Gyroscopic Investing

murphy_p_t wrote: i think this chart is a useful contribution to this discussion to illustrate the odds of beating the market.

http://www.zerohedge.com/news/2012-09-2 ... ing-market.

I was looking for another article which listed many funds & their relative performance to the S&P, but couldn't find it.

MachineGhost wrote:Not really surprising, but all it proves is that greed is not enough to be competent at anything.  Hedge funds don't have the same restrictive institutional hindrances as Wall Street, so its to be expected that a minority will outperform as opposed to virtually none for mutual funds.

Tortoise wrote:

hrux wrote: And why not take diversification to a new level by diversifying your strategies. That way you get additional non-correlation and are protected in the event one of them fails to work as anticipated.

Can you give me an example of a strategy that is uncorrelated with the PP? I'm assuming it would have to be a strategy that holds no stocks, no LTTs, no gold, and no cash?

"Strategy diversification" is a bit of a tricky concept. If you "diversify" equally among three stock-heavy portfolios and the PP, for example, what you effectively end up with is... one big stock-heavy portfolio. That's just one example.

Yes I can provide an example.  This is why I think something like managed futures (or other trend following) can add diversification. If everything is down on a sustained basis, then managed futures are likely to be up substantially. So the statement that nobody is safe no matter how they invest is not necessarily true. And if MF doesn’t work for some reason, you are no worse off because nothing else worked anyway. Also, if all PP asset classes are overvalued relative to other opportunities then everything might be down, but the PP could be down much more. For example, if international stocks were undervalued relative to domestics they could hold up much better in a decline.

hrux wrote: Yes I can provide an example.  This is why I think something like managed futures (or other trend following) can add diversification. If everything is down on a sustained basis, then managed futures are likely to be up substantially. So the statement that nobody is safe no matter how they invest is not necessarily true. And if MF doesn’t work for some reason, you are no worse off because nothing else worked anyway. Also, if all PP asset classes are overvalued relative to other opportunities then everything might be down, but the PP could be down much more. For example, if international stocks were undervalued relative to domestics they could hold up much better in a decline.

hrux wrote:

Tortoise wrote:

hrux wrote: And why not take diversification to a new level by diversifying your strategies. That way you get additional non-correlation and are protected in the event one of them fails to work as anticipated.

Can you give me an example of a strategy that is uncorrelated with the PP? I'm assuming it would have to be a strategy that holds no stocks, no LTTs, no gold, and no cash?

"Strategy diversification" is a bit of a tricky concept. If you "diversify" equally among three stock-heavy portfolios and the PP, for example, what you effectively end up with is... one big stock-heavy portfolio. That's just one example.

Yes I can provide an example.  This is why I think something like managed futures (or other trend following) can add diversification. If everything is down on a sustained basis, then managed futures are likely to be up substantially. So the statement that nobody is safe no matter how they invest is not necessarily true. And if MF doesn’t work for some reason, you are no worse off because nothing else worked anyway. Also, if all PP asset classes are overvalued relative to other opportunities then everything might be down, but the PP could be down much more. For example, if international stocks were undervalued relative to domestics they could hold up much better in a decline.

Storm wrote: Seriouly, perhaps the PP will perform poorly the next few years, but then we must ask, what will perform better?  Stocks, bonds, cash, REITs?  Who can tell?  If you can tell you will be able to make a lot of money...

Storm wrote: One thing I've noticed, personally, is that every bit of money I've taken out of the PP, be it 5% or 10% of my total portfolio, for the purpose of trying to beat PP performance, has miserably underperformed the PP, or just plain taken a loss, while the PP has given steady gains.

That being said, my wife's PP, which was started in 2/2012, with just a small amount of IAU, TLT, and FUSEX, is only up 2.32% in 9 months... recent performance has suffered.  Then again, if I was 100% in equities, I would have only had a 5.24% gain, so really, is having a 2.9% higher gain in 9 months worth all the volatility and risk of having a 100% stock portfolio?

Seriouly, perhaps the PP will perform poorly the next few years, but then we must ask, what will perform better?  Stocks, bonds, cash, REITs?  Who can tell?  If you can tell you will be able to make a lot of money...

MediumTex wrote: If such an approach can provide over 9.5% a year with less volatility than the PP, why do you think everyone isn't doing it (including institutional investors)?  Do you think that there might be some risk hiding in there somewhere that people aren't appreciating?

Slotine wrote: I have to ask, are we looking at the same managed futures?

Slotine wrote: As for the construction itself, trend-following MFs are probably the least-hedged of the bunch.  Considering they're long or short in any of 30-40 futures, how their exposure to T-bonds factors into things is beyond me.  The trend-followers as a class benefit during crisis not by any specific asset allocation, but by the fact that they stop out any exposed positions.  An extended crisis also tends to generate strong momentum signals which they can either jump in either on the long or short side.  This makes up the bulk of their returns.  The rest of the time, they're barely treading water with a boatload of volatility.

That last tidbit is the important one, because no one - and I mean absolutely no one - should dedicate their entire portfolio to a MF.  The horizon is too long and the returns are too lumpy.  We're talking about at most 10-20% of your overall portfolio dedicated to a diversified mix of MF strategies.  These things don't hedge like the PP, and that in itself is the primary motivation for their inclusion.

Slotine wrote: My research-fu isn't as good as yours apparently.  I'm getting them clustered around 10%-20%.  Which database are you using?