Gyroscopic Investing

melveyr wrote: The funny thing about leaving the PP for something else is that it is likely involves sticking your neck out with regards to either inflation/deflation or growth/recession because the PP is decently balanced along those axes.

I think most people are very sensitive to the growth recession part, but tend to neglect the inflation/deflation risks.

Stocks, Bonds, and Gold have given a historical average return of 9%. Therefore, when adjusted down for the 25% Cash position, the PP must return a percentage above inflation. Without the cash position, the PP would be unable to take advantage of buying opportunities while giving the rest of the portfolio an opportunity to work as economic conditions adjust. What other portfolio has this brilliantly conceived feature? I am in it for the long-term with money I cannot afford to lose! VP for the money that I can risk for growth.

With all the angst on the board today, I logged into my brokerage account to see where I am for the year.  Even with gold suffering a large correction recently and bonds sinking, I'm still up almost 1%.  To be honest, that surprised me.  I'm very satisfied.

At some point in my investing life I stopped comparing the returns of one portfolio/fund/system to another, cleared the chalkboard completely, and thought more objectively about what I need my investments to accomplish.  The PP hasn't always performed the way I want, but it has consistently performed exactly the way I need. 

melveyr wrote:

Reub wrote: I think that what some  people need is a reiteration of the basic strength and soundness of the PP strategy. Almost like a rehashing of the original Boglehead thread where we can illucidate the benefits and help overcome doubts using facts, charts, and graphs.

I can start with the charts 
http://www.stableinvesting.com/p/long-t ... mance.html

Thank you, Ryan!

iwealth wrote:

buddtholomew wrote:

MediumTex wrote:
Why do you think it wasn't as hard for you when the portfolio was under-performing relative to gold and bonds at various points in recent years?

What is it about under-performance relative to stocks that is especially unsettling?

Note that at least one of the PP assets will always be outperforming the portfolio as a whole.  That's part of what makes it work.

I understand that the PP could have negative days, months or even years, but the under-performance of the portfolio when equities are on the rise is unsettling. It is awkward not to participate in global market strengthening and only earn positive returns when the economy is struggling or on unsure footing.

This recent extreme divergence has really only been prominent since November 2012.

It probably has something to do with that PP book coming out.

Given a choice,I want the damn 9% this year.

I want a like button for Budd!

You really wouldn't want to be in a 100% stock portfolio right now, even with the dazzling returns.  To avoid the occasional huge losses ("correction" in Wall Street Speak) you'd have to market time successfully, and that would involve far more angst than you would ever experience with the PP.

I have another theory about all the recent PP performance threads:  once the portfolio is set up, it's essentially BORING.  There's nothing to do aside from rebalancing every 2-3 years.  The only relief for twitchy fingered ADD types like us is the frequent checking and endless analysis that you see on this board.  It takes a while to get used to the idea that the portfolio is rock solid and doesn't require much in the way of intervention.

I think this what the variable portfolio is for:  something to tinker with to your heart's content, without having to worry about risking an uncomfortable amount of $$.  I decided to get into Lending Club for this reason:  it requires a lot of tinkering, the returns are constant and quite gratifying, and the amount of money that I put at risk is trivial.

I voted "Absolutely".  I have about a 5% nominal CAGR since April 1, 2011, which is on the lower side of the expected long term CAGR range, but I'm still happy.

MediumTex wrote:It probably has something to do with that PP book coming out.

Uh-oh, MediumTex's account has been hacked by Clive!

All this hand wringing made me want to revisit some real investment angst, my IFA managed 60/40 (Blue line). Each point lovingly plotted by me every three months direct from the paper statements. I didn't know the concept of real return, so just subtract an extra 3%-5% pa off those numbers for the full experience.



I later calculated that overt and covert management fees were running at about 3.5% pa, so I think it would have just about realised a gross breakeven point about now. 

Consequently, having done due diligence prior to heading into a PP I find nothing to quibble about so far.     

Xan wrote:

MediumTex wrote:It probably has something to do with that PP book coming out.

Uh-oh, MediumTex's account has been hacked by Clive!

Ha ha ha.

That's some Inside Baseball stuff there.

Tyler wrote: At some point in my investing life I stopped comparing the returns of one portfolio/fund/system to another, cleared the chalkboard completely, and thought more objectively about what I need my investments to accomplish.  The PP hasn't always performed the way I want, but it has consistently performed exactly the way I need.

+1

I think people would have an easier time being content with their investments it they judged them on the basis of whether they worked, rather than comparing them to a hypothetical ideal which by definition is unachievable on a prospective basis.

That's how I judge the other mechanisms that my family depends on --- my house, car, garden, email service, and so on. I want these things to work but I long ago stopped caring about whether they were all the best. You set this stuff up and run it until you notice it isn't working anymore. In the mean time there's no point wringing your hands over the sub-optimality of your dishwasher.

My Subaru has been providing reliable and versatile transportation for years. It's true that a Ferrari would have been faster and flashier over that time horizon. But that's really irrelevant to whether the Subaru worked as I needed it to. It did and so I'm satisfied with it. I could post "a Ferrari beat a Subaru in a race!" but there wouldn't be any pertinent information there. Everyone already knows that the cars work differently and that race result is irrelevant to whether the Subaru works for my family.

Similarly, I am financially risk averse so I want a portfolio that avoids large losses while earning enough returns to help me meet my retirement goal. The PP is doing that so I am satisfied with it. I could post "the PP isn't tracking the stock market as closely as a stock-heavy portfolio" but again I don't see anything notable or helpful in that kind of statement. Everyone knows that the two portfolios work differently and that observation is irrelevant to whether the PP works for my family.

Xan wrote:

MediumTex wrote:It probably has something to do with that PP book coming out.

Uh-oh, MediumTex's account has been hacked by Clive!

LOL

I miss Clive. He was a PP skeptic but one of the most interesting contributors on the forum.

KevinW wrote: My Subaru has been providing reliable and versatile transportation for years. It's true that a Ferrari would have been faster and flashier over that time horizon. But that's really irrelevant to whether the Subaru worked as I needed it to. It did and so I'm satisfied with it. I could post "a Ferrari beat a Subaru in a race!" but there wouldn't be any pertinent information there. Everyone already knows that the cars work differently and that race result is irrelevant to whether the Subaru works for my family.

Well said.  I like the car metaphor.  I'd also wager that your Subaru has been in the shop far less often than a Ferrari in that timeframe. ; )

Ad Orientem wrote:

Xan wrote:

MediumTex wrote:It probably has something to do with that PP book coming out.

Uh-oh, MediumTex's account has been hacked by Clive!

LOL

I miss Clive. He was a PP skeptic but one of the most interesting contributors on the forum.

My theory has always been "suicide by moderator."

Still,it's like watching a parade and not catching any of the thrown candy,lol..

annieB wrote: Still,it's like watching a parade and not catching any of the thrown candy,lol..

True, but you're also avoiding all the poison candy that gets thrown out there every few years.

annieB wrote: Given a choice,I want the damn 9% this year.

I want a like button for Budd!

Its unclear exactly what you mean, but I'm hopeful its a good thing 

sophie wrote:
I have another theory about all the recent PP performance threads:  once the portfolio is set up, it's essentially BORING.  There's nothing to do aside from rebalancing every 2-3 years.  The only relief for twitchy fingered ADD types like us is the frequent checking and endless analysis that you see on this board.  It takes a while to get used to the idea that the portfolio is rock solid and doesn't require much in the way of intervention.

In addition to its boring nature, technology has made sneaking a peek so trivially simple that it takes real willpower to restrain yourself from checking.

Back when HB developed the PP, the day by day, and hour by hour, checking was almost impossible with no computers or internet.  Except for those working for brokerages and banks, the most you could do was once daily checking, a day after market close, and to do it someone had to pull out a calculator (or even a slide rule!) while scanning the small print on the back pages of the Wall Street Journal.

Today you can have a page running in the background of your website at work that updates prices for your PP set up to track at Morningstar, Yahoo, Smartmoney, etc.  You can have a Bloomberg app on your phone with your portfolio, or log onto your brokerage account on your Kindle.  That day to day, hour to hour and even real-time tracking eliminates the boredom, but replaces it with anxiety from watching ordinary movements in prices.

In that way, it's financial porn--its ubiquitous, easy to access because of internet technology, harmless when indulged for special occasions, but over time engenders its own type of performance anxiety and becomes addictive/damaging when indulged in too often.

So may be we need ideas and tools for dealing with the urge to peek.

In that way, it's financial porn--its ubiquitous, easy to access because of internet technology, harmless when indulged for special occasions, but over time engenders its own type of performance anxiety and becomes addictive/damaging when indulged in too often.

smurff - you nailed it! I will have to admit that I have been getting drawn in more and more….  I caught myself watching Jim Cramer’s Mad Money the other night. It was a slow night and I just needed a fix.. ..the shame. 

Mad Money???  Ooooooooooh!

smurff wrote: Mad Money???  Ooooooooooh!

Watching Jim Cramer reminds of the scene in Raising Arizona when Nicolas Cage's character admits to driving by convenience stores that weren't on the way home.

The title of the show says it all...the money you CAN afford to lose.

On a side note, does anyone listen to Bill Gunderson of Bill Gunderson Capital Management (1220 AM, purely entertainment)? He promotes value, momentum and performance investing. I wonder what his track record is and whether its comparable to Cramer's?

I voted "Stay the Course,"  although I do yell at my monitor when I see my permanent portfolio down over $2,000 in one day (only happened a couple days this year).  Then, I move on to other activities because I've come to the conclusion that the PP is the best I can do on a consistent basis.  Although I've got a VP consisting of 2x and 3x versions of the PP, to spice things up a little bit.

edsanville wrote: Although I've got a VP consisting of 2x and 3x versions of the PP, to spice things up a little bit.

How long have you had it?

How does it do?