Gyroscopic Investing

A little bit more about the book project. I've been mentally refining the book this week on my daily walks.

1) I have decided to keep the book short and succinct. I think this will make the book far more accessible and approachable, especially for casual readers. This is the audience I want to reach the most. I'm thinking about 150 pages and in the style of Derek Foster.

2) Start with a traditional 60/40 "balanced" portfolio and explain to the readers why that is flawed (doesn't respond to economic environments, etc.).

3) Give proper attribution to the likes of Ray Dalio and Harry Browne for the macroeconomic portion of the investment philosophy. Give further attribution to Warren Buffett for the microeconomic portion of the philosophy (inclusion of small cap value).

4) Make step-by-step adjustments to the unbalanced 60/40 portfolio -- with reasoning included -- to eventually arrive at the all-terrain allocation.

5) I have hesitated to post any of my thoughts about portfolio allocations on the forum for probably more than a year now. However, the allocation I have ended up settling on for a good while without modification will be the one I will be including in the book.

The All-Terrain Portfolio

Prosperity
- Global Small Cap Value (VVL) - 25%

Deflation
- Global intermediate government bond ladder (XGGB) - 25%

Inflation
- Long/flat commodities fund (CCOM) - 12.5%
- Gold 10%
- Bitcoin 2.5%

Recession
- Treasury bills (CBIL) - 25%

Obvious influences from Browne (4 x 25), Dalio (commodities), Swedroe (factor equity), and the international diversification & Bitcoin were my own ideas, and prudent by my own estimation. By opting for intermediate-term bonds in the deflation piece I also think investors will enjoy better risk-adjusted returns relative to the vanilla PP.

Oh, thoughts and feedback welcome and encouraged!

Have you back tested your portfolio vs. the various Vanguard Target Retirement portfolios or other “commonly proposed” portfolios mentioned on this forum? It would be good to explain why yours is better. Just a suggestion.

Mountaineer wrote: ↑Sun Jul 23, 2023 3:19 pm Have you back tested your portfolio vs. the various Vanguard Target Retirement portfolios or other “commonly proposed” portfolios mentioned on this forum? It would be good to explain why yours is better. Just a suggestion.

Yes, good point. Data availability is going to be a huge challenge. This is what I can realistically go back to on Portfolio Visualizer. Portfolio #1 is the All-Terrain Portfolio while Portfolio #2 is a conventional global 60/40 mix.


The big issue at play here is the long/flat commodities fund I chose for this portfolio. It's a much more risk-controlled approach to commodities investing that takes into account momentum, trend, and contango/backwardation as opposed to going pure long. Data availability for that index is extremely limited because of its newness. I will have to somehow get my hands on simulated data to be able to accurately represent how the portfolio would have performed prior to 2017.

In other news, I just got a pink slip today along with about 100 other people in our business unit.

New beginnings on the horizon I guess.

which industry. my tenant got laid off by a big university last week. moved a little into cash, but even if there's a correction, will I be able to get back in before the money printer goes to 11

Smith1776 wrote: ↑Mon Jul 24, 2023 4:26 pm In other news, I just got a pink slip today along with about 100 other people in our business unit.

New beginnings on the horizon I guess.

My very best wishes for a successful and rewarding new beginning, whatever the direction in which you go takes you. Blessings!

boglerdude wrote: ↑Mon Jul 24, 2023 6:27 pm which industry. my tenant got laid off by a big university last week. moved a little into cash, but even if there's a correction, will I be able to get back in before the money printer goes to 11

Finance.

Mountaineer wrote: ↑Mon Jul 24, 2023 6:27 pm
My very best wishes for a successful and rewarding new beginning, whatever the direction in which you go takes you. Blessings!

Thank you!

Smith1776 wrote: ↑Mon Jul 24, 2023 4:26 pm In other news, I just got a pink slip today along with about 100 other people in our business unit.
…

Boooo! Dislike

Smith1776 wrote: ↑Mon Jul 24, 2023 2:13 pm

Mountaineer wrote: ↑Sun Jul 23, 2023 3:19 pm Have you back tested your portfolio vs. the various Vanguard Target Retirement portfolios or other “commonly proposed” portfolios mentioned on this forum? It would be good to explain why yours is better. Just a suggestion.

Yes, good point. Data availability is going to be a huge challenge. This is what I can realistically go back to on Portfolio Visualizer. Portfolio #1 is the All-Terrain Portfolio while Portfolio #2 is a conventional global 60/40 mix.


All-Terrain.png


The big issue at play here is the long/flat commodities fund I chose for this portfolio. It's a much more risk-controlled approach to commodities investing that takes into account momentum, trend, and contango/backwardation as opposed to going pure long. Data availability for that index is extremely limited because of its newness. I will have to somehow get my hands on simulated data to be able to accurately represent how the portfolio would have performed prior to 2017.

How far back do you need to go? The index provider (the one that runs the long/flat commodity ETF) itself has simulated monthly data back to 2000. Beyond that, you would have to simulate it yourself for each of the eleven or twelve futures they use (I'm assuming you have access to their methodology for using momentum/trend to determine when to stay long vs when to go into cash). Presuming you do have access to said methodology, it would just be a matter of getting the commodity futures price/return data; I would imagine that either Barchart (formerly CRBTrader), CSIData, or GFD would have this info for sale; the first two are certainly going to be a lot cheaper, though, since they allow (or at least did last time I ordered something from them although that was a few years ago) you to order individual data sets whereas GFD makes you subscribe to their whole package--even if you only want/need data for, say, two or three datasets they provide--which last time I checked went for upwards of $25K per year.

Other than that, how will you simulate Bitcoin pre-2010 (since it only came into existence in late 2009)? What will you use in its place before that point? Finally, have you used a "nerfed" simulated Bitcoin (i.e. keep the same volatility but subtract enough in an equal amount for every month from returns each month so that it only has returned, say, 11% or 12% CAGR over the last ten years instead of the actual 75% or so CAGR it had in real life) in the portfolio at the 1% allocation and saw how much that negatively effected returns? In other words, is Bitcoin still an uncorrelated enough asset to warrant an allocation if it returns "only" in the low double digits in the future? Otherwise I would be wary of including it; any asset that has returned 75% a year on average will look worthy of inclusion in a portfolio but--unless you truly believe it will return 75% a year on average going forward from here--I would caution that any simulations/backtests need to take into account a much lower potential return for Bitcoin going forward.

dualstow wrote: ↑Mon Jul 24, 2023 9:10 pm

Smith1776 wrote: ↑Mon Jul 24, 2023 4:26 pm In other news, I just got a pink slip today along with about 100 other people in our business unit.
…

Boooo! Dislike

Fortunately I have my All-Terrain money to fall back on.

D1984 wrote: ↑Mon Jul 24, 2023 10:58 pm How far back do you need to go? The index provider (the one that runs the long/flat commodity ETF) itself has simulated monthly data back to 2000. Beyond that, you would have to simulate it yourself for each of the eleven or twelve futures they use (I'm assuming you have access to their methodology for using momentum/trend to determine when to stay long vs when to go into cash). Presuming you do have access to said methodology, it would just be a matter of getting the commodity futures price/return data; I would imagine that either Barchart (formerly CRBTrader), CSIData, or GFD would have this info for sale; the first two are certainly going to be a lot cheaper, though, since they allow (or at least did last time I ordered something from them although that was a few years ago) you to order individual data sets whereas GFD makes you subscribe to their whole package--even if you only want/need data for, say, two or three datasets they provide--which last time I checked went for upwards of $25K per year.

Other than that, how will you simulate Bitcoin pre-2010 (since it only came into existence in late 2009)? What will you use in its place before that point? Finally, have you used a "nerfed" simulated Bitcoin (i.e. keep the same volatility but subtract enough in an equal amount for every month from returns each month so that it only has returned, say, 11% or 12% CAGR over the last ten years instead of the actual 75% or so CAGR it had in real life) in the portfolio at the 1% allocation and saw how much that negatively effected returns? In other words, is Bitcoin still an uncorrelated enough asset to warrant an allocation if it returns "only" in the low double digits in the future? Otherwise I would be wary of including it; any asset that has returned 75% a year on average will look worthy of inclusion in a portfolio but--unless you truly believe it will return 75% a year on average going forward from here--I would caution that any simulations/backtests need to take into account a much lower potential return for Bitcoin going forward.

I don't have a specific date I'd like to go back to, but to the extent to which I'm going to provide performance comparisons to the reader, I figure the longer the better. I have live data going back a few years, but going back to 2000 would likely be my minimum bar for having a meaningful chart in the book. Thanks for pointing me to a data source. I'll poke around and try to integrate that.

You bring up a good point about Bitcoin, and I've come up with what I believe to be a reasonable solution. You're right that even at just 1% the impact of Bitcoin is both significant and likely to be anomalous. What I've decided to do is to only start including Bitcoin into the return of the portfolio on the historical day that Bitcoin ETFs first became available. This would be early 2021. I think this is a "fair" way to approach the issue, since before there were Bitcoin ETFs the asset was much less accessible. Additionally, this allows me to sidestep the effect of the crazy run up Bitcoin had in its earlier days.

I welcome any other thoughts and constructive criticisms others may have on the book project.

Also, for those wondering what the difference is between that long/flat commodity ETF versus a typical long-only commodity fund, here's a performance comparison. The blue line is what CCOM.TO would have delivered, and the red and gold lines are DBC and GSG, which are the two most popular US-listed commodity ETFs that are more or less conventional.

I think I have enough cobbled together in terms of ideas to start writing.

Smith1776 wrote: ↑Fri Jul 28, 2023 3:37 pm
I think I have enough cobbled together in terms of ideas to start writing.

Go at it, Mr. Author!!!

still underweight long bonds, but doubled EDV. Its at 4%, Fedfunds 5%. Last time fedfunds was this high was 2007 and there was less debt then. Last hiking cycle we got "covid" so what narrative are we gonna get this time the Fed breaks the market then bails it out? Also like last cycle, there wont be much time to buy the dip.

Smith1776 wrote: ↑Fri Jul 28, 2023 3:37 pm I think I have enough cobbled together in terms of ideas to start writing.

Make it original.

dualstow wrote: ↑Fri Jul 28, 2023 9:08 pm

Smith1776 wrote: ↑Fri Jul 28, 2023 3:37 pm I think I have enough cobbled together in terms of ideas to start writing.

Make it original.

It'll have that distinct Smith style of discourse: sophomoric with a hint of mania.

Perfect

From this morning’s FINANCIAL TIMES.

Ok, technically that’s from a piece on Spanish politics and the People’s Party,
but I think the spirit is there.

dualstow wrote: ↑Mon Jul 31, 2023 4:59 pm From this morning’s FINANCIAL TIMES.


IMG_6624.jpeg

Ok, technically that’s from a piece on Spanish politics and the People’s Party,
but I think the spirit is there.

I’m reading this as the PP not permitting internal emotional turmoil on the part of the investor because it’s just so stable.

What do you think, Smithers
https://twitter.com/elonmusk/status/168 ... 87875?s=20

dualstow wrote: ↑Tue Aug 01, 2023 6:16 am What do you think, Smithers
https://twitter.com/elonmusk/status/168 ... 87875?s=20

He's keeping it classy, as always.