know when its time to increase allocation? Why do you think you won't be selling at the low?

The counter-argument is, I could potentially rebalance into a lagging asset class until all available funds are exhausted.

Given that you must stop at 0 and thus a 100%+ loss in a PP asset is not possible without using leverage, I don't know how you would exhaust all of your funds rebalancing.

Plus, in a fiat currency world, it's hard to imagine anything remotely like that happening, simply because one of the premises behind a modern fiat currency is that there will always be a modest level of inflation targeted by central banks, and thus all financial assets should rise simply as a result of currency devaluation.

When you look at the history of the PP assets, losses of even 40% are very unusual.  The idea that you would repeatedly rebalance into an asset based on a series of 40%+ declines in the value of that asset seemes farfetched to me.  The only asset that that has ever encoutered anything remotely like this was stocks in the 1929-1933 period, when they declined 80%+, which would have probably only triggered two or three rebalancing events if you had a PP.

If you look at gold over the 1980-1999 period, it lost a LOT of value, but the PP continued to perform well, and during this secular decline in value for gold there were still a handful of years in which gold was the leading PP asset.

There is always something to worry about in life if you want something to worry about.  If you can't sleep with the PP, I don't know what would make you sleep, other than 100% t-bills, but if you do that right now you are locking in a 3-4% loss in real terms, and that would probably be more likely to keep me up at night than just sticking with the PP.

I feel your pain, I just don't know what to tell you.  The PP hasn't really done anything unusual lately.  If you look at its history, it will sometimes have a flat year following two or three very good years, and maybe that's what we're seeing right now.  Over the last 12 months we're still up 10% or so, so I don't think there's too much to be upset about.

I don't usually follow the daily pundits but this video caught my attention about the current performance of gold and other commodities. And why gold is viewed positively because governments are not willing to raise real interest rates over inflation ie. get serious about tackling deficits. I don't agree or disagree with the rightness of this analysis but it does point out that just when you think you are making the right move by dumping your gold it can all reverse on you very quickly. Maybe sticking to the plan and not trying to outguess the market is best. It's certainly less stressful to sit back and enjoy the ride.

http://finance.yahoo.com/blogs/daily-ti ... 58084.html

I'll add that just a short time ago, I posted that I was freaked out by the prospect of LTT losing much of their value. I got a lot of support to stay with it. I've stuck to the PP plan and now LTT seem to be saving the portfolio. Moral of story: you never know which of the 4 assets will save you. So it's best to hold all 4 and rebalance at the bands you're comfortable with.

Gold is down nearly 20% from its high last summer, yet as MT mentioned earlier, the PP is up high single digits in the last 12 months.  This could be a year in which the PP is down. We just don't know.  Changing the asset percentages in the PP seems to be a recipe for disaster.  IMO it is simply market timing and nothing else.  LTT's have saved the PP twice in the past year.  What asset class will save it next?  If only my crystal ball was working better.  Guess I'd better just stick to the plan.

Clive, is there any method not to run out of money in retirement?

The 3X products may have some DECAY?  Only Clive or Wonk or maybe others could offer a guess as to what the decay may be over long time periods.  But assume you are in the withdrawal state for maybe 12 years plus 4 years in long-term care.  What IF you never take a  3% or 5% withdrawal?  Any monies needed will be sold out of Gold, LTT, and VTI.

To keep your position you buy 3X products.  You pocket the difference between your cash needs and the cost to replace your position.  Any sales are replaced with 3X products and you accept possible decay.  You just keep your position like you never took a withdrawal. I know these products have not been tested in a 2008 deal.

The thought is, assuming if there is not a systemic risk in the products, would the possible decay ever be above 3% per year?  I know there is no sure answer.  But maybe you have less decay than taking a withdrawal for 16 years.  Any thoughts? 

MediumTex wrote: I have grown to really enjoy and appreciate a sort of Honda Accord approach to investing.  As dull as it can be much of the time, you tend to get carjacked a lot less often, your auto insurance rates are lower, and the overall quality of the ride is pretty good.

I like that analogy.  You should've used it for your book title.  The Permanent Portfolio:  The Honda Accord of Investing

Down, down, down...further into the abyss. Is hope a strategy?

The abyss?

I really think you should be in mostly T-Bills & I bonds.

buddtholomew wrote: Down, down, down...further into the abyss.

Further into the abyss? 

Just to make sure anyone joining the conversation late understands, you've made money with your PP right?

No losses of any kind, right?

I don't know that "abyss" is the word I would use for basically being flat for the year so far.

But I have always said that the PP is not for everyone, and if it's not meeting your expectations or objectives then by all means I would move on to something else (though please hang around the forum even if you decide the PP isn't for you).

buddtholomew wrote: Down, down, down...further into the abyss. Is hope a strategy?

Hey budd, I've forgotten -- when did you create your portfolio?  My SmartMoney tracker still has the PP up for the year.

Did you ever give the less-frequent checking idea a whirl?  I know that it sounds like a simplistic suggestion but the extra time and reduced anxiety it earns you is a real treat.  The difference between curling up with a good book and curling up with a stock ticker are like night and day.  I personally like once per month.  I'm too much of a turtle to move any faster than that with my investments anyhow.

Mine was set up on March 13, almost exactly two months ago.  It's down about 1.4%.  But I'm still glad I'm in it, and plan to keep contributing.

...It probably helps that I moved to this from 100% gold, so obviously the status quo would have been much, much worse.  Picked a good time to admit that market timing doesn't work!  :-)

Lone Wolf wrote:

buddtholomew wrote: Down, down, down...further into the abyss. Is hope a strategy?

Hey budd, I've forgotten -- when did you create your portfolio?  My SmartMoney tracker still has the PP up for the year.

Did you ever give the less-frequent checking idea a whirl?  I know that it sounds like a simplistic suggestion but the extra time and reduced anxiety it earns you is a real treat.  The difference between curling up with a good book and curling up with a stock ticker are like night and day.  I personally like once per month.  I'm too much of a turtle to move any faster than that with my investments anyhow.

I continue to look at the PP regularly, even though I know that it is counter-productive. I haven't bought into the PP hook, line and sinker and therefore monitor the investment more closely.

I find it difficult to believe that other PP investors do not experience similar visceral emotions when the portfolio declines over a time period (2-5 days or more). Have others bought into the PP philosophy enough to see declines and not have any doubt? I realize that I have an emotional tie to money, but am I the exception. What other coping mechanisms do others use besides looking less frequently (head in the sand).

Budd,

The PP dropped something like 15% in 2008, mid-year.  I would load up much more heavily on T-bills and start maxing out your I Bonds until a 15% dip in everything else doesn't bother you.

buddtholomew wrote: I continue to look at the PP regularly, even though I know that it is counter-productive. I haven't bought into the PP hook, line and sinker and therefore monitor the investment more closely.

I find it difficult to believe that other PP investors do not experience similar visceral emotions when the portfolio declines over a time period (2-5 days or more). Have others bought into the PP philosophy enough to see declines and not have any doubt? I realize that I have an emotional tie to money, but am I the exception. What other coping mechanisms do others use besides looking less frequently (head in the sand).

You have to be checking it more or less daily to even have the opportunity to react negatively to day-to-day volatility.

I would note, too, that looking less frequently is hardly a "head in the sand" approach.  If I plant a tree and move on to other activities while I allow the tree to grow, I haven't taken a "head in the sand" approach to my tree's growth.  If anything, I've taken a "leave the tree alone and let it grow" approach, which is what trees (and investments) often need the most--i.e., to be left alone so they can do their thing.

MediumTex wrote:

buddtholomew wrote: I continue to look at the PP regularly, even though I know that it is counter-productive. I haven't bought into the PP hook, line and sinker and therefore monitor the investment more closely.

I find it difficult to believe that other PP investors do not experience similar visceral emotions when the portfolio declines over a time period (2-5 days or more). Have others bought into the PP philosophy enough to see declines and not have any doubt? I realize that I have an emotional tie to money, but am I the exception. What other coping mechanisms do others use besides looking less frequently (head in the sand).

You have to be checking it more or less daily to even have the opportunity to react negatively to day-to-day volatility.

I would note, too, that looking less frequently is hardly a "head in the sand" approach.  If I plant a tree and move on to other activities while I allow the tree to grow, I haven't taken a "head in the sand" approach to my tree's growth.  If anything, I've taken a "leave the tree alone and let it grow" approach, which is what trees (and investments) often need the most--i.e., to be left alone so they can do their thing.

Is your "head in the sand" if the tree doesn't grow, but rather wilts?

buddtholomew wrote:

MediumTex wrote:

buddtholomew wrote: I continue to look at the PP regularly, even though I know that it is counter-productive. I haven't bought into the PP hook, line and sinker and therefore monitor the investment more closely.

I find it difficult to believe that other PP investors do not experience similar visceral emotions when the portfolio declines over a time period (2-5 days or more). Have others bought into the PP philosophy enough to see declines and not have any doubt? I realize that I have an emotional tie to money, but am I the exception. What other coping mechanisms do others use besides looking less frequently (head in the sand).

You have to be checking it more or less daily to even have the opportunity to react negatively to day-to-day volatility.

I would note, too, that looking less frequently is hardly a "head in the sand" approach.  If I plant a tree and move on to other activities while I allow the tree to grow, I haven't taken a "head in the sand" approach to my tree's growth.  If anything, I've taken a "leave the tree alone and let it grow" approach, which is what trees (and investments) often need the most--i.e., to be left alone so they can do their thing.

Is your "head in the sand" if the tree doesn't grow, but rather wilts?

Sure, but part of the due diligence you do before planting the tree is making sure that it has enough water, sunlight and nutrients so that wilting is a low probability event.

The larger point I was making is that there are some activities in life that simply don't lend themselves to improvement through constant human monitoring, and in fact the monitoring itself frequently leads to a less favorable outcomes, either as a result of an emotional decision due to impatience or fatigue, or simply lost productivity from the other things you didn't get to do because you were doing the financial equivalent of watching paint dry.

Sitting here today, is there an alternative allocation that would have made you happier in recent months?  Presumably, it wouldn't be a stock heavy allocation, given the stock market's overall volatility. 

Perhaps a 35% stock/65% bond allocation would make you happier, along the lines of Vanguard Wellesley.  It won't provide you with as much protection as the PP during a period of rising interest rates (based upon the way the two strategies performed in the 1970s), but it feels from your posts like your investment decisions right now are not the result of a cool and rational thought process and I would hate to see you make a decision you later regretted because you got spooked by a 1% return when you were expecting a 5% return.

Although I feel your uneasiness, from my perspective the PP is not behaving out of spec in any way.  If it's performing within the guidelines that we all presumably knew about before we invested, I really don't see what there is to be anxious about.

MediumTex wrote:

buddtholomew wrote:

MediumTex wrote: You have to be checking it more or less daily to even have the opportunity to react negatively to day-to-day volatility.

I would note, too, that looking less frequently is hardly a "head in the sand" approach.  If I plant a tree and move on to other activities while I allow the tree to grow, I haven't taken a "head in the sand" approach to my tree's growth.  If anything, I've taken a "leave the tree alone and let it grow" approach, which is what trees (and investments) often need the most--i.e., to be left alone so they can do their thing.

Is your "head in the sand" if the tree doesn't grow, but rather wilts?

.

Sitting here today, is there an alternative allocation that would have made you happier in recent months?  Presumably, it wouldn't be a stock heavy allocation, given the stock market's overall volatility. 

Perhaps a 35% stock/65% bond allocation would make you happier, along the lines of Vanguard Wellesley.  It won't provide you with as much protection as the PP during a period of rising interest rates (based upon the way the two strategies performed in the 1970s), but it feels from your posts like your investment decisions right now are not the result of a cool and rational thought process and I would hate to see you make a decision you later regretted because you got spooked by a 1% return when you were expecting a 5% return.

Thank you for your perspective. I do not intend to make any irrational decisions, but only further seek to understand how others achieve inner peace with the PP.

buddtholomew wrote: I find it difficult to believe that other PP investors do not experience similar visceral emotions when the portfolio declines over a time period (2-5 days or more).

2-5 days is not a period of time. It is a hiccup.

The first 401k I ever had (not sure they even called it that), we only got statements once a year and there were no computers and no internet available to check it more often.

I finally rolled that 401K over into my self-directed IRA just before I started the PP and it amounted to about 35 x the original investment. That's 3500 percent.  

I recall some periods through the years when the amount was cut in half on paper.

Hi all,

I started my CA PP in mid-January 2012.
XIC: 20%; XWD 5%
ZFL: 25%
ZFS: 25%
IGT: 25%

I do believe it is more difficult for new PPers to see the declines in their portfolios as we have not had any of the previous year's gains to fall back on.
To date, my CA PP is down about 2.5%.

When I start to feel anxious about it, I try to look at the bigger picture and another 10 years before we have to draw from the portfolio.
I also find this forum itself calming to feel the support and hear the knowledge of people that have been investing in the Permanent Portfolio for years and have alot more financial and investment knowledge than I.
There are alot of extremely smart people on this forum whom I feel would not keep on investing in something that was not working.
I believe that if MT or some of the other PP heads felt changes were required, they would let the forum know.
I also keep a copy of "Fail Safe Investing" close at hand when I need to refresh myself with the ideas of Harry Browne who made so much sense to me in the first place.

Clive

The table that goes back to 1929 has Inf in it.  What asset class is Inf?

buddtholomew wrote:
I find it difficult to believe that other PP investors do not experience similar visceral emotions when the portfolio declines over a time period (2-5 days or more). Have others bought into the PP philosophy enough to see declines and not have any doubt?

I swear, I enjoy it.

I have both a 25 x 4 and some PRPFX.  I increased my PRPFX holdings by 25% today, and if it continues to fall I'll do it again tomorrow.  

If you like the PP, but can't stand a few days losses, just double your cash position.

bluedog wrote: I believe that if MT or some of the other PP heads felt changes were required, they would let the forum know.
I also keep a copy of "Fail Safe Investing" close at hand when I need to refresh myself with the ideas of Harry Browne who made so much sense to me in the first place.

While I appreciate the compliment, I'm just another person out there trying to make sense of the world and figure out how to invest in light of all of the crazy and unexpected stuff that happens.

All I can say is that I find the theory behind the PP to be sound, and even if it drifts sideways for a while it's still probably one of the safest games in town.

Over time, I think that it is probably missed gains in the stock market that will shake more people from the PP than periods like we are seeing right now when you have a few months of flat performance.  Normally, if the PP is not doing well it means that one or more of the PP assets are doing terrible.  Right now, gold is dropping, stocks are moving sideways and LT treasuries are ticking up.  Considering that Greece could be leaving the euro soon, which would basically be the beginning of the end for the whole EU experiment, and any number of other weird and disruptive things are happening around the world, gold is probably the one PP asset that I would most want to own right now.

IMHO, what we are seeing right now doesn't even rise to the level of a modest test of the PP concept.  I'm actually surprised we aren't seeing more volatility in the markets right now.

It is interesting how long term rates continue to grind lower, in spite of the continued astonishment of some people.