Gyroscopic Investing

Kshartle wrote: Wait. I thought I could get rich ignoring everything around me, pretending it was impossible to make any reasonabl prediction about the future and still do as well the most volitile asset class with half the risk?  kidding....

Kshartle wrote: What the PP does is bet that purchasing power will trend between these different assent classes at, fairly close to even intervals. And it's pretty much always going to be one of these based on the world currently. By owning all four, and we can almost cut out cash.......you are certain to own whatever goes on a bull run and let it run for a while.

frugal wrote: hi,

3 years should be our limit for losses?

Tks

Mdraf wrote:

frugal wrote: hi,

3 years should be our limit for losses?

Tks

In my case yes. I don't know what others think

buddtholomew wrote: Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy unless one of the fundamental building blocks of the portfolio is no longer true. For example, returning to the gold standard.

Libertarian666 wrote: What alternative strategy can realistically promise better risk-adjusted returns  than the PP regardless of economic conditions? I don't know of any, so if I didn't have extremely strong opinions about future economic conditions, I would use the PP.

Mdraf wrote:

Libertarian666 wrote: What alternative strategy can realistically promise better risk-adjusted returns  than the PP regardless of economic conditions? I don't know of any, so if I didn't have extremely strong opinions about future economic conditions, I would use the PP.

It's a bit of a paradox. We buy the PP because we don't know what will happen in the future but we base its performance on the past. So we don't really know what alternative strategy might be more successful in the future 

It boils down to a personal subjective decision. I will not tolerate more than 3 consecutive years of losses or a total of -7% whichever comes first. Mainly because I bought in for principal stability first.

Libertarian666 wrote:

Mdraf wrote:

Libertarian666 wrote: What alternative strategy can realistically promise better risk-adjusted returns  than the PP regardless of economic conditions? I don't know of any, so if I didn't have extremely strong opinions about future economic conditions, I would use the PP.

It's a bit of a paradox. We buy the PP because we don't know what will happen in the future but we base its performance on the past. So we don't really know what alternative strategy might be more successful in the future 

It boils down to a personal subjective decision. I will not tolerate more than 3 consecutive years of losses or a total of -7% whichever comes first. Mainly because I bought in for principal stability first.

What other strategy would you use if you stopped using the PP?

Pointedstick wrote:

buddtholomew wrote: Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy unless one of the fundamental building blocks of the portfolio is no longer true. For example, returning to the gold standard.

+1.

Choosing an arbitrary number isn't going to make you feel better. Once you really understand what makes the portfolio tick, you can evaluate for yourself whether the prevailing conditions that support it still exist. Here are some things that I believe would alter the underpinnings of the PP and make me switch portfolios:

• 30-year bond rate falling to 1%
• government moving to true unbacked fiat money and no longer selling bonds
• government running a surplus and no longer selling long-term bonds (fat chance)
• returning to the gold standard
• dramatic change that causes gold to lose its status as a store of value (technology developed to easily and cheaply extract gold from seawater, for example)
• collapse of civilization

Mdraf wrote:

Libertarian666 wrote: What alternative strategy can realistically promise better risk-adjusted returns  than the PP regardless of economic conditions? I don't know of any, so if I didn't have extremely strong opinions about future economic conditions, I would use the PP.

It's a bit of a paradox. We buy the PP because we don't know what will happen in the future but we base its performance on the past. So we don't really know what alternative strategy might be more successful in the future 

It boils down to a personal subjective decision. I will not tolerate more than 3 consecutive years of losses or a total of -7% whichever comes first. Mainly because I bought in for principal stability first.

PP67 wrote: Using peak-to-trough's calculator, for the period 1972-current the number of times there were drawdowns >7%:

HBPP w/ 35/15 rebalance: 15

60/40 Stocks/Bonds (annual rebalance): 52

100% Stocks: 116

100% Bonds: 70

100% Gold: 186

100% Cash: 0

Past performance is no guarantee of future results...

Bottom Line: Pick your poison

Mdraf wrote:

PP67 wrote: Using peak-to-trough's calculator, for the period 1972-current the number of times there were drawdowns >7%:

HBPP w/ 35/15 rebalance: 15

60/40 Stocks/Bonds (annual rebalance): 52

100% Stocks: 116

100% Bonds: 70

100% Gold: 186

100% Cash: 0

Past performance is no guarantee of future results...

Bottom Line: Pick your poison

That's fine but I won't be there. I always have a max 7% loss on my investments. Even if I get jerked around by a volatile security. Now for the first time I didn't bail out of gold and bonds this year because I'm looking at the PP as a whole. And so far I only have 1 year loss and 2.x% total profit. So nothing will be happening soon.

frugal wrote: PS,

can you please explain each point.

Thank you very much!

Pointedstick wrote: • 30-year bond rate falling to 1%

Pointedstick wrote: • government moving to true unbacked fiat money and no longer selling bonds

Pointedstick wrote: • government running a surplus and no longer selling long-term bonds (fat chance)

Pointedstick wrote: • returning to the gold standard

Pointedstick wrote: • dramatic change that causes gold to lose its status as a store of value (technology developed to easily and cheaply extract gold from seawater, for example)

Pointedstick wrote: • collapse of civilization

buddtholomew wrote: Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy

Mdraf wrote:

buddtholomew wrote: Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy

Are you implying one has to be committed forever regardless of what is happening to your portfolio? If not how long before you face reality that you've made a mistake?

...And cutting losses at 7% is my investment strategy and has served me well enough.

Mdraf wrote:

buddtholomew wrote: Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy

Are you implying one has to be committed forever regardless of what is happening to your portfolio? If not how long before you face reality that you've made a mistake?

...And cutting losses at 7% is my investment strategy and has served me well enough.

buddtholomew wrote:

Mdraf wrote:

buddtholomew wrote: Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy

Are you implying one has to be committed forever regardless of what is happening to your portfolio? If not how long before you face reality that you've made a mistake?

...And cutting losses at 7% is my investment strategy and has served me well enough.

I already supported my argument with an example. If you choose only to quote an excerpt of my post to make your point, then you are anchored to a set of beliefs and not open to dissenting points of view.

I'm happy that cutting your losses at 7% has served you well. This is not a pissing match... Market timers are always in search of another strategy, technique or signal that will perform better than their current strategy. Good luck in your journey.

Pointedstick wrote:

buddtholomew wrote: Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy unless one of the fundamental building blocks of the portfolio is no longer true. For example, returning to the gold standard.

+1.

Choosing an arbitrary number isn't going to make you feel better. Once you really understand what makes the portfolio tick, you can evaluate for yourself whether the prevailing conditions that support it still exist. Here are some things that I believe would alter the underpinnings of the PP and make me switch portfolios:

• 30-year bond rate falling to 1%
• government moving to true unbacked fiat money and no longer selling bonds
• government running a surplus and no longer selling long-term bonds (fat chance)
• returning to the gold standard
• dramatic change that causes gold to lose its status as a store of value (technology developed to easily and cheaply extract gold from seawater, for example)
• collapse of civilization

Pointedstick wrote:

buddtholomew wrote: Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy unless one of the fundamental building blocks of the portfolio is no longer true. For example, returning to the gold standard.

+1.

Choosing an arbitrary number isn't going to make you feel better. Once you really understand what makes the portfolio tick, you can evaluate for yourself whether the prevailing conditions that support it still exist. Here are some things that I believe would alter the underpinnings of the PP and make me switch portfolios:

• 30-year bond rate falling to 1%
• government moving to true unbacked fiat money and no longer selling bonds
• government running a surplus and no longer selling long-term bonds (fat chance)
• returning to the gold standard
• dramatic change that causes gold to lose its status as a store of value (technology developed to easily and cheaply extract gold from seawater, for example)
• collapse of civilization

albertklu wrote: This is an excellent question, especially since Harry himself warned us against accepting historical performance as proof of concept.

Harry's explanations, particularly concerning the non-neutrality issue, left many of us dissatisfied. Nevertheless, the portfolio has continued to perform well. Why?

In my opinion, there is a fundamental economic explanation as to why the PP works. It relates to central bank intervention and the business cycle.

It is well understood that more money leads to higher prices. But what is often missed is the new money is never introduced uniformly into the economy. The new money is, instead, loaned and spent into circulation. This leads to some asset prices rising prior to others. Hence the profit opportunity.

The brilliance of the PP is that it holds asset classes that respond quickly to central bank action (stimulus or pullback). The act of rebalancing locks in these gains before they are eventually wiped out by the spread of inflation to other sectors.

Harry's 4 broad economic categories are not all encompassing conditions. Rather, they are periods within the Austrian business cycle. In anticipating the business cycle, the PP is actually a speculative portfolio.

I've published a podcast on this topic at http://wbadvisors.com/harrybrowne. Anyone familiar with Harry's writings should skip directly to Part 2 or 3. Feedback is appreciated.