Gyroscopic Investing

frommi wrote:

Kshartle wrote: I think the big mac went up by 6.5% also

Now I realize this is only one sandwich....<snip>

Thats called pricing power and is one reason MCD can raise their profits faster than inflation. KO and a lot of other consumer stocks with great brands like PG,CL or UL have this kind of pricing power.

So is buying those stocks a bet on inflation? ( I have some MCD & PG shares left in my vp ).

Kshartle wrote: Maybe not the price of gold....but stocks, housing, food, healthcare, education all sure did.

Hmm..., not in my experience.  Don't know about education.  I think the CPI is probably pretty close to accurate, or at least it seems to bear enough resemblance to reality to be useful.

dualstow wrote: So is buying those stocks a bet on inflation? ( I have some MCD & PG shares left in my vp ).

No. My bet on inflation is via oil stocks. (KO/MCD/PG were flat in the inflation years.)
Without really thinking about it, i have structured my stocks PP like

inflation: (20%) oil stocks (will get to 25% in the next weeks)
rising interest rates: (20%) banks&insurances
flat/declining interest rates: (25%) REITs & Telecom stocks (they profit because of lower interest payments)
prosperity: (rest) tech stocks & consumer stocks

All stocks are undervalued at the moment and pay a nice dividend. I know that volatility will be a lot higher than the PP but i think i can generate >2% alpha per year.
The whole portfolio has a PE<10, EV/EBIT of 7, div yield of 3.8% and growth expectations of >5%. (Thats a lot better than the S&P500)

+ 4 % with my 10 % cash, 20 % gold, 30 % bonds, 40 % stocks portfolio

Saxo's balanced portfolio turned in a similar result (-2.9 %) to the PP.

http://www.tradingfloor.com/posts/globa ... -605844721

You'll recall that it's based on a macro model like the the PP but uses a more complex engineered asset mix.  The most obvious point of difference is that it carries a gold allocation of just 6.25%.

The implications are I think

1. It might not be gold's 'fault' for the PP's performance this year, it might be signalling some macro event thats not yet clear (to me at least), rather than manipulation, profit taking, surging faith in banks and so on thats been touted.

2. If you were diversified this year, you took a knock regardless of how you implemented the diversification.

Of course it could just be that the alternative assets that Saxo chose just happened to correlate to gold this year

Thomas Hoog wrote: + 4 % with my 10 % cash, 20 % gold, 30 % bonds, 40 % stocks portfolio

What are your re-balancing rules with this allocation?

Bean wrote:

Thomas Hoog wrote: + 4 % with my 10 % cash, 20 % gold, 30 % bonds, 40 % stocks portfolio

What are your re-balancing rules with this allocation?

10 % up/downside. Dividend and Interest drops in Cash, so the 0% band Cash will never occur.

gizmo_rat wrote: Saxo's balanced portfolio turned in a similar result (-2.9 %) to the PP.

http://www.tradingfloor.com/posts/globa ... -605844721

You'll recall that it's based on a macro model like the the PP but uses a more complex engineered asset mix.  The most obvious point of difference is that it carries a gold allocation of just 6.25%.

The implications are I think

1. It might not be gold's 'fault' for the PP's performance this year, it might be signalling some macro event thats not yet clear (to me at least), rather than manipulation, profit taking, surging faith in banks and so on thats been touted.

2. If you were diversified this year, you took a knock regardless of how you implemented the diversification.

Of course it could just be that the alternative assets that Saxo chose just happened to correlate to gold this year

ETF replay has the PP for 2013 down -2.0% and Gobal beta down -.88% for the whole year of 2013.  Gobal beta started in May 2013 so since inception it was down -2.9%.

I am following this on paper.  It has 62.5% in income producing bonds.   

modeljc wrote:
ETF replay has the PP for 2013 down -2.0% and Gobal beta down -.88% for the whole year of 2013.  Gobal beta started in May 2013 so since inception it was down -2.9%.

I am following this on paper.  It has 62.5% in income producing bonds. 

Thanks, I stand corrected, the blog post read as if it were the full years results.
The results are still similar enough for me not to stress so much over golds decline.

-3% in 2013 with EUROPEAN PP

Let's see this year. Until now I didn't find any other strategy better. If you have some other good investment ways let me know.

Regards

There results are all pre-dividend too aren't they? Rates/dividends on equal quads come to 1.4% (0.9% cash, 2.8% bond, 1.9% stock, 0% gold)... So PP was down probably less than 1.99%.

Maybe there was some anomalie that made Jan1 entries especially good?... Otherwise I can't understand the hysteria that went on here... Perhaps it is just the pain of "missing out" on being 100% stocks in such a ridiculous year.

jco wrote: There results are all pre-dividend too aren't they? Rates/dividends on equal quads come to 1.4% (0.9% cash, 2.8% bond, 1.9% stock, 0% gold)... So PP was down probably less than 1.99%.

Maybe there was some anomalie that made Jan1 entries especially good?... Otherwise I can't understand the hysteria that went on here... Perhaps it is just the pain of "missing out" on being 100% stocks in such a ridiculous year.

I tried to put into context the "hysteria" I personally felt. Obviously this comment was overlooked or completely ignored.

A reasonable PP investor would agree with your comment if looking at the PP in isolation. When comparing the annual PP returns to a 60/40 SPY/BND allocation, the results are less impressive. The latter returned 14.2% in 2013 for a difference of 16.6%

During the 2008 time frame, the PP returned 1.5% and the 60/40 allocation -22.1% for a net difference of 23.6%

If we praise the PP for its stellar performance in 2008 when compared to a traditional 60/40 allocation, then we should scrutinize the 2013 returns using the same benchmark.

My own implementation of the PP (1/3 cash, 1/3 gold, 1/3 stocks, eurozone) is down 3% this year, or 4% in real €. I have a bigger allocation to gold (wohoo, 2nd biggest bear market ever for 1/3 of my portfolio !) than the official PP, so this is a very good return for the strategy IMO.

I'm quite happy, actually. Before 2013, I was mostly invested in gold and just switched to the 33/33/33 PP at the fall of 2012 Yes, you can call that blind luck.

Here are prices of SHY, TLT, GLD, VTI as of, including dividends and splits if applicable. 

12/31/2012 to 12/31/2013.

SHY: 84.20 - 84.38
TLT: 117.60 - 101.86
GLD: 162.02 - 116.12
VTI: 71.88 - 95.92

Does anyone know how to calculate the return for 2013 manually?

Odysseusa wrote: 12/31/2012 to 12/31/2013.

SHY: 84.20 - 84.38
TLT: 117.60 - 101.86
GLD: 162.02 - 116.12
VTI: 71.88 - 95.92

Does anyone know how to calculate the return for 2013 manually?

The formula for return = enddate / begindate -1

SHY = 84,38 / 84,20 - 1 = 0,21377 %
TLT = 101,86 / 117,60 - 1 = - 13,38436 %
GLD = 116,12 / 162,02 - 1 = -28,32984 %
VTI = 95,92 / 71,88 - 1 = 33,44462 %

For your calculation you do it easyer:

SHY = 84,38 / 84,20 = 1,002
TLT = 101,86 / 117,60 = 0,866
GLD = 116,12 / 162,02 = 0,717
VTI = 95,92 / 71,88 = 1,334

For Permanent Portfolio without any changes during the begindate and enddate the return is:

25 * 1,002 + 25 * 0,866 + 25 * 0,717 + 25 * 1,334 =  97,986

Now you can use the formula from the beginn:

97,986 / 100 - 1 = - 2,014 %

This is the performance for a depot without any changes during the time of calculation. This must not be your personel
return. Maybe there were some proceeds or payments in your portfolio. That changes everything for you.

sorry english is not my native language