Gyroscopic Investing

Posted: **Fri Mar 06, 2015 10:32 am**

Hmm, I wonder when I should cover my Euro short.

Hussman thinks the USD is overvalued vs Euro/Yen now.

Budd, I really think you need to deal with your anxiety problem because the PP will get completely gutted (as it has been recently in minor terms) if there is even a whiff of "Tight Money" which sends the USD flying higher. It will happen again and probably when every other non-cash asset class is going belly up because global investors are completely panicing, not just the Fed jacking up the FFR to 12%. If you have US bonds as the world's reserve currency, then there may not be that narrow channel between bonds going up in a deflation and them imploding due to a loss of sovereign confidence. You have to be confident that you're still winning with the PP by merely losing less than everyone else.

Posted: **Fri Mar 06, 2015 10:38 am**

Pointedstick wrote:
goodasgold wrote: This day (so far) is the worst single day I can recall for the PP.

But, as always, we need to hang in there and think long term.

Think I'll buy some gold. As much as we sometimes complain about the yellow stuff, it may well be our salvation when the *really* bad times roll into town.
Yep, just bought some TLT. You guys have to understand that days like these are buying opportunities if you're still in the accumulation phase. Absolutely nothing to lose your mind about. If you're withdrawing, sure, it sucks, but what portfolio doesn't occasionally (or more than occasionally) have days when the whole thing is down 1%? Only all-cash portfolios, basically. And you wouldn't want that.

It just always happens right after I blow my wad for the year. I mean I could double down on what I planned to invest, from cash, but that's market timing. Do we do that here? I forget.

Anyways... This fucking portfolio, man.

Had to get that out of my system

Posted: **Fri Mar 06, 2015 10:47 am**

dragoncar wrote: It just always happens right after I blow my wad for the year. I mean I could double down on what I planned to invest, from cash, but that's market timing. Do we do that here? I forget.

You don't have to market time in the sense of making it a yes or no binary decision as is traditional, but you can use it for deciding when to add new contributions or for sending cash to a particular asset class (or not). Certain points are obviously better than others, but we're probably talking about only a 1-2% difference per year max in CAGR. Unless you're extremely skilled at not falling prone to behaviorial biases, I wouldn't advise it and neither would anyone else here.

Posted: **Fri Mar 06, 2015 12:10 pm**

I have been watching the HBPP portfolio for over 6 months because I am still not convinced due to the current environment.

stock is sky high - waiting to dive back down to earth, back to dotcom bubble territory, not more than 10% correction over 5 years
long term bond - rate is super low, only way to wiggle is to move up which is bad for price
gold - is still on the slippery slope, heading down from the all time high since beginning of 2011

We are still in stagnation and deflationary environment with super low interest rate courtesy of the FED wanting to awash the market with cheap cash.

Have there been such environment like now that could spell trouble for the HBPP?

Today is an example of all assess heading down!

VTI = over 1% in red
IAU = over 2% in red
TLT = over 2% in red
SHY = even the boring SHY is in red

What's stopping this sort of thing from keep going in the negative direction? Uncharted environment...

Posted: **Fri Mar 06, 2015 12:21 pm**

So then, you are in cash? Short various markets? Or something else?

Just curious.

Posted: **Sun Mar 08, 2015 9:40 pm**

push3r wrote: I have been watching the HBPP portfolio for over 6 months because I am still not convinced due to the current environment.

stock is sky high - waiting to dive back down to earth, back to dotcom bubble territory, not more than 10% correction over 5 years
long term bond - rate is super low, only way to wiggle is to move up which is bad for price
gold - is still on the slippery slope, heading down from the all time high since beginning of 2011

1/4 of all government bonds around the world are below 0% interest rate, what's to stop long term bonds here from going that low (and returning stellar capital gains). Stock P/E ratios are still under 20 which are not ridiculous. A resistance test on the PE chart would have us up near 45 again? We could be on our way to Dow 25000-30000?

I'm not saying you're wrong, but we have to leave open the possibility that what we believe is not how it will turn out. I've found the PP averages out nicely when you set it, forget it, and buy low when new money comes in.

Posted: **Mon Mar 09, 2015 5:53 am**

Mike59 wrote: 1/4 of all government bonds around the world are below 0% interest rate, what's to stop long term bonds here from going that low (and returning stellar capital gains)....

Is that 1/4 figure correct, Mike? I am just thinking that US market is massive and everything here is still - at least in nominal terms - positive. But, in general I agree that even at its current paltry yields, US debt should draw a lot of money from overseas investors, especially in light of the strengthening USD which could supercharge returns on US LTTs for those outside of the US. In my view, the long bond that PPers hold is unlikely to go to 0% but it could drop a full point from here (2.84% as I wrote this) pretty easily.

Mike59 wrote: I'm not saying you're wrong, but we have to leave open the possibility that what we believe is not how it will turn out...

It's almost never how things turn out as the beginning-of-the-year polls on this forum show.

Posted: **Mon Mar 09, 2015 10:07 am**

Cortopassi wrote: So then, you are in cash? Short various markets? Or something else?

Just curious.

Yes, been sitting in cash for a while and have some "fun" shorts.

Posted: **Mon Mar 09, 2015 12:20 pm**

push3r wrote: I have been watching the HBPP portfolio for over 6 months because I am still not convinced due to the current environment.

stock is sky high - waiting to dive back down to earth, back to dotcom bubble territory, not more than 10% correction over 5 years
...
gold - is still on the slippery slope, heading down from the all time high since beginning of 2011

This statement confuses me. How can you think Stocks are a bad investment because they have kept going up AND Gold is a bad investment because it has kept going down?

Posted: **Mon Mar 09, 2015 12:57 pm**

sophie wrote: The PP is indeed doing just fine. From etfreplay:

Last 12 months: 5.9%
YTD: 1.2%
Last 6 months: 2.5%

Since the CPI-U was down 0.5% in January, that 1.2% YTD performance is still a positive real return.

It sounds like portart is concerned about the PP's future, with interest rates being so low. I'm not sure, but keep in mind that money has to go somewhere. Where can it go? Until a new primary asset class comes along, the PP's four assets capture every possible answer to that question. So the PP will always reflect the degree to which resources are being generated.

It is certainly possible that a new primary asset class, orthogonal to all the others, will appear one day. That's the thing to watch out for. The only possible candidate that I can see is Bitcoin, but it will take quite a while before that asset is sufficiently well accepted to replace gold, if it ever does. All others are simply a mixture of one of the Basic Four.

Maybe, but I'm going with Beanie Babies for the new primary asset class. They are independent of the others and are at long-term lows. There's nowhere to go but up!

(Note:

)

Posted: **Mon Mar 09, 2015 1:09 pm**

mukramesh wrote: This statement confuses me. How can you think Stocks are a bad investment because they have kept going up AND Gold is a bad investment because it has kept going down?

For stock, since it's been going straight up for 5 years since the crash (look at the charts) without a 10% correction, which is totally abnormal, then it's overdue for a correction.

For gold, it might be forming a bottom here but since the current environment (and near future) is not inflationary it's still not a good buy yet. Well, gold is a good buy when there's upheaval in the world. Of all the assess, gold is the only thing I am considering buying.

Of course, the statements above are speculations with long term observations and common sense.

I want to start the HBPP but I don't believe in just jumping in with a lump sum. Just waiting for the right time. Again, I might start accumulating gold in small portions.

Posted: **Mon Mar 09, 2015 1:27 pm**

push3r wrote:
mukramesh wrote: This statement confuses me. How can you think Stocks are a bad investment because they have kept going up AND Gold is a bad investment because it has kept going down?
For stock, since it's been going straight up for 5 years since the crash (look at the charts) without a 10% correction, which is totally abnormal, then it's overdue for a correction.

For gold, it might be forming a bottom here but since the current environment (and near future) is not inflationary it's still not a good buy yet. Well, gold is a good buy when there's upheaval in the world. Of all the assess, gold is the only thing I am considering buying.

Of course, the statements above are speculations with long term observations and common sense.
I want to start the HBPP but I don't believe in just jumping in with a lump sum. Just waiting for the right time. Again, I might start accumulating gold in small portions.

Of course that's the problem: what does the right time look like?

Posted: **Mon Mar 09, 2015 1:52 pm**

Pointedstick wrote:Of course that's the problem: what does the right time look like?

Not only that, but:

push3r wrote:Well, gold is a good buy when there's upheaval in the world.

If gold went up when there were upheaval in the world (not saying that's not true, although it's not true by definition), then it would be a good buy before the upheaval. Which would require knowing the future.

Posted: **Mon Mar 09, 2015 2:45 pm**

push3r wrote:
mukramesh wrote: This statement confuses me. How can you think Stocks are a bad investment because they have kept going up AND Gold is a bad investment because it has kept going down?
For stock, since it's been going straight up for 5 years since the crash (look at the charts) without a 10% correction, which is totally abnormal, then it's overdue for a correction.

For gold, it might be forming a bottom here but since the current environment (and near future) is not inflationary it's still not a good buy yet. Well, gold is a good buy when there's upheaval in the world. Of all the assess, gold is the only thing I am considering buying.

Of course, the statements above are speculations with long term observations and common sense.

I want to start the HBPP but I don't believe in just jumping in with a lump sum. Just waiting for the right time. Again, I might start accumulating gold in small portions.

Well according to PP theory, you are always buying at least one asset you don't like. Additionally, at least one asset will generally be going down during the time that you hold it. Your prediction just happens to be that the only good buy is gold.

You are free to purchase whatever assets you want, but if you don't buy the entire PP together, you won't have the protection it offers in case your predictions are wrong. Either you are convinced by the package or you aren't. For me, seeing the PP performance during the tech crash in the early 2000's and the real estate bubble burst in 2008 convinced me that even in times of dire stress, the PP as a package can hold its own.

Posted: **Mon Mar 09, 2015 3:35 pm**

push3r-

Please let us know when the time is right....

Posted: **Mon Mar 09, 2015 3:56 pm**

Pointedstick wrote: Of course that's the problem: what does the right time look like?

When the world isn't in the grips of a deflationary spiral?

The PP is about Prosperity with hedges. It's not completely neutral in the sense that you can just put it on at in any economic environment and make a profit in the short-term or without any pain along the way. If you time it wrong, you will suffer for up to a couple of years. This is a big issue for lump sum investing because dollar cost averaging along the way reduces the pain.

So far we've had a gold bull hold up the 70's, and a dual stock/bond bull that held up the 80's, 90's, 00's. How experienced do you feel the PP has been in an environment where two/three non-cash assets are bearish long-term? Japan comes to mind. You've got to lower your expectations if you're going to remain a purist.

Here's what I currently expect as of this date. Since the rest of the world is in the process of crashing and burning, it will benefit the U.S. due to flight of safety. So the economy should go up for another two years, gold should bottom later this year and I'm unclear about bonds but I suspect it will also benefit for the next two years since there's room to reach 0% like the rest of the world, but you can't know that ahead of time. Confidence is tenuous. But it seems clear that after the drama is all over these next several years, we're going to be looking at a one world currency to replace the USD when all is said and done. So I don't think its time to panic yet and being in the equivalent of Rome with the world's reserve currency, we're tremendously cushioned. But the end is certainly nearer.

Posted: **Mon Mar 09, 2015 4:04 pm**

Isn't the Japanese PP doing just fine? Yes, it's only returning 2% or something, but that's in a deflationary environment. It's still hitting the PP's target of 4-6% real, IIRC.

Posted: **Mon Mar 09, 2015 4:40 pm**

MachineGhost wrote:
Pointedstick wrote: Of course that's the problem: what does the right time look like?
When the world isn't in the grips of a deflationary spiral? The PP is about Prosperity with hedges. It's not completely neutral in the sense that you can just put it on at in any economic environment and make a profit in the short-term or without any pain along the way. If you time it wrong, you will suffer for up to a couple of years. This is a big issue for lump sum investing because dollar cost averaging along the way reduces the pain.

So far we've had a gold bull hold up the 70's, and a dual stock/bond bull that held up the 80's, 90's, 00's. How experienced do you feel the PP has been in an environment where two/three non-cash assets are bearish long-term? Japan comes to mind. You've got to lower your expectations if you're going to remain a purist.

Here's what I currently expect as of this date. Since the rest of the world is in the process of crashing and burning, it will benefit the U.S. due to flight of safety. So the economy should go up for another two years, gold should bottom later this year and I'm unclear about bonds but I suspect it will also benefit for the next two years since there's room to reach 0% like the rest of the world, but you can't know that ahead of time. Confidence is tenuous. But it seems clear that after the drama is all over these next several years, we're going to be looking at a one world currency to replace the USD when all is said and done. So I don't think its time to panic yet and being in the equivalent of Rome with the world's reserve currency, we're tremendously cushioned. But the end is certainly nearer.

Thank you MachineGhost. You have just explained exactly what I am concerned of with regards to the HBPP in terms of how to start accumulating assess, especially in the current environment. I don't remember whether the book recommended whether or not one should just jump in with a lump sum.

I want to start the my own HBPP, but it would be suicidal to put a lump sum in buying stock and long term bond right now. I am thinking long term here, as in 20 years. Wait until they start raising interest rate, lookout below for stock and bond; a preview of it was last week. Is gold going to sky-rocket up in order to ease the pain of those assess?

I suppose, the ultimate question for someone who is starting the HBPP from scratch, what is the best way to accumulate the assess in the current environment? My thinking is to start with gold in small portion and leave the rest in cash with the idea that I will begin to buy stock and bond when they start crashing.

Posted: **Mon Mar 09, 2015 4:42 pm**

babysquirrel wrote: push3r-

Please let us know when the time is right....

babysquirrel,

The right time is as they say "buy low, sell high". I'm waiting for stock and bond to crash. I am very patient.

Posted: **Mon Mar 09, 2015 6:21 pm**

push3r wrote:
babysquirrel wrote: push3r-

Please let us know when the time is right....
babysquirrel,

The right time is as they say "buy low, sell high". I'm waiting for stock and bond to crash. I am very patient.

Ok, but what are your buy points? How about gold...is it low enough or are you waiting for that to crash as well?

Posted: **Mon Mar 09, 2015 6:28 pm**

push3r wrote: I want to start the my own HBPP, but it would be suicidal to put a lump sum in buying stock and long term bond right now.

I bought in a while back and have been steadily reaping returns ever since. I guess it depends what you mean by suicidal. For me, personally, my ambrosia seems quite pleasant.

Posted: **Mon Mar 09, 2015 6:56 pm**

LC475 wrote:
push3r wrote: I want to start the my own HBPP, but it would be suicidal to put a lump sum in buying stock and long term bond right now.
I bought in a while back and have been steadily reaping returns ever since. I guess it depends what you mean by suicidal. For me, personally, my ambrosia seems quite pleasant.

LC475, a while back, when was that?

Just for fun, I setup a test HBPP last December 2014 and saw it gaining about 2.5%. And then last week came and boom! the test portfolio is in negative territory because of my concerns with regard to interest rate rising and stock market abnormal run without a 10% correction; all 4 assess went down , granted that it's only for a period of a week. It is important when to start buying as mentioned by MachineGhost's post. Why should I buy at such ALL TIME HIGH for two of the main three assess? Now, if everything was reversed, I would jump in with both feet!

Because stock and long bond are at such extreme level, it's a bit easier for me to form my reasoning. If we were in normal time / environment, then I would have jumped in already.

I guess you can say I am timing the HBPP

Have you even thought that you can use the HBPP strategy to time the market? For instance, only buy the assess that is beaten down and sell the high flying ones. And you don't have to keep all 4 assess at the same time. Just a wild thought.

Posted: **Mon Mar 09, 2015 7:24 pm**

I just jumped into the PP in mid-January with 25% of my portfolio. It's down now, but I'm not concerned. If you are market-timing your entry into the PP, then the entire strategy is not for you, IMO.

Posted: **Tue Mar 10, 2015 11:51 am**

Just a heads up, according to peaktotrough, the PP has only had a DD above 10% six times since 1972. So if you are waiting for the PP to crash before buying in, you might have to wait a while.

Compared to most conventional investing strategies, losing a few % here and there is not really a big deal. In other words I think you might be reading too much into your test PP's results since it's been such a short time. It might be more illuminating to look at the backtesting results at peaktotrough.com under different time frames/economic conditions. I get the value of forward testing for trading strategies, but for something like the PP, I don't find it super helpful since it moves so slow and has such infrequent trading. Besides, the results are updated by peaktotrough pretty much daily anyway, right?

Posted: **Tue Mar 10, 2015 12:20 pm**

EdwardjK wrote: If you are market-timing your entry into the PP, then the entire strategy is not for you, IMO.

mukramesh wrote: Just a heads up, according to peaktotrough, the PP has only had a DD above 10% six times since 1972. So if you are waiting for the PP to crash before buying in, you might have to wait a while.

The best time recently to start a PP would have been in August 2013, right after it dipped about 7%. But how does one know that sort of thing looking forward? One of the basic principles of the PP is that the future is unknowable. So, as EdwardjK says, if you don't buy that, then maybe the PP is not for you. Come back in another 10 years after you've learned more hard lessons.

Just as an FYI, if you look at charts of recent performance, another great time to get into the PP might be right now.

Gyroscopic Investing

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