Gyroscopic Investing

Posted: **Sat Oct 31, 2020 12:53 pm**

mathjak107 wrote: ↑Sat Oct 31, 2020 12:40 pm I am no more confident of the pp than I am in any other diversified portfolio of similar equity weighting

Well said.

Posted: **Sat Oct 31, 2020 12:56 pm**

Which is why I use the high volatility of gold and long term treasuries to trade in and out ..if I don’t ,I find in the blink of an eye within a few days all the gains are now losses.

Just the other day I sold Tlt in the morning and was up almost 3 or 4k in a matter of days of buying it , I would have to look to see the exact numbers...but by the close I rebought back in for thousands less in the same day

Posted: **Sat Oct 31, 2020 1:38 pm**

mathjak107 wrote: ↑Sat Oct 31, 2020 12:56 pm Which is why I use the high volatility of gold and long term treasuries to trade in and out ..if I don’t ,I find in the blink of an eye within a few days all the gains are now losses.

Just the other day I sold Tlt in the morning and was up almost 3 or 4k in a matter of days of buying it , I would have to look to see the exact numbers...but by the close I rebought back in for thousands less in the same day

How are you determining when to get in/out?

Posted: **Sat Oct 31, 2020 2:08 pm**

Total seat of my pants. It just seems to follow that every dip that is about 3-4k is followed by a gain and then it repeats.

If I don’t take advantage of the dip the gain just seems to evaporate

Posted: **Sun Nov 01, 2020 11:52 am**

ahhrunforthehills wrote: ↑Sat Oct 31, 2020 12:29 pm
johnnywitt wrote: ↑Fri Oct 30, 2020 6:14 pm
mathjak107 wrote: ↑Sun Oct 25, 2020 6:00 am most conventional portfolios in the 40-60% equity range do not have that kind of potential for damage in the bond portion
Yeah, but they sure as hell have it in the other asset classes.
Look at Japan vs other Portfolios and then look at the 1970's as well and the PP pretty well not only held up in Japan, but turned a profit in the 1970's.
If you think of the Life Experience of HB, I believe he hedged more against inflation with his portfolio than any possible deflationary event.
The only thing with the PP as far as an Achilles Heel is that you would need to stop all rebalancing in a Hyperinflation. I think anybody on this website is most likely savvy enough to recognize when a hyperinflation is occurring.
Hey, you guys can do your own thing. I came to this website because of the PP and to a lessor extent, the GB. I am, however, going with the PP.
I'll let you know how it goes as "nobody can predict the future" as old Harry would say.
I am interested to know where you are getting your Japan data.

For example, if you invested in the PP in Japan around 1987-1990, Tyler's data shows that you would have racked up 13 years of straight losses (followed by 25 years of no gains). When you factor in taxes and expenses, you probably lost money every year.

The 1970's is always a weird data set because of Bretton Woods. But I will play along... if i invested in a Japan PP around 1973-1974, it appears that this would have been my life:

"Time to periodically check my PP and rebalance if necessary". I get out my fancy calculator, news paper, and notebook.

- Hmmm... the market WAS doing pretty good before... but now it just keeps going down little by little. That sucks.
- Short Term Interest Rate are basically at 0%
- Woohoo! Gold has been doing pretty good (priced in Yen, it was similar to what we have recently seen in Gold in the US... a gradual almost doubling)
- Wait, WTF is happening to my LT Bonds?! Let me check that Quarterly CPI Inflation Rate... it basically TRIPLED!?! OMG, is this the start of hyperinflation!?! What should I do?! Okay, okay, keep calm... stay the course.

Even if I could stay the course with a PP, based on Tyler's data, I would have had 6 consecutive years of losses.

My only consolations would be that my losses were not as large as most of the people I knew. However, at that point I think most people would have already lost faith in the PP and would have moved on to some type of Peter Schiff strategy. There perception of a "Permanent Portfolio" that works all the time had already been popped.

I think the PP is fine as long as you are realistic in your expectations. However, HB's "philosophy" makes it sound a lot rosier than I think the allocation deserves.

A big reason why people like the PP is because of its Libertarian principles. However, the PP is a nice little portfolio because of its asset diversity as it has related to the environment it has existed in up until this point... not necessarily because of the libertarian narrative.

For investments, I want the science separated from the religion. In fact, calling it a "Permanent Portfolio" exacerbates the issue... IMHO, it should simply be called something like the "Low Volatility Portfolio" to set better expectations.

The "Permanent Portfolio" is based on a LOT of assumptions. HB said if X happens, than Y is the result. But, what if the definition of X has changed? What if the definition of Y has changed?

The problem with Libertarians (keep in mind that I am one) is that we righteously feel that the world will "return to normal" one day. We say things like "but things can't go on like this forever" and "if government would just stop manipulating those prices...".

But you know the saying... "if ifs and buts were candy and nuts it would be Christmas everyday."

Libertarians don't typically make the best investors. Their doomsday supplies also tend to expire before they ever get a chance to use them.

Again, I prefer the science separated from the religion.

I looked at the Insights article on Tyler's Website that showed the PP performance both in the 1970's and in Japan. It held up about as good, or better, than any other portfolio. Look, if you want to speculate, or "bet on the future" then by all means, do so. You will probably do quite well. For me, I will stick to a fixed portfolio and asset allocation for money I can't afford to lose and realize that I can't predict the future. I will keep the speculation confined to my VP.

Posted: **Sun Nov 01, 2020 11:56 am**

mathjak107 wrote: ↑Sat Oct 31, 2020 12:40 pm The PP has almost a cult like following... that can really make for a stronger belief than just religion ...which can be good or bad depending on how things go .

We are finding today a whole lot more is involved then basic relationships to the economy ....we see assets like gold and long term treasuries taking the same path as stocks now , as many times leverage and margin calls make them the asset of choice to be sold .

Just like other factors tend to outweigh golds movements compared to daily inflation , so do other factors effect and overwhelm the movement of bonds today .

Bonds can not be counted on to stand up to a bad down turn in stocks ..the volatility of long term bonds can over accent the days fall instead of cushioning it

I am no more confident of the pp than I am in any other diversified portfolio of similar equity weighting

Yeah, typically Bonds & Stocks are highly correlated throughout history. The Bonds offsetting stocks during the last 30 years or so is anomalous from a historical perspective. Stocks and Bonds got creamed in the 1970's from a purchasing power perspective. I expect to see that repeat, but for my core portfolio I would speculate on it.

Posted: **Sun Nov 01, 2020 12:02 pm**

mathjak107 wrote: ↑Sat Oct 31, 2020 2:08 pm Total seat of my pants. It just seems to follow that every dip that is about 3-4k is followed by a gain and then it repeats.

If I don’t take advantage of the dip the gain just seems to evaporate

Yeah, I noticed how hard that pendulum has been swinging lately. There has been a lot of volatility that is why outside of the norm. I printed the following graphic to keep me reminded how abnormal this year has been: https://i2.wp.com/financialsamurai.com/ ... =1456,9999

Posted: **Sun Nov 01, 2020 1:46 pm**

johnnywitt wrote: ↑Sun Nov 01, 2020 11:52 am
ahhrunforthehills wrote: ↑Sat Oct 31, 2020 12:29 pm
johnnywitt wrote: ↑Fri Oct 30, 2020 6:14 pm
mathjak107 wrote: ↑Sun Oct 25, 2020 6:00 am most conventional portfolios in the 40-60% equity range do not have that kind of potential for damage in the bond portion
Yeah, but they sure as hell have it in the other asset classes.
Look at Japan vs other Portfolios and then look at the 1970's as well and the PP pretty well not only held up in Japan, but turned a profit in the 1970's.
If you think of the Life Experience of HB, I believe he hedged more against inflation with his portfolio than any possible deflationary event.
The only thing with the PP as far as an Achilles Heel is that you would need to stop all rebalancing in a Hyperinflation. I think anybody on this website is most likely savvy enough to recognize when a hyperinflation is occurring.
Hey, you guys can do your own thing. I came to this website because of the PP and to a lessor extent, the GB. I am, however, going with the PP.
I'll let you know how it goes as "nobody can predict the future" as old Harry would say.
I am interested to know where you are getting your Japan data.

For example, if you invested in the PP in Japan around 1987-1990, Tyler's data shows that you would have racked up 13 years of straight losses (followed by 25 years of no gains). When you factor in taxes and expenses, you probably lost money every year.

The 1970's is always a weird data set because of Bretton Woods. But I will play along... if i invested in a Japan PP around 1973-1974, it appears that this would have been my life:

"Time to periodically check my PP and rebalance if necessary". I get out my fancy calculator, news paper, and notebook.

- Hmmm... the market WAS doing pretty good before... but now it just keeps going down little by little. That sucks.
- Short Term Interest Rate are basically at 0%
- Woohoo! Gold has been doing pretty good (priced in Yen, it was similar to what we have recently seen in Gold in the US... a gradual almost doubling)
- Wait, WTF is happening to my LT Bonds?! Let me check that Quarterly CPI Inflation Rate... it basically TRIPLED!?! OMG, is this the start of hyperinflation!?! What should I do?! Okay, okay, keep calm... stay the course.

Even if I could stay the course with a PP, based on Tyler's data, I would have had 6 consecutive years of losses.

My only consolations would be that my losses were not as large as most of the people I knew. However, at that point I think most people would have already lost faith in the PP and would have moved on to some type of Peter Schiff strategy. There perception of a "Permanent Portfolio" that works all the time had already been popped.

I think the PP is fine as long as you are realistic in your expectations. However, HB's "philosophy" makes it sound a lot rosier than I think the allocation deserves.

A big reason why people like the PP is because of its Libertarian principles. However, the PP is a nice little portfolio because of its asset diversity as it has related to the environment it has existed in up until this point... not necessarily because of the libertarian narrative.

For investments, I want the science separated from the religion. In fact, calling it a "Permanent Portfolio" exacerbates the issue... IMHO, it should simply be called something like the "Low Volatility Portfolio" to set better expectations.

The "Permanent Portfolio" is based on a LOT of assumptions. HB said if X happens, than Y is the result. But, what if the definition of X has changed? What if the definition of Y has changed?

The problem with Libertarians (keep in mind that I am one) is that we righteously feel that the world will "return to normal" one day. We say things like "but things can't go on like this forever" and "if government would just stop manipulating those prices...".

But you know the saying... "if ifs and buts were candy and nuts it would be Christmas everyday."

Libertarians don't typically make the best investors. Their doomsday supplies also tend to expire before they ever get a chance to use them.

Again, I prefer the science separated from the religion.
I looked at the Insights article on Tyler's Website that showed the PP performance both in the 1970's and in Japan. It held up about as good, or better, than any other portfolio. Look, if you want to speculate, or "bet on the future" then by all means, do so. You will probably do quite well. For me, I will stick to a fixed portfolio and asset allocation for money I can't afford to lose and realize that I can't predict the future. I will keep the speculation confined to my VP.

Respectfully, the PP is still "speculating" (despite what HB says). EVERYTHING is speculating.

In the PP, you are speculating that market dynamics would be repeatable from the 70's. You are speculating that Bretton Woods was not a massive contributing factor in the backtest data. For Japan, you are speculating that having world reserve currency status would have made no difference. The list goes on and on.

You are also speculating that the PP will continue to "work" because of the inverse relationship of asset classes. That you will ALWAYS be protected by the PP investing system. However, those dynamics can change in specific situations.

Ironically, HB told people to avoid investing systems with great track records... but then somehow the PP should be exempt from his advice?

The internal gears of the PP machine are not fixed and are not guaranteed.

The reality is that most (if not all) of us are seeking maximum return with very low volatility and risk. Thinking that people with the same objective are "speculating" only reinforces my previous post. IMHO, a prudent investor should consider separating the PP allocation from the PP dogma. I am not trying to be alarmist... just practical.

To be fair, the PP reminds me of an airline insurance policy. It can make you feel safe. Will it protect you in most circumstances? Sure. Does that safety come at a cost? Yes. If you read the fine print does it make you feel a lot less safe? Yes. Are there better alternatives for the price? Sometimes. Is it good for those that just want to "set-it-and-forget-it"? YES!

Keep in mind that the PP was primarily designed to give you freedom in your life. Simple investing rules so that you can go live have a happy libertarian life without the stress of your investments. That "ease" is obviously going to negatively impact the overall low-risk/high-return objective. It was never meant to be an optimal investing strategy... it was meant to be an optimal life strategy that would include your investments.

Posted: **Sun Nov 01, 2020 2:43 pm**

ahhrunforthehills wrote: ↑Sun Nov 01, 2020 1:46 pm You are speculating that Bretton Woods was not a massive contributing factor in the backtest data.

Love your thought process and contribution, but that part is not speculation.

https://portfoliocharts.com/2020/08/21/ ... d/#returns

Posted: **Sun Nov 01, 2020 9:19 pm**

Tyler wrote: ↑Sun Nov 01, 2020 2:43 pm
ahhrunforthehills wrote: ↑Sun Nov 01, 2020 1:46 pm You are speculating that Bretton Woods was not a massive contributing factor in the backtest data.

Loqve your thought process and contribution, but that part is not speculation.

https://portfoliocharts.com/2020/08/21/ ... d/#returns

Nice article Tyler!

I wish I could feel more warm and fuzzy about the 70’s data. I don’t have my notes in front of me, but I believe prices peaked on Dec 31, 1974 (the day that gold ownership was legalized again). Then you had 2 years of collapsing prices. It took another 2 years before it hit that previous high. At that point we are almost into the 80’s and our testing period would soon run out due to the environment changing.

It is still too hard for me to tell with certainty whether gold was actually behaving normally or whether it was experiencing aftershocks from the legalization of gold ownership and/or possible gold manipulation, etc..

Whenever I try to make sense of gold in that period it always feels like I’m doing a study with a ridiculously low sample size and a lot of noise. There is just no way for me to be confident in the data with so little to go on in a climbing rate environment.

Great article though. Your science reference sent me down a wormhole learning about asteroids delivering our current supply of gold because all of Earth’s original gold would have sank to the core. Thanks for the read

Posted: **Mon Nov 02, 2020 7:57 am**

johnnywitt wrote: ↑Sun Nov 01, 2020 11:56 am
mathjak107 wrote: ↑Sat Oct 31, 2020 12:40 pm The PP has almost a cult like following... that can really make for a stronger belief than just religion ...which can be good or bad depending on how things go .

We are finding today a whole lot more is involved then basic relationships to the economy ....we see assets like gold and long term treasuries taking the same path as stocks now , as many times leverage and margin calls make them the asset of choice to be sold .

Just like other factors tend to outweigh golds movements compared to daily inflation , so do other factors effect and overwhelm the movement of bonds today .

Bonds can not be counted on to stand up to a bad down turn in stocks ..the volatility of long term bonds can over accent the days fall instead of cushioning it

I am no more confident of the pp than I am in any other diversified portfolio of similar equity weighting
Yeah, typically Bonds & Stocks are highly correlated throughout history. The Bonds offsetting stocks during the last 30 years or so is anomalous from a historical perspective. Stocks and Bonds got creamed in the 1970's from a purchasing power perspective. I expect to see that repeat, but for my core portfolio I would speculate on it.

assets do not correlate well to each other ever . but they do tend to correlate to specific economic outcomes . you can likely set your watch to that relationship .

but there are so many things today like leverage , margin calls , liquidity in etf's which really are untested products in very bad times , etc that cause what should be in to what maybe or ain't.

we saw that in march as equities plunged , long term treasuries plunged more as liquidity and margin calls caused havoc in the market place . it wasn't until the fed stepped in that things improved as far as liquidity

Posted: **Mon Nov 02, 2020 9:42 am**

mathjak107 wrote: ↑Sat Oct 31, 2020 12:40 pm I am no more confident of the pp than I am in any other diversified portfolio of similar equity weighting

What's the saying..."It's not the investment, it's the investor."

At some point you have to pick a reasonable strategy and just stick to it.

So much is bound to change over a 30-40 year investment period that you could justify bailing on any investment plan multiple times each decade.

At some point you just have to buckle your seatbelt and trust the plan.

If the risks described by Adam Collins or even Ray Dailo were foregone conclusions, the markets would reflect that.

Posted: **Mon Nov 02, 2020 12:53 pm**

AdamA wrote: ↑Mon Nov 02, 2020 9:42 am
mathjak107 wrote: ↑Sat Oct 31, 2020 12:40 pm I am no more confident of the pp than I am in any other diversified portfolio of similar equity weighting
At some point you have to pick a reasonable strategy and just stick to it.

So much is bound to change over a 30-40 year investment period that you could justify bailing on any investment plan multiple times each decade.

At some point you just have to buckle your seatbelt and trust the plan.

Just to play devil's advocate for the sake of discussion...

So much is bound to change over the next 30-40 year investment period that it could be dangerous to buckle your seatbelt and trust a specific plan.

Unfortunately, as time goes on, the back-tested data we used to form our conclusions start belonging to an outdated world that could have had very different economic forces at play.

With that said, I do think the largest risk to an investor is letting their emotions (usually greed and fear) guide them. I would also argue that maybe the 2nd biggest risk is to stick your head in the sand about current/emerging long-term trends and blindly trust a strategy you setup many years ago.

I don't think that is a problem for 99% of the people reading this. They probably wouldn't be on here if they didn't think it was at least possible for the PP to break... everyone would be too busy living their life knowing that their investments are 100% bulletproof.

A prudent investor just wants clear and compelling evidence if they are going to change course from their current allocation (which is a pro and a con). In one hand, it keeps us from making poorly informed decisions. On the other hand, it keeps us from changing allocations because the information at hand is never going to be 100% concrete.

It is easy to fall back on the ol' "well, that is why the PP exists... cause you never know... blah blah blah". But again, the PP is (was) based on an outdated world that could have had very different economic forces at play.

IMHO the PP is like a condom kept it in your wallet. It should be okay to use. However, you have to realize that your risk is going to go up the longer it was in there without you ever inspecting it. Besides, there might be alternatives now that are more efficient towards your goal.

However, there is one instance where I think a non-changing strategy could be appropriate... mild dementia. Maybe having an ingrained "system" would be enough to protect myself from myself?

Posted: **Mon Nov 02, 2020 1:39 pm**

ahhrunforthehills wrote: ↑Mon Nov 02, 2020 12:53 pm
Unfortunately, as time goes on, the back-tested data we used to form our conclusions start belonging to an outdated world that could have had very different economic forces at play.

What are the different forces at play?

I don't really see what has changed for the world economic system since the inception of the PP.

The dollar is still the world's reserve currency.

The S&P companies still have plenty of business overseas.

Gold is still limited in supply.

We are currently in a period of pandemic-related deflation, and people here are arguing that we should get rid of the asset that provides deflation protection.

It strikes me as an emotional response.

Interest rate ain't nothin but a number. They're low, but they can go lower.

And even if the Treasury Bond portion of the PP lost 50% of its value, it would only be a 12.5% loss for the portfolio.

What am I missing?

Posted: **Mon Nov 02, 2020 2:00 pm**

What changed is the speed at which enormous volumes of assets trade and cause liquidity issues in price .

the big high speed leveraged selling all unloading leverage at the same time as well as margin calls have changed .

near zero rates has likely given long term bonds a much higher risk then potential reward .

the fact so many more people dabble in gold etf's today has made selling short a big problem .

Computer trading has made it easier for govts buying and selling gold to manipulate market direction

the list can go on and on.

even though economic events are saying an asset should react a certain way , other factors now can make that asset not respond the way it would have to the same event,. we saw that in march when liquidity from high volume selling to meet margin calls created insane pricing on bond yields.

we are seeing TLT basically stall out even though stocks are selling off and the economic conditions look terrible

Posted: **Mon Nov 02, 2020 2:38 pm**

mathjak107 wrote: ↑Mon Nov 02, 2020 2:00 pm we are seeing TLT basically stall out even though stocks are selling off and the economic conditions look terrible

TLT is up 15% TYD.
S&P is up around 3% I think.

Where is the stall?

Posted: **Mon Nov 02, 2020 2:48 pm**

What are the different forces at play?

I don't really see what has changed for the world economic system since the inception of the PP.

The dollar is still the world's reserve currency.

US world reserve currency is not a light-switch. It fluctuates. In 1970 it was about 85% of foreign exchange reserves. Last year it was about 60%.

The S&P companies still have plenty of business overseas.

Are you saying that the market is functioning the same way as it did 15 years ago?. Do you not see the wealth trap reflected in the S&P caused by current events? The government mails everyone a check, they spend that check at Amazon and Netflix, this pushes asset prices higher because those that hold assets are the least likely to need the cash. Is MMT not an economic force at play in the S&P? How about the fed's public willingness to purchase corporate bonds (and stocks if need be)?

Gold is still limited in supply.

It is. However, it is in such limited supply that it can be manipulated. This is not that far-fetched as many people think.

For example, there was the wikileak that the U.S. gold futures market was created in December 1974 as a result of collusion between the U.S. government and gold dealers in London to facilitate volatility in gold prices and thereby discourage gold ownership by U.S. citizens (based on a State Department cable written that month):

https://wikileaks.org/plusd/cables/1974 ... 154_b.html

Not to mention that gold doesn't have to be "physical" to be traded anymore. There is very little limit on non-physical gold trading.

We are currently in a period of pandemic-related deflation, and people here are arguing that we should get rid of the asset that provides deflation protection.

Are you saying the odds of inflation are the same as the odds of deflation? More importantly, are you saying that the government would respond with the same amount of strength if it were to encounter inflation as it would to deflation?

It strikes me as an emotional response. Interest rate ain't nothin but a number. They're low, but they can go lower.

Nothing emotional about it. The lower it goes, the harder opposing forces start to push it back up. It is not a 50/50 bet.

And even if the Treasury Bond portion of the PP lost 50% of its value, it would only be a 12.5% loss for the portfolio.

What am I missing?

In your example, 12.5%.

Posted: **Mon Nov 02, 2020 2:56 pm**

ahhrunforthehills wrote: ↑Mon Nov 02, 2020 2:48 pm

And even if the Treasury Bond portion of the PP lost 50% of its value, it would only be a 12.5% loss for the portfolio.

What am I missing?
In your example, 12.5%.

Lol. Touche.

Posted: **Mon Nov 02, 2020 3:17 pm**

AdamA wrote: ↑Mon Nov 02, 2020 2:56 pm
ahhrunforthehills wrote: ↑Mon Nov 02, 2020 2:48 pm

And even if the Treasury Bond portion of the PP lost 50% of its value, it would only be a 12.5% loss for the portfolio.

What am I missing?
In your example, 12.5%.
Lol. Touche.

Seriously though, I do think the PP allocation is great. This whole discussion really is splitting hairs.

My bigger point was really just to consider keeping your investments on a short leash (regardless of what some "system" says). Better safe than sorry.

Posted: **Sat Nov 28, 2020 1:24 pm**

This is a great discussion and like many people reading participating in this thread a concerned about the PP. My vote is that @arunforthehills and @tyler collaborate on some portfolio chart posts or maybe do a podcast. And maybe discuss some of the points on this post. It’s very valuable.

Gyroscopic Investing

Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?

Re: Is the Permanent Portfolio Broken?