Gyroscopic Investing

frugal wrote:

mathjak107 wrote:depends what you consider a higher return and acceptable volatility .

a cd is lower volatility and the return for that volatility may be the best to you if that is an acceptable return that meets your goals ..

to me the gb is an acceptable return so i could say the same thing about the gb . for the return and volatility it is the best . best is a relative term .

to me the pp return vs volatility is not as an acceptable return as the gb.

so we all have our own ideas as what is best for the volatility , returns and our investment goals . .

hello

how are you?

GB is gold bullion?

What is your asset allocation now?

All the best.

gb is the golden butterfly .

i run about 40% the butterfly and the rest are my models from fidelity insight . i keep 5 years withdrawals in their income portfolio , 5 years in the growth and income portfolio and the rest in the growth portfolio . that way each portfolio is optimized for the time frame .

I've started very slowly moving into the Golden Butterfly from the PP after being in the PP for the last 3+ years (though returns the last few years were a bit weak). It does make me a bit nervous as the small value and regular large stock funds have about an 80% correlation (much higher than the other assets) but the historical performance is quite convincing - slightly higher returns, about the same deviation and drawdown performance, slightly higher risk/reward and good staying power when the stock market crashed.

I decided to take it a bit at a time so I've been rolling stock gains from last few years over into small value stocks first, then I'll probably move a few percentage from bonds and cash and leave the gold as the last asset to re-balance. I'm only moving a few percent a month from PP to GB so I can dollar cost average if there is a major market move coming up. I've also done a bit of rebalancing between taxable and retirement accounts to try to minimize the tax bill by holding less stocks/bonds in taxable accounts.

I can't find a major downside to the Golden Butterfly - and it tracks well with the PP philosophy.

As of today, Gold is up over 11% YTD and long bonds > 3% for a very nice YTD gain, well above a stock only portfolio whether large or small cap.

And nobody should believe in the PP because of why exactly?

farjean2 wrote:As of today, Gold is up over 11% YTD and long bonds > 3% for a very nice YTD gain, well above a stock only portfolio whether large or small cap.

And nobody should believe in the PP because of why exactly?

the problem is holding the gains once the fear factor slides . i have very nice gains on the gb but i know the portions that are up are generally only nice and juicy until things calm down and risk is back on again in equity's , as it is most of the time . took some gold profits on thursday .

same thing happened after brexit as double digit gains in gold and bonds evaporated back down to mid single digits again once the temporary fear left.

you can be sure anyone who thought they would seek shelter in the pp after brexit and bought in to the idea of having a nice safe portfolio , was horrified at the double digit losses they had by years end .

when it comes to juicy gains in the flight to safety assets like gold and bonds , it seems these juicy gains are more about timing the markets than time in the markets . their roll in the pp is not big gains but rather mitigating the temporary dips so it is not about holding on to these untypical gains as much as we all would like it to play out that way .

not that there is anything wrong with the pp's returns , but looking at what seems excessive returns in the fear factor assets when they are up usually is something that does not stick around long . it just mitigates the dips and then slides back to more typical action for that asset .

farjean2 wrote:As of today, Gold is up over 11% YTD and long bonds > 3% for a very nice YTD gain, well above a stock only portfolio whether large or small cap.

And nobody should believe in the PP because of why exactly?

Because gold doesn't pay dividends, and isn't even backed by anything!

The best argument for the Golden Butterfly is that the four economic conditions that the PP is designed to leverage don't occur in equal measure in the 35+ year history that we are able to to use for backtesting. Prosperity clearly dominated.

The GB is a bet that Prosperity will continue to be more prevalent than inflation or deflation. That may well be true, but of course we can't know for certain. A Japanese investor, for example, would certainly disagree! If you decide to remain agnostic, stick to the PP.

Another reason to stick to the PP is if you are in my situation: a retirement account that is large compared to your PP savings, and that you can't integrate into the PP. I keep a standard 50/50 stock/bond portfolio in this account. I'm well aware of both its strengths and its weaknesses, and I need the PP to backstop the weaknesses.

a Japanese investor equivalent here would not be locked in to buying only his country's own stocks and bonds so in that respect that example of what happened in japan would not hold true here. we can invest anywhere in the world .

sophie wrote:The best argument for the Golden Butterfly is that the four economic conditions that the PP is designed to leverage don't occur in equal measure in the 35+ year history that we are able to to use for backtesting. Prosperity clearly dominated.

The GB is a bet that Prosperity will continue to be more prevalent than inflation or deflation. That may well be true, but of course we can't know for certain. A Japanese investor, for example, would certainly disagree! If you decide to remain agnostic, stick to the PP.

Another reason to stick to the PP is if you are in my situation: a retirement account that is large compared to your PP savings, and that you can't integrate into the PP. I keep a standard 50/50 stock/bond portfolio in this account. I'm well aware of both its strengths and its weaknesses, and I need the PP to backstop the weaknesses.

same here , i hold the gb to 35% or so of all invest-able money right now but the other 65% is invested in the same models i always used and optimized for when the money is needed .

i keep about 5 years withdrawals in an income model that is about 23% equity and the rest various bond funds , years 6-10 are in a growth and income model that is 60% equity and all the rest in a growth model that is 100% equity that will feed us 11-30 years from now .

i find that method helps optimize the portfolio to the time frame .

MJ,

You say you took some gold profits on Thursday, so is that outside your GB, or are you trading the GB vs. holding it? Or do you rebalance daily....

i rebalanced the gold in to the small and midcaps as after the run up in small caps i use an extended market fund which is not as volatile . although it can still be much more than the s&p or total market fund is . as well as cut the gb down a bit to 35% of assets from 40% .eventually i will likely hold at 30% of assets .

The decision to do this was totally based off your current perception of the markets and that gold has moved too far, too fast, right?

So what drives your next rebalancing decision if gold doesn't do what you expect, and rises to, say, $1325? Do you say oops?

You've obviously been successful investing during your life, but these decision are what always got me screwed. Fixed bands or once a year work better for me.

In my past life I would probably do the level of tweaking you are doing on a multiple times/year rate, and I can guarantee you I'd get the direction wrong >50% of the time.

the gb is really just being used as an awe crap portfolio,. but if opportunity presents itself with what i think are gains that are just here temporary and over the top , then i will take some of the profits while they are there . think about what slipped through one's fingers after brexit if you waited until years end .

i think once the fear dies down along with the flight to safety and interest rates rising are back in the spot light the profits will diminish .

sophie wrote:The best argument for the Golden Butterfly is that the four economic conditions that the PP is designed to leverage don't occur in equal measure in the 35+ year history that we are able to to use for backtesting. Prosperity clearly dominated.

The GB is a bet that Prosperity will continue to be more prevalent than inflation or deflation. That may well be true, but of course we can't know for certain. A Japanese investor, for example, would certainly disagree! If you decide to remain agnostic, stick to the PP.

Another reason to stick to the PP is if you are in my situation: a retirement account that is large compared to your PP savings, and that you can't integrate into the PP. I keep a standard 50/50 stock/bond portfolio in this account. I'm well aware of both its strengths and its weaknesses, and I need the PP to backstop the weaknesses.

TOP!

thank you Shopie.

It does not surprise me at all that people do not like the Permanent Portfolio or are at least very wary of it. All things excellent are as difficult as they are rare. In this case, difficult might mean difficulty in accepting the strategy.

Gold is probably the most contentious part of the overall portfolio. It would make sense that the financial community in general would not take too kindly to gold as an investment. I think part of it rests on the fact that the time value of money is the central concept in modern finance. Bonds are marked at the present value of future coupon payments and principal. Stocks are supposedly worth the present value of future dividends along with some growth rate.

What's gold worth? It requires a different way of looking at assets in order to appreciate it.

Smith1776 wrote:It does not surprise me at all that people do not like the Permanent Portfolio or are at least very wary of it. All things excellent are as difficult as they are rare. In this case, difficult might mean difficulty in accepting the strategy.

Very well put.

I think one difficulty people face when considering the PP is that it's the ultimate agnostic portfolio, and therefore requires complete financial humility.

It forces one to completely abandon the idea that one might be able to successfully tilt one's portfolio in a particularly profitable direction based on predictions about the future or analyses of past returns.

Humility is difficult.

Financial humility, perfect!

Waiting for mathjak's 2 cents now....

nothing to really say about it . you already know my thoughts

Hello!

GB depending on how much savings you have done and your age.

If you just want to keep the same amount, to be above the inflation, the PP is the answer.

What do you suggest?

the gb can be very volatile on a daily basis if that matters to you. that small cap value fund can swing 2 to 3x the s&p 500 on any given day .

get a day when all 4 assets move together and it is greater than my 100% equity model

Smith1776, are you the same guy fighting so valiantly in that PP thread on the bogleheads forum? I tried to support you since you were beleaguered from all sides. Your posts there, as here, are great.

I'm not sure the Golden Butterfly is going to be any easier to stomach than the Permanent Portfolio in the long run, because it would only reduce the tracking error slightly. Perhaps a better model would be to use the PP as your safe, core holding, and then indulge yourself with 100% stocks when it's safe to do so. The role of bonds in a standard Boglehead portfolio is to dampen the swings of the stock market, not to counteract them, and it doesn't seem worthwhile for the added risk you take with them. Why not use the PP instead? Psychologically, it would also help you to compare its returns not to the stock market, but to a total bond fund.

If you're starting out in your 20s and ignoring 401K issues for now, you could even do something like this:

1. Save a minimal emergency fund.
2. Save everything into the PP until the cash allocation is big enough to hold a comfortable size emergency fund. Then add in the existing efund.
3. Split future savings into 100% stocks and the PP. Use whatever split you like (50/50, 75/25, etc).
4. At 25 years from planned retirement (e.g. age 40), switch to saving 100% into the PP. Leave the stock funds alone except to rebalance as needed. Alternatively, you could merge them into the PP.
5. If your savings get large enough, figure how big you need your PP to be (could be anything from "25x annual expenses" to "infinite"). Once you hit that cap, start putting all your new savings into the stock portfolio.

This is way too complicated for me, but perhaps it would be helpful for people with the portfolio optimization bug. On the other hand, you don't get to enjoy switching portfolios every few months :-)

i have devoted about 30 seconds a week to portfolio mgmt the last 30 years . it really takes no time at all for me . i run a few different models too and optimize the portfolio to the time frame .

i make a few fund swaps a year . no big deal . i think folks spend more time here telling others how they don't have to spend time on their portfolio than other folks actually spend making any changes

sophie wrote:Smith1776, are you the same guy fighting so valiantly in that PP thread on the bogleheads forum? I tried to support you since you were beleaguered from all sides. Your posts there, as here, are great.

I'm not sure the Golden Butterfly is going to be any easier to stomach than the Permanent Portfolio in the long run, because it would only reduce the tracking error slightly. Perhaps a better model would be to use the PP as your safe, core holding, and then indulge yourself with 100% stocks when it's safe to do so. The role of bonds in a standard Boglehead portfolio is to dampen the swings of the stock market, not to counteract them, and it doesn't seem worthwhile for the added risk you take with them. Why not use the PP instead? Psychologically, it would also help you to compare its returns not to the stock market, but to a total bond fund.

If you're starting out in your 20s and ignoring 401K issues for now, you could even do something like this:

1. Save a minimal emergency fund.
2. Save everything into the PP until the cash allocation is big enough to hold a comfortable size emergency fund. Then add in the existing efund.
3. Split future savings into 100% stocks and the PP. Use whatever split you like (50/50, 75/25, etc).
4. At 25 years from planned retirement (e.g. age 40), switch to saving 100% into the PP. Leave the stock funds alone except to rebalance as needed. Alternatively, you could merge them into the PP.
5. If your savings get large enough, figure how big you need your PP to be (could be anything from "25x annual expenses" to "infinite"). Once you hit that cap, start putting all your new savings into the stock portfolio.

This is way too complicated for me, but perhaps it would be helpful for people with the portfolio optimization bug. On the other hand, you don't get to enjoy switching portfolios every few months :-)

Thank you for your kind words. Yes, it's me on both forums! I haven't logged in to the Bogleheads forums since yesterday morning, as I didn't want to intentionally continue exposing myself to toxic attitudes. I don't think it's possible for anyone to be completely unbiased and objective, but I always try to be as much as possible. It started to feel like I was having a debate with a brick wall.

In regards to the Golden Butterly portfolio, I find it very interesting and a pragmatic recognition that indeed prosperity has reigned more than the other economic states. I don't use it personally, but I don't think I could blame someone for doing it.

Mentally and intellectually, if I were to adopt the Golden Butterfly, I would actually consider the traditional 4 asset classes as a "pure" Permanent Portfolio core holding, and the allocation to small cap value as being part of my Variable Portfolio. It would literally be the same overall portfolio, but it would be framed differently mentally. Anywho, just my two cents!

Smith1776 wrote:

sophie wrote:Smith1776, are you the same guy fighting so valiantly in that PP thread on the bogleheads forum? I tried to support you since you were beleaguered from all sides. Your posts there, as here, are great.

I'm not sure the Golden Butterfly is going to be any easier to stomach than the Permanent Portfolio in the long run, because it would only reduce the tracking error slightly. Perhaps a better model would be to use the PP as your safe, core holding, and then indulge yourself with 100% stocks when it's safe to do so. The role of bonds in a standard Boglehead portfolio is to dampen the swings of the stock market, not to counteract them, and it doesn't seem worthwhile for the added risk you take with them. Why not use the PP instead? Psychologically, it would also help you to compare its returns not to the stock market, but to a total bond fund.

If you're starting out in your 20s and ignoring 401K issues for now, you could even do something like this:

1. Save a minimal emergency fund.
2. Save everything into the PP until the cash allocation is big enough to hold a comfortable size emergency fund. Then add in the existing efund.
3. Split future savings into 100% stocks and the PP. Use whatever split you like (50/50, 75/25, etc).
4. At 25 years from planned retirement (e.g. age 40), switch to saving 100% into the PP. Leave the stock funds alone except to rebalance as needed. Alternatively, you could merge them into the PP.
5. If your savings get large enough, figure how big you need your PP to be (could be anything from "25x annual expenses" to "infinite"). Once you hit that cap, start putting all your new savings into the stock portfolio.

This is way too complicated for me, but perhaps it would be helpful for people with the portfolio optimization bug. On the other hand, you don't get to enjoy switching portfolios every few months :-)

Thank you for your kind words. Yes, it's me on both forums! I haven't logged in to the Bogleheads forums since yesterday morning, as I didn't want to intentionally continue exposing myself to toxic attitudes. I don't think it's possible for anyone to be completely unbiased and objective, but I always try to be as much as possible. It started to feel like I was having a debate with a brick wall.

In regards to the Golden Butterly portfolio, I find it very interesting and a pragmatic recognition that indeed prosperity has reigned more than the other economic states. I don't use it personally, but I don't think I could blame someone for doing it.

Mentally and intellectually, if I were to adopt the Golden Butterfly, I would actually consider the traditional 4 asset classes as a "pure" Permanent Portfolio core holding, and the allocation to small cap value as being part of my Variable Portfolio. It would literally be the same overall portfolio, but it would be framed differently mentally. Anywho, just my two cents!

I appreciate the work you are trying to do on the Bogleheads forum in that thread, but it's a waste of time. I've posted over there (in that thread even), and they are extremely close-minded. It's going to take a real sustained downturn before those guys get over their hubris.

JFP_SF wrote: I appreciate the work you are trying to do on the Bogleheads forum in that thread, but it's a waste of time. I've posted over there (in that thread even), and they are extremely close-minded. It's going to take a real sustained downturn before those guys get over their hubris.

I don't mind what they are doing. An important role of these forums is to support you with sticking to your portfolio. PP is quite different than many other Boglehead's portfolios because it's using assets that are often being used by market timers, and these assets are exactly what they had to shoot down in order to convince folks there just to stick to market weightings in bonds and stocks. At the same time, Boglehead portfolios are also solid portfolios, and they are tracking market better than PP, i.e., they are easier to stick to despite higher volatility. Even for us, who are hanging out at this forum and run PP for many years, it's hard to stick to PP in times of prosperity. As such, I'm happy they are close minded when it comes to PP as I know they'll do well with Bogleheads portfolios too. I even avoid reading PP threads at Bogleheads forum, but those of you who post there and argue for PP are doing them a service by strengthening their protection and belief in other Bogleheads portfolios. So all is good .

"higher volatility " is a relative term . it depends on what your own sensitivity to volatility is .

for someone who is really gun shy and hates seeing huge dollar dips on a short term basis the pp is not going to help much . it can be as volatile as any 100% equity model when all parts move together . just look at the example of someone who decided to go pp after brexit because they got scared by their conventional portfolio and suffered double digit losses by years end in the pp as bonds and gold got hammered ..

it may smooth out and become less volatile over an intermediate time frame but going out longer for a long term investor , mitigating short term dips may not be such a concern if the longer term is your view . dips so far are a short term temporary condition . so mitigating temporary short term dips by hedging and permanently reducing your long term gains to mitigate those dips has no real financial logic to it unless you have time restraints on the money .

the data shows that while we all believe that the more conservative a portfolio the more likely someone is to stick to it facts show other wise .

humans hate losing money-period . so for a gun shy investor doing something more conservative the fact is they are more gun shy and hate losing money even at these levels so they seem to exhibit the same bad investor behavior as more aggressive investors once the crap hits the fan .

the catch 22 many pp users and other very similar portfolio users face is they end up giving up a lot of money long term but in the short term do not really get a whole lot of volatility protection if we have situations like today when all assets seem to move in the same direction . so they don't get the bill of goods they thought they were buying in to . that can make sticking with it hard .

there is really no portfolio that is any easier to live with because our personal temperament make whatever we do the cusp of what we can tolerate .

a conservative investor is pretty much as likely to bail out of a balanced fund as a more aggressive investor is to bail out of an aggressive fund and in fact the more conservative investor may be more likely since they don't want to deal with losses and wide swings and that is why they are more conservative investors .