Gyroscopic Investing

We are not counting on bonds to drive the portfolio. We are counting on bonds, gold, and stocks to drive the portfolio.

i will just repeat what i posted in another thread

from just a performance standpoint when you look at a total accumulation period which spans not 10 or 15 years but 25-40 years the performance of the pp in comparison to wellesley income  or a 60/40 mix was way below them .

that was with a 40 year bull market in bonds  and 30 year bonds which act as leveraged bonds.

so if the performance as a accumulation vehicle vehicle was so much less with the wind at its back how do you think it will do when it has a strong headwind and those leveraged bonds now hurt instead of help.

just keep that in the back of your mind. when those rates trend back , which eventually they will it will be very different than it was prior . gold has done little and may continue to do so and 25% in equities may not be enough to tread water long term with that  head wind.

sending gold and bonds in a rising interest rate long term trend  to bail out a 25% stock position when spending down may be like sending the andrea dorea to rescue the titanic.



i can't predict but just something to keep in mind if you are trying to grow a nest egg and not just preserve money.

mathjak107 wrote:
just keep that in the back of your mind. when those rates trend back , which eventually they will it will be very different than it was prior.

@Mathjak107: You've been posting this idea in a number of topics on this website. And I agree that we have clearly had an environment that led to falling interest rates for bonds. But don't you also think that equities benefited from this? If rates rise in the future, what's to stop people from exiting equities and buying more bonds? This would cause equities' future returns to go down as well in a 'rising interest rate environment.'

that will be what happens as rates rise  but as an existing bond holder you will take a bigger and bigger hit as rates rise .

equities do fine in rising rates.  as long as we are not getting to crazy you can see some decent returns , not as good as we had from decades of falling rates but at least you stand a chance of a positive return.

you have zero chance in rising rates with long term bonds. short of us falling in to another recession again the die is cast  if you are holding long term bonds.

as you can tell I feel very strongly that holding long term bonds at this stage of the cycle and only 25% equity's I think is a very dangerous bet that rates will not trend back to the norm .

unless we have hyper inflation I would count gold as dead in the water . you see how bad it reacted to the world's Greece  crises.


sure we can all envision some remote scenario creating some financial Armageddon but the odds of that are so slim you can wait so long for that ship to come in  your pier collapses.

Okay fair enough. Just another small point, you made this comment as well

mathjak107 wrote: i can't predict but just something to keep in mind if you are trying to grow a nest egg and not just preserve money.

But you are definitely making a prediction here. Your prediction is: gold will keep going down so you won't hold any; long term US treasuries will tank when rates rise so you won't hold any or may lower your duration (don't really remember what you ended up doing); stocks will perform better than gold and treasuries so you will put the majority of your money here. You have to admit that that is a much stronger prediction than the PP investors saying "we just don't know what will happen so we will invest evenly in each asset and then rebalance when one goes too high/low."

Yup, that's what he's saying alright. Can you really blame him as gold and treasuries have been systematically sold off?

It just seems so obvious...there is no inflation to speak of and interest rates on the long end of the curve are rising. How long can this pattern continue? Sure feels like an idiot to have such strong convictions and not acting upon them. That's a PP investor for you.

@buddtholomew: I understand what you are saying as well.

But essentially, mathjak has two points:

1. Upside potential (stocks) is more important than downside protection (PP).
2. In the 'long run,' stocks will always win, regardless of what price you bought them.

As a PP investor, I disagree with both of those points. But it's all about personal preference and aligning your investment style with your life philosophy.

over a typical accumulation stage of 30 -40 years  can you find any time frame where equities were not only higher but considerably higher ?  if you could you certainly would have to cherry pick and dig to find one ..

in the accumulation stage which is that long in time ,  upside potential  is important since over so many decades equity moves smooth out and are generally higher.  if you are talking diversified funds you have volatility but little risk over those many years.

downside over decades is not that important . certainly a 60/40 mix can cut volatility way down if that bothers you .

there is a difference between VOLATILITY  AND RISK

mukramesh wrote: @buddtholomew: I understand what you are saying as well.

But essentially, mathjak has two points:

1. Upside potential (stocks) is more important than downside protection (PP).
2. In the 'long run,' stocks will always win, regardless of what price you bought them.

As a PP investor, I disagree with both of those points. But it's all about personal preference and aligning your investment style with your life philosophy.

Not only that, but if it were "obvious" that gold and LTTs were going to tank from here, then they would have tanked already.

@mathjak107: Yes obviously historically that worked very well for the US stock market investor; no one is arguing about history.

We are just talking about predictions going forward.

You are advising to bet heavily that the historic trend continues whereas the PP investors believe that our portfolio will keep 'chugging along' regardless of macro-economic conditions. I'm sure you've read the FAQs about the 4 economic conditions that the PP was designed for (prosperity, inflation, deflation, temporary tight money-recession)? Well if you are 'all-in' stocks, you have to hope for prosperity in the 'long run.' The PP, however, does not rely on that to do it's job.

absolutely at this stage would i bet the next 30-40 years on equity's with a mix of various shorter term bond funds now if i was in my accumulation stage ,  no question . the bond funds if i held them at all would be adjusted in length and type to fit the big picture as time went on.

as opposed to a heavy heavy bet on long term treasury's at the riskiest part of the cycle  now with only 25% in equity's .  gold has been the worst investment in history and i would sooner take a 30-40 year chance with equity's than gold as well.

some don't call gold an investment , they call it insurance. but when both conventional investing and the pp have gone through the nastiest times together , over long periods of time conventional investing wins by a landslide over and over so where is the insurance part paying off ?

@mathjak107:

Regarding your argument about stocks being the way to go for all long term investing, you agree that this is only true for the US investor or for those investing in the US stock market, correct? Other countries (Japan, for instance) haven't had the same rosy stock market history as us.

Secondly, from the year 1/1/2000 to today, I believe the PP has done better than the S&P500. Going forward for the next 15 years, you expect the S&P500 to outperform the PP on the grounds that it did so in the past for previous 30 year rolling periods? I believe most statisticians would say that extrapolation of the past performance far into the future is a fallacy.

Thirdly, PP investors wouldn't really call gold an investment and I agree with your point that it isn't really insurance (there is no payout, etc.). However I still consider gold a hedge against the other parts of the portfolio going down. And it really did it's job in the 2000s. In fact it generated huge returns compared to the stock market on that time frame.


Again, you keep arguing about PP investors taking a concentrated bet on interest rates not rising and on gold eventually becoming a winner. I would argue that you are the one advising to take a concentrated bet. The PP is widely diversified and is the antithesis of a concentrated bet. What happens if interest rates go up? The PP will be fine and hopefully generate its 3-6% real returns. What about if gold keeps taking? Same thing. (Okay I get that I am being a little hypocritical here because of the extrapolation thing...). The point is, the PP is built to have different components take up the slack at different points in time.

PP investors just prefer to not take a concentrated bet and accept lower returns than the one winning asset would have given us. We also implicitly assume that we cannot make a bet on which asset will be the winner over a particular time frame.

forget comparing 10 years or even 15 years ,you may as well  compare daily .

what you want to know is over a typical accumulation period spanning decades how did i compare by the end of the game  to other methods once all the cycles and events are done .

my time frame would have left more than a million dollars on the table if i stayed with the pp because i was afraid of the future.

your  results will vary but if you are going to compare you can't do it until the totals are in

mathjak107 wrote: forget comparing 10 years or even 15 years ,you may as well  compare daily .

Then why have you been posting reminders about TLT's recently poor daily performance? You seem to have different rules for stocks and everything else.

mathjak107 wrote: forget comparing 10 years or even 15 years ,you may as well  compare daily .

Right but I am talking about a hypothetical investor who started in the year 2000 and has a 30 year investment time frame. The first 15 years are over and stocks didn't do so well; he has 15 years to go. What does he do?

Mathjak, you're a breath of fresh air around here. There are just too many Kool-Aid drinkers around. Questioning the basics is stimulating and healthy. Please keep it up.

Btw, may I ask what your line of work is? Just curious. Thanks!

i only tell it like i see it . i don't accept myth folk lore or mis-information passed from one ill informed person to another .

i question everything and most important i follow most of the top researchers today so i can learn .

believing your own bull-sh%t can leave you quite far from what you could have achieved.

iwealth wrote:

mathjak107 wrote: forget comparing 10 years or even 15 years ,you may as well  compare daily .

Then why have you been posting reminders about TLT's recently poor daily performance? You seem to have different rules for stocks and everything else.

because tlt is not a stock , it could see a very very long term up cycle in interest rates .. equity's may need just a few years to cycle around not decades.

stocks can grow when rates rise , they have no problem with that . bonds ,especially long term bonds are down and out for the count when rates rise .

two different vehicles with different cycles and purposes .

equity's are up 2/3's of the time and down only 1/3 so hoping for that black swan event to stop the rate rising is betting against the house.

that is why i believe playing with long term bonds at this point is playing with a falling knife.

And if bonds are toxic and gold is tepid at best then how can the PP stay profitable? Equities cannot make up for it. No way!

Reub wrote: Mathjak, you're a breath of fresh air around here. There are just too many Kool-Aid drinkers around. Questioning the basics is stimulating and healthy. Please keep it up.

Btw, may I ask what your line of work is? Just curious. Thanks!

motor control and factory automation specialist , at least for 12 more work days and then retired.

Reub wrote: And if bonds are toxic and gold is tepid at best then how can the PP stay profitable? Equities cannot make up for it. No way!

i think a conservative mix of equity's and  low interest rate sensitize bond funds are the way to go for a few years . then  review  when conditions change.

Reub wrote: Mathjak, you're a breath of fresh air around here. There are just too many Kool-Aid drinkers around. Questioning the basics is stimulating and healthy. Please keep it up.

What is it that makes someone a Kool-Aid drinker? I assume that is meant to be a derogatory term. Is it confidence in their choice to hold the PP? Is it not agreeing with your concerns? Is Mathjak drinking his own Kool-Aid because he has strong convictions and refuses to back down from his position against the PP as a suitable retirement portfolio?

mukramesh wrote:

mathjak107 wrote: forget comparing 10 years or even 15 years ,you may as well  compare daily .

Right but I am talking about a hypothetical investor who started in the year 2000 and has a 30 year investment time frame. The first 15 years are over and stocks didn't do so well; he has 15 years to go. What does he do?

So, uh, no answer for this?

it was a poor time frame for stocks . that is all it was . it is only a piece of the long term accumulation period someone has or will have .

the first 15 years were poor , the next 15 may be much better and once again a conventional mix may leave the pp well behind over a typical accumulation time frame

we invest for decades to save for retirement , so what happens in the short term is nothing . it is like judging a baseball game by the first few innings ..

picking out a piece of a total time frame is useless . it is like me going what did the pp do the last 7 years while we had one of the biggest bull runs for stocks .

i can pick out 110 out of 111 rolling 30 year periods where that same equity investment performed poorly in 2000 and beat the pp in every other one,. but it is silly.

the only thing that counts is how you did over your 25-40 years of trying to grow your nest egg.

mathjak107 wrote: the first 15 years were poor , the next 15 may be much better and once again a conventional mix may leave the pp well behind over a typical accumulation time frame

Sure or the next 15 years may be just as volatile as the last... That's why I was asking what your advice was. You are saying the next 15 years will show a sizeable out-performance for the stock market. I'm not sure that is really guaranteed.