Gyroscopic Investing

DragonJoey3 wrote: I can say that when I decided to change my 6 month emergency fund over to be the PP instead of a savings account I did so Dec. 4 2012.  Since that time the PP has been down almost consistently.  Presently based on ETF Replay it should be down 1.5%, and based on my own tracking it's down 1.87% (because not all of it was invested at once.

That being said I don't regret the decision in the least.  I suspect the PP will still end the year in the green and more so than the measly 1% I would have gotten in a bank account.

I consider the IT-TE holings Tier 1 of the EF. I envy your optimism and would like to end the year in the black.

buddtholomew wrote:

DragonJoey3 wrote: I can say that when I decided to change my 6 month emergency fund over to be the PP instead of a savings account I did so Dec. 4 2012.  Since that time the PP has been down almost consistently.  Presently based on ETF Replay it should be down 1.5%, and based on my own tracking it's down 1.87% (because not all of it was invested at once.

That being said I don't regret the decision in the least.  I suspect the PP will still end the year in the green and more so than the measly 1% I would have gotten in a bank account.

I consider the IT-TE holings Tier 1 of the EF. I envy your optimism and would like to end the year in the black.

Here's rolling 12-month returns for a 25% each TLT, GLD, SHY, VTI portfolio (rebalanced monthly, dividends reinvested)

April-13 March  Feb      Jan      Dec-12  Nov      Oct      Sept      Aug      Jul        Jun        May
2.79%  4.34%  2.59%  2.90%  6.34%  5.58%  5.41%  11.17%  8.05%  10.60%  11.83%  9.07%

The previous year (May 2011 to April 2012), they were all above 9% (nearly all above 10%).

Over the past two years there have been two negative 6-month rolling returns (Feb and March this year, both about -0.5%), a few more negative 3-month returns (none worse than -2%), and quite a few (10, most between 0 and -1%, but a few larger losses up to nearly -2%) negative 1-month returns.

I don't think anyone has ever promised the PP will never go down.  It clearly does.  But the length of time it takes the PP to recover is much shorter than most investment strategies, because it goes down less often and goes down less.  And over very long timeframes (decades) it seems to essentially match a 100% stock portfolio. 

I don't have 40 years worth of data handy.  Maybe one of the data wonks could figure out the longest period the PP has ever been under water (using monthly data).  My guess is it's less than 2 years, meaning if you have money you don't want to spend for at least 2 years the PP would be a pretty safe place to put it.  If you might need it in less than 2 years, you should probably think about something else.

If you want to be certain you're beating inflation, you're talking even longer.  Again, I don't have the data but I'd be surprised if there was any 5 year interval where the PP failed to beat inflation.  A 5 year CD is pretty much guaranteed to not beat inflation, so I suspect putting your money in a PP is virtually always better than buying a 5-year CD.

I think the PP is great for a medium to long term investment.  But it's not 100% short term treasuries so there is some short term risk.  FDIC insured bank accounts and money market funds both have risks the PP doesn't (that in a monetary collapse you'll lose all your money, and that over time you'll certainly lose out to inflation - the latter, but not the former, also applies to short term treasuries).  But the PP also has risks bank accounts and money market funds generally (and short term treasuries definitely) don't, in particular the very real risk that you'll (at least temporarily) lose capital.

rhymenocerous wrote: MT once wisely counseled that greed would be people's biggest opponent to overcome when investing in the PP.  Don't let the allure of greater returns sway you from decisions you made in more "stable" times. 

The place to get greedy is in your VP, not your PP.  You do have a VP, don't you?

notsheigetz wrote:

sophie wrote: Are you sure you're down 2% for the year?

As of May 1st, my PP is down 0.34% since January 1. 

My Morningstar tracking of SHY+TLT+IAU+VTI to approximate the PP is actually showing + 1.1% YTD so I don't know what y'all are looking at.

I've been tracking 3 different hypothetical PP portfolios on Yahoo! Finance based on prices as of 1/1/13.  Here is the YTD performance of each right now:

TLT, PHAU.L, ZGLDUS.SW, SCHO, SCHB = -0.8% YTD

TLT, GLD, SHY, VTI = -0.9% YTD

EDV, PHYS, SGOL, SHY, VTI  = -1.6% YTD

notsheigetz wrote:

sophie wrote: Are you sure you're down 2% for the year?

As of May 1st, my PP is down 0.34% since January 1. 

My Morningstar tracking of SHY+TLT+IAU+VTI to approximate the PP is actually showing + 1.1% YTD so I don't know what y'all are looking at.

You might want to check again.  Here were the closing prices of those funds on 12/31/2012:
SHY 84.42
TLT 121.18
IAU 16.28
VTI 73.28
Here were the closing prices on 5/17/2013:
SHY 84.46
TLT 117.07
IAU 13.17
VTI 86.08
Based on these numbers, a 4x25 PP invested in these funds would have been down 1.25% YTD at market close on 5/17.  (NOTE: This calculation does not include reinvested dividends).

rocketdog wrote:

notsheigetz wrote:

sophie wrote: Are you sure you're down 2% for the year?

As of May 1st, my PP is down 0.34% since January 1. 

My Morningstar tracking of SHY+TLT+IAU+VTI to approximate the PP is actually showing + 1.1% YTD so I don't know what y'all are looking at.

You might want to check again.  Here were the closing prices of those funds on 12/31/2012:
SHY 84.42
TLT 121.18
IAU 16.28
VTI 73.28
Here were the closing prices on 5/17/2013:
SHY 84.46
TLT 117.07
IAU 13.17
VTI 86.08
Based on these numbers, a 4x25 PP invested in these funds would have been down 1.25% YTD at market close on 5/17.  (NOTE: This calculation does not include reinvested dividends).

I think mine does show reinvested dividends and also I think I started tracking on the first day the market opened in 2013 making my initial figures slightly different than yours.

notsheigetz wrote:I think mine does show reinvested dividends and also I think I started tracking on the first day the market opened in 2013 making my initial figures slightly different than yours.

In that case, what a difference a day makes!

According to ETFreplay.com the VTI/GLD/TLT/SHY portfolio's YTD return is -0.4% (including dividends) as of 5/21.

http://etfreplay.com/combine.aspx

Don't worry, it will be much lower after today's close. POS.

Seems like we are playing against a rigged table...  Without POMO Tuesdays, the DOW would be up only 0.5%...
http://www.zerohedge.com/sites/default/ ... 1_EOD1.jpg

buddtholomew wrote: Don't worry, it will be much lower after today's close. POS.

Seems cash is poised to be today's big winner. Good thing I have a quarter of my portfolio in it. 

Pointedstick wrote:

buddtholomew wrote: Don't worry, it will be much lower after today's close. POS.

Seems cash is poised to be today's big winner. Good thing I have a quarter of my portfolio in it. 

Congratulations.

Just trying to provide a little perspective. A day like today hurts everyone except the cash-heavy, and PP-holders are more cash-heavy than most. I mean, who else did well today? Besides people who shorted stocks, bonds, and gold, that is? 

Today was also particularly brutal because of the wicked 180 degree turn the market took after about 10:15am. Can't say I've had many top-10 best performance days reverse into top-10 worst performance days in such short order.

But yeah Budd, at least today 100% stocks is faring worse than the PP.

iwealth wrote: Today was also particularly brutal because of the wicked 180 degree turn the market took after about 10:15am. Can't say I've had many top-10 best performance days reverse into top-10 worst performance days in such short order.

But yeah Budd, at least today 100% stocks is faring worse than the PP.

Please do not continue to make reference to me and a 100% stock portfolio. I have never compared the PP to a 100% stock portfolio (that I recall), but rather a traditional BH 60/40 allocation.

buddtholomew wrote:

iwealth wrote: Today was also particularly brutal because of the wicked 180 degree turn the market took after about 10:15am. Can't say I've had many top-10 best performance days reverse into top-10 worst performance days in such short order.

But yeah Budd, at least today 100% stocks is faring worse than the PP.

Please do not continue to make reference to me and a 100% stock portfolio. I have never compared the PP to a 100% stock portfolio (that I recall), but rather a traditional BH 60/40 allocation.

How did the 60/40 portfolio do today compared to the PP?  Just curious.

PP(VTI/TLT/SGOL/SCHO): -0.8%
60/40 (VTI/TLT): -1.2%

Tyler wrote: PP(VTI/TLT/SGOL/SCHO): -0.8%
60/40 (VTI/TLT): -1.2%

Don't make the assumption that individuals who invest in a 60/40 allocation hold long-term treasuries. My personal results for today were as follows.

PP - down .98%
60/40 - down .68%

If you think about it, a 60/40 with stocks and cash represents a more optimistic view of the economy, allowing you to profit from prosperity more than twice as much as the PP. When the stock market is struggling, the cash causes you to lose less, but it doesn't have any means to actually make money other than the dividends and coupon payments from the cash.

The story it's telling you is, "I'm prepared to make lots of money when the economy is doing well, and lose less than everybody else when it's not!"

Seen in this light, I can absolutely understand the appeal of such a portfolio. It seems like it's very psychologically well suited for someone whose two major goals are participating to a large extent in the stock party, but losing less than others when the party ends.

Pointedstick wrote: If you think about it, a 60/40 with stocks and cash represents a more optimistic view of the economy, allowing you to profit from prosperity more than twice as much as the PP. When the stock market is struggling, the cash causes you to lose less, but it doesn't have any means to actually make money other than the dividends and coupon payments from the cash.

The story it's telling you is, "I'm prepared to make lots of money when the economy is doing well, and lose less than everybody else when it's not!"

Seen in this light, I can absolutely understand the appeal of such a portfolio. It seems like it's very psychologically well suited for someone whose two major goals are participating to a large extent in the stock party, but losing less than others when the party ends.

It doesn't do as well as the PP during periods of inflation or deflation, which is consistent with the prosperity bias you are describing.

Right, it's more connected with the stock market. It's not a "real return in any environment" portfolio. It's a "less risky than 100% stocks" portfolio.

Pointedstick wrote: Seen in this light, I can absolutely understand the appeal of such a portfolio. It seems like it's very psychologically well suited for someone whose two major goals are participating to a large extent in the stock party, but losing less than others when the party ends.

Yeah, that makes sense. But I'd personally also be upset at missing out on the cash and gold parties. With the PP there's always a party!

(Still enjoying the party pics, MT)

Tyler wrote: Yeah, that makes sense. But I'd personally also be upset at missing out on the cash and gold parties. With the PP there's always a party!

I think I understand the pros and cons of the PP and plan to stick with it for the long haul.  But I have to admit it's been a pretty dull party for almost a year... 

buddtholomew wrote:

iwealth wrote: Today was also particularly brutal because of the wicked 180 degree turn the market took after about 10:15am. Can't say I've had many top-10 best performance days reverse into top-10 worst performance days in such short order.

But yeah Budd, at least today 100% stocks is faring worse than the PP.

Please do not continue to make reference to me and a 100% stock portfolio. I have never compared the PP to a 100% stock portfolio (that I recall), but rather a traditional BH 60/40 allocation.

I did not intend to make that reference. Actually I'm quite supportive of your concerns about the PP. Was just stating that at least there was some solace today in that stocks finally underperformed the PP. Albeit not by much.

buddtholomew wrote:

Tyler wrote: PP(VTI/TLT/SGOL/SCHO): -0.8%
60/40 (VTI/TLT): -1.2%

Don't make the assumption that individuals who invest in a 60/40 allocation hold long-term treasuries. My personal results for today were as follows.

PP - down .98%
60/40 - down .68%

J

PP down .8%
S&P down .7%


Often budd simply states what I'm (and I assume many others) are already feeling