Gyroscopic Investing

LC475 wrote: What economic state are we in?

Prosperity?  Recession?  Inflation?  Deflation?

Since 2008 we are in the midst of a massive deleveraging which I think so far is generally deflationary.

ochotona wrote: Deflation, and no help from bonds!

Yes, not in the short term but bonds performed strongly in 2008, 2011 & 2014. I'm not ready to dump mine yet. Ride them when they are doing well, take some profits, endure some bond pain, and (hopefully) repeat.

I Shrugged wrote:

LC475 wrote:


What economic state are we in?

Prosperity?  Recession?  Inflation?  Deflation?

deflation

Ding, Ding, Ding, we have a winner imho.

I think without the manipulation of markets through interest rates, this would be painfully obvious to all.  This central planning that adjusting interest rates to move markets, and might even place rules making items such as gold to be less appealing to the masses, makes it even more difficult to analyze markets and profit from an active management approach. 

This makes the PP's agnostic approach even more appealing imho.  For those believing they can time the market and fearful of losses, cash is likely a good place to be.  For how long is the question?  I have come to doubt my ability to time markets, and as such am still fascinated w PP as an option.  Not to say VPs aren't also a viable way to augment one's investment strategy, if used wisely, i.e. with money you won't need soon (afford to loose might be the common description, but imo who has money to loose?)

Reub wrote:

buddtholomew wrote:

Reub wrote: Legendary Vanguard Group founder Jack Bogle warns that there is an "awful lot" to fear in the current stock market and investors have few “good options.”

"This is a hard time to invest because there aren't a lot of good options to stocks, and bond yields are extremely low," he told CNBC.

He said the Federal Reserve’s continued insistence on low interest rates has only artificially boosted stock prices.

"That's a scary thing because it can't stay that way forever," he said. "So, I do advocate a cautious approach to investing."

http://www.newsmax.com/Finance/StreetTa ... id/645782/

Cash anyone?

He also mentioned to stay out of long-term treasuries...sure wish he added unless they are part of a well diversified portfolio.

Poor guy...CNBC asked what he would tell the young investor who believes the entire market is manipulated? Mr. Bogle calmly attempted to explain dividends and earnings...I'm certain if any young investors were listening they most certainly would have already tuned out!

The PP really sucks recently! Is it yesterday's news?
As I said once before, the place to hide is in cash.

Hello everyone!

I am new here.
I just recently went all in by investing in the PP on 4/22/15.

As of today I am -7.27 on long term treasuries
                        -0.48 on short term treasuries
                        -1.05 stocks
                        -1.27 gold

I have lost 2.52 % of my investment in just a bit over a month.

I feel like there is really no place to hide and all the components are going down simultaneously.

I did not expect this at all. I am not sure what kind of environment we have in the economy because the data provided by govt are very suspicious. I do not know what to do from here on, but I am certainly racking up losses pretty steeply.

Any comments would be appreciated.
                       

The beatings will continue until morale improves.


Honestly, if I was starting out with cash to invest, I'd sit on it and wait for some blood in the streets.  I know that is not what any top notch long term passive investment plan says to do.  But that's what I would do at this time. 

Hi Flagator, welcome to the board.

I began my PP just over two years ago, after about 15 years with no firm investing philosophy.  I had doubled my money as a newbie during the dotcom era, then lost about 80% of that using a combination of stupidity, ignorance, inexperience, and blind trust.  Eventually resorted to CDs, gold, and TIPS to protect my remaining "wealth," then discovered the PP, which got me back into stocks.  I completed my PP in mid-May 2013.  I took an instant hit of about 6% by the end of June 2013.  But by the end of 2013, I was back at breakeven.  And last year I was up 10%.  This year, slightly down.  So overall, I am up about 9% nominal in two years; about 2% real CAGR.

My experience with the PP was just like yours: a significant loss within the first six weeks.  But I was (still am) convinced of the track record of the PP, having read this forum for at least a year before implementing it, having crunched a lot of numbers, and having been amazed by its consistent real performance over 40+ years.  I cannot think of a better strategy for someone who doesn't want to see big losses, wants real growth, and who doesn't want to make emotional investing decisions.

A loss of 2.52% in six weeks sure does suck, but it is hardly "steep."  Such losses are quite common with this portfolio.  Also, bear in mind that we were up 4% in January, so you will also experience steep rises!

My gut feeling is that now is an average, or somewhat favorable, time to be starting a PP.  I think gold is fairly priced considering its trajectory over the last 10 years, a 30-year treasury yield of 3.11% seems reasonable considering its trajectory since the early 80s, and the SP500 has been hovering above 2000 for over nine months with no major hiccups.  Perhaps stocks have considerable room to fall from their recent all-time high, but something is always overvalued with this portfolio.  It's the nature of having non-correlated volatile assets.

My advice would be to stick with the PP for at least a year before complaining, or rejoicing, about its performance.  In fact, don't get emotional about it for at least three years.  You should have real gains by then.

Flagator,

Here's what you do:  just ride it out, and don't worry about it.  Whatever you do, don't sell at a loss and lock in your losses.  Look back at the PP performance over a multi-year time frame, not just year-to-date.  You're in it for the long-haul, not the short term.  You'd be in just as bad a position if you were in a 60/40 stock/bond blend.

When I started my PP in 2013, gold took a major beating almost right afterwards, and I was wondering what I'd gotten myself into, but then everything turned around in 2014.  2015 doesn't look so great right now, but that can change.  Every portfolio has volatility.  The PP just happens to not have as much volatility as many portfolios, and it still produces good gains on average.  The real beauty of the PP is that you now have a system to follow, rather than just making blind emotion-fueled guesses that end up lowering your rate of return dramatically.

There is no reason to go all in if you don't want to. Possibly for you 25% or 50% of your overall portfolio might be the ideal PP percentage. Possibly none. Have you explored the Boglehead approach, other investing styles? If you do decide to invest in the PP I would recommend dollar cost averaging in over, say a year. I would even say to enter slowly over a 2 year period in equal amounts. The rest can be parked in a 1% FDIC money market fund for safety in the interim.

“I’ve given you a great gift, George;” said Clarence, “the chance to see what the world will be like now that QE has driven the prospective return of every risky asset class to zero.”

http://www.hussmanfunds.com/wmc/wmc150608.htm

If 40 years of performance is what made the PP attractive to you, I wouldn't let six weeks of performance shake your confidence too badly.

Just let it do its thing.  Looking all the time is very tempting, but it's not productive.

Averaging in over three years might be prudent since that is the longest flat period.

Thank you for all your responses so far. I really appreciate them.

For those who recommended gradually investing in the PP over the next year or two or three, would you suggest I book my losses now, and then ease back in?

I am already fully invested.

Moreover, I am already semi retired so to speak, so in all likelihood, I am not going to be adding any more funds in the portfolio in the foreseeable future. This makes it a bit more challenging I believe.

Again, thank you very much for your input.

FLAGATOR wrote: Thank you for all your responses so far. I really appreciate them.

For those who recommended gradually investing in the PP over the next year or two or three, would you suggest I book my losses now, and then ease back in?

I am already fully invested.

Moreover, I am already semi retired so to speak, so in all likelihood, I am not going to be adding any more funds in the portfolio in the foreseeable future. This makes it a bit more challenging I believe.

Again, thank you very much for your input.

FLAGATOR,

Welcome to the forum. There are others on here who are also retired and fully invested in the PP (I'll be there in a few short years myself) . The question of whether or not to "book your losses" depends on a lot of factors. You might want to lock in some losses for tax purposes if you have corresponding gains. I would recommend to think in terms of tax efficiency when pondering any moves. Try to think long term on the withdrawal strategy. If you are pulling cash from a few different accounts (or even just one), the other assets will have time to recover.

You are holding three really volatile assets and there are bound to be times when two or three will move down together even though in general they tend not to.

Have a look at the PP data on peaktotrough.com. You can plug in a starting date (go back 10 or 20 years). Set the "Result View" to monthly and then hit "Calculate Returns". You'll see that there are plenty of times that the portfolio is down for two or three months and then comes back with positive returns. I just went back to 1/1/1990 and found only two periods with four losing months in a row.

Are we in a new era? I don't know but there is a good track record and a lot of thought behind this asset mix.

Also, don't forget that depending on how you have your stocks and bonds invested, you may have some "phantom" dividend or interest gains that have not yet posted.

Finally, focus on real returns. If you haven't look at Tyler's real return charts (recently re-posted and re-formatted), or can't find them for some reason, someone will point you in the right direction. We are in a low nominal return environment but the real returns should still be positive on a rolling basis... at least that is what we are all hoping for!

Good luck.

The Permanent Portfolio is as sound as ever.  Naysayers are always going to neigh.  I would just sit tight, sit back, and let the returns come in.  But that's just me.

LC475 wrote: The Permanent Portfolio is as sound as ever.  Naysayers are always going to neigh. 

You can't always get what you want, but wild horses couldn't drag me away from the P.P.

How does anyone know that the PP will perform well in the future?

Reub wrote: How does anyone know that the PP will perform well in the future?

The giant asteroid with our name on it could be headed this way right now and wipe us all out in 6 months.
Thus, no one can know anything with absolute certainty about the future.

I hope NASA et al. could warn us of an asteroid 6 months out.

Reub wrote: How does anyone know that the PP will perform well in the future?

We don't know, but history is our guide.  I have my doubts a vanilla PP will always perform, so I advocate smarter diversification in the equity and real parts.  Anticipate the unexpected and expect the unanticipated!

fi50@fi2023 wrote: I hope NASA et al. could warn us of an asteroid 6 months out.

Ok, if they did, then what? Probably nothing good.

FLAGATOR wrote: Hello everyone!

I am new here.
I just recently went all in by investing in the PP on 4/22/15.

As of today I am -7.27 on long term treasuries
                        -0.48 on short term treasuries
                        -1.05 stocks
                        -1.27 gold

I have lost 2.52 % of my investment in just a bit over a month.

I feel like there is really no place to hide and all the components are going down simultaneously.

I did not expect this at all. I am not sure what kind of environment we have in the economy because the data provided by govt are very suspicious. I do not know what to do from here on, but I am certainly racking up losses pretty steeply.

Any comments would be appreciated.

Hi FLAGATOR, I feel your pain. Tyler's charts posted elsewhere on this Forum show that the entry year does make a difference sometimes in how the PP performs for a few years post-entry, and if those three years are so painful to the new investor that they bail, then that's not a good thing.

I have advocated being more adaptive as far as getting into the portfolio. This is what I am doing at present. I guess you could say I'm still transitioning in since October 2014.

For better or worse, I follow the opinions of a market watcher who thinks gold will go below $1000 within the next year, then it will stabilize and head higher. Doomer Harry S. Dent thinks gold could go down to $250 by 2020. People who sell gold will always tell you that gold is going to go up starting tomorrow, so you better buy some today! I'm right now at 10.7% gold, my target allocation is 14%, if it goes below $1000 I'm going to my full target, if it drops to $250-$500 then I'm "all in" with a 25% Classic PP allocation.

After getting hammered with everyone else with long bonds since February 1, I hopped out to shorter bond durations. I swapped long Treasuries for SCHZ, the Schwab total bond ETF. It's much less volatile than TLO or TLT. Yes, it has corporate bonds and some high yield, no I don't think all of the issuers are going to default really soon, and it's diversified. My aim is to wait for TLO to go down another 14%-15%, to $58, then re-enter.

Cash? I have the full cash allocation. Ally Bank, 0.99%. Some I-Bonds at 1%. A bit of paper in the safe.

Stocks? Because I am light on gold, my bonds and stocks were both at 32% instead of 25%. I like to keep the ratio 1:1. 25% of my stocks are non-US. Stocks will go down, but I'll see if they grind higher. I don't plan on selling stocks no matter how bad they get in a correction, I kept all my stocks even in 2008-2009, and rebalanced after the blood was flowing in the streets.

So in summary, I am treating gold and long bonds as special cases, because gold has a very volatile recent history (1975-2011) of extreme ups and downs in real terms, and you don't want to overpay for it. Long bonds have just come off the top of a QE policy driven bull market which has no where left to go but down (with volatility), so why stand in the way of the truck while it races towards you? You know it's coming, you hear the engine; stand aside, just for a while. Maybe as short as a few months. But I acknowledge that is not without risks either... long bonds prices could go back up and stay up for years! No one can predict. I'm just sick of the volatility. I'm choosing to take a sedative for a while.

But truly, once I'm "in" the PP, at at least a 14% gold allocation, and my long bonds are restored, I intend to put it to sleep and go on the regular rebalance plan. It's just a matter of easing in, so one don't feel cheated by fate.

My specific advice to you, take it with a grain of salt:

I agree with others who say not to sell your positions, except if you can harvest tax losses to your advantage. If you feel adventurous, trade some of your long bonds for shorter maturities (the very shortest maturity being cash) and wait for long bonds to go on sale... which may not happen for a long time, or it might happen soon.

Reub wrote: How does anyone know that the PP will perform well in the future?

Because we're smarter than you. 

You can come back in ten years and congratulate us.

It sounds more like blind faith and hubris to me. Questioning the PP is a healthy thing to do. There are no guarantees.

Reub, everyone here is questioning the PP.

There are thousands and thousands of posts questioning it.

I don't think that there is any danger of complacency about the PP on a PP forum.  With that said, though, I'm just not seeing anything in the data to suggest that the portfolio is not functioning within spec.

The PP isn't supposed to involve as much worry as I sometimes sense here.  It's best feature is its safety.  When other portfolios have been shot to pieces, the PP always seems to be the one hanging in there and plowing higher.

MediumTex wrote: Reub, everyone here is questioning the PP.

There are thousands and thousands of posts questioning it.

I don't think that there is any danger of complacency about the PP on a PP forum.  With that said, though, I'm just not seeing anything in the data to suggest that the portfolio is not functioning within spec.

The PP isn't supposed to involve as much worry as I sometimes sense here.  It's best feature is its safety.  When other portfolios have been shot to pieces, the PP always seems to be the one hanging in there and plowing higher.

PP is for probably chosen by people who are already worriers, otherwise they would go with a happy-go-lucky bogleheads 80/20.

For a time, there was some... misleading... hyperbole around the PP.  I think by now, new investors will have much more realistic expectations going forward.

dragoncar wrote:

MediumTex wrote: Reub, everyone here is questioning the PP.

There are thousands and thousands of posts questioning it.

I don't think that there is any danger of complacency about the PP on a PP forum.  With that said, though, I'm just not seeing anything in the data to suggest that the portfolio is not functioning within spec.

The PP isn't supposed to involve as much worry as I sometimes sense here.  It's best feature is its safety.  When other portfolios have been shot to pieces, the PP always seems to be the one hanging in there and plowing higher.

PP is for probably chosen by people who are already worriers, otherwise they would go with a happy-go-lucky bogleheads 80/20.

For a time, there was some... misleading... hyperbole around the PP.  I think by now, new investors will have much more realistic expectations going forward.

I think you're right.

Everyone always suspected that the biggest threat to the PP was a rising stock market, and that's pretty much been the story the last couple of years.

MediumTex wrote: Everyone always suspected that the biggest threat to the PP was a rising stock market, and that's pretty much been the story the last couple of years.

That's utter nonsense!  The PP would be DESTROYED without a rising stock market.