Gyroscopic Investing

moda0306 wrote:

buddtholomew wrote:

buddtholomew wrote: Bought stocks into the close. I don't feel comfortable with the PP unless my equity allocation exceeds 25%. If stocks rally in the upcoming days, gold and treasuries will get massacred. Honestly, I bought gold when it was out of favor (2012,2013,2014) and purchased treasuries during the recent decline as well.

The PP is not performing well at all.

Yup, just as I figured. PP down on a down day and down on an up day. What a joke!

It's happened plenty of times before.  If you "figured" it would happen again, and find it to be a joke, why do you invest in it?

I like the concept but it doesn't work.

Two observations....

1) This is what stocks do.  They go up, they go down, they go back up - eventually.  If they never went down there'd be no need for diversified portfolios now would there?

2) If you're a PP investor you can pretty much just ignore these events. 

However, it is kind of fun to watch everyone else's reactions to the wild roller coaster ride.  Budd I'm a little confused...you were spooked by a few percentage points worth of slide in the PP, but now stocks are down around 10% and you're happy with that?

Just like the flash crash half a decade ago although the markets felt a bit more orderly on Monday than that fateful day.

buddtholomew wrote:

moda0306 wrote: It's happened plenty of times before.  If you "figured" it would happen again, and find it to be a joke, why do you invest in it?

I like the concept but it doesn't work.

Then ditch it.

sophie wrote: Two observations....

1) This is what stocks do.  They go up, they go down, they go back up - eventually.  If they never went down there'd be no need for diversified portfolios now would there?

2) If you're a PP investor you can pretty much just ignore these events. 

However, it is kind of fun to watch everyone else's reactions to the wild roller coaster ride.  Budd I'm a little confused...you were spooked by a few percentage points worth of slide in the PP, but now stocks are down around 10% and you're happy with that?

Down 10%? I am down 4.1% in a 65/5/35 allocation. I am prepared for equity losses with this allocation and re-balance as necessary without any emotion.

The PP does not have an asset bias and wavers in the wind without any direction. Down when equities plummeted 4% and down again with equities up 2+%
I am at the lowest point of the year now.

I am glad that I chose to dollar cost average into the PP to smooth out any short term gyrations. I think Mediumtex is right in saying that it helps ease you into it mentally. I'm doing 4 buys over the next year, to smooth out any events like this.

Pointedstick wrote:

buddtholomew wrote:

moda0306 wrote: It's happened plenty of times before.  If you "figured" it would happen again, and find it to be a joke, why do you invest in it?

I like the concept but it doesn't work.

Then ditch it.

I will not ditch an investment portfolio at the lows. That may be your weakness, but its not mine.

buddtholomew wrote:

Pointedstick wrote:

buddtholomew wrote: I like the concept but it doesn't work.

Then ditch it.

I will not ditch an investment portfolio at the lows. That may be your weakness, but its not mine.

Nope, not mine either. All I'm saying is that if you think the PP is broken and you hate it, you should exit it. If you truly believe that the PP is fundamentally flawed or broken, then won't it continue to tread water or decline? In which case, selling now would be sensible, no? If instead you believe that the PP will eventually recover and allow you to exit at a high, then you don't really believe that it's broken, and you're just being a whiner.

Pointedstick wrote:

buddtholomew wrote:

Pointedstick wrote: Then ditch it.

I will not ditch an investment portfolio at the lows. That may be your weakness, but its not mine.

Nope, not mine either. All I'm saying is that if you think the PP is broken and you hate it, you should exit it. If you truly believe that the PP is fundamentally flawed or broken, then won't it continue to tread water or decline? In which case, selling now would be sensible, no? If instead you believe that the PP will eventually recover and allow you to exit at a high, then you don't really believe that it's broken, and you're just being a whiner.

Just a realist. Tell the truth, you have a VP with higher equity allocation as well as many on this board do.

buddtholomew wrote: I will not ditch an investment portfolio at the lows. That may be your weakness, but its not mine.

Well at least you are bullish on the PP for the future. Hopefully it turns around. It sure does look like we could be on the cusp of a worldwide deflationary spiral.

buddtholomew wrote: Yup, just as I figured. PP down on a down day and down on an up day. What a joke!

the bolded above may be the problem.. the PP was not made to be successful with a day to day investment horizon, it is only going to start looking good in the 5 year time range and only really hit its stride with a ten year horizon.. a day trader outlook and a PP portfolio are oil and water and will never mix.. 

if i hear "PP down on a down decade and down on an up decade. What a joke!" i am going to that think it and i have failed, but i don't expect that to come to pass..  (check back with me in ten years...)

l82start wrote:

buddtholomew wrote: Yup, just as I figured. PP down on a down day and down on an up day. What a joke!

the bolded above may be the problem.. the PP was not made to be successful with a day to day investment horizon, it is only going to start looking good in the 5 year time range and only really hit its stride with a ten year horizon.. a day trader outlook and a PP portfolio are oil and water and will never mix.. 

if i hear "PP down on a down decade and down on an up decade. What a joke!" i am going to that think it and i have failed, but i don't expect that to come to pass..  (check back with me in ten years...)

I understand the premise that each asset is designed to respond in a certain economic climate.
I find it difficult when equities decline and the PP declines as well.
I have more faith in equities than I have in gold.
I like the benefits of LTT's and Cash held in a barbell.
Losing money is painful. Losing less is still painful.

buddtholomew wrote: Just a realist. Tell the truth, you have a VP with higher equity allocation as well as many on this board do.

Sure I do. In no way does that mean that I think the PP--or the idea of a widely diversified portfolio consisting of varying proportions of stocks, government bonds, cash, and gold--is fundamentally broken.

Some times I wonder if people really study the portfolio they invest in. Cash stayed even and bonds went up. Stocks are down and there is zero inflation in the world right now so gold has gone down/nowhere...what isn't working as advertised?

buddtholomew wrote: Bought stocks into the close. I don't feel comfortable with the PP unless my equity allocation exceeds 25%. If stocks rally in the upcoming days, gold and treasuries will get massacred.

I usually get 9/10 guesses wrong, but why was this so obvious yesterday?

buddtholomew wrote:

buddtholomew wrote: Bought stocks into the close. I don't feel comfortable with the PP unless my equity allocation exceeds 25%. If stocks rally in the upcoming days, gold and treasuries will get massacred.

I usually get 9/10 guesses wrong, but why was this so obvious yesterday?

Better question is, will it still be so obvious tomorrow or next week? I made some buys yesterday morning and felt like the smartest man on the planet, but this volatility makes me anxious. Even if i'm right for a day or two or a few weeks, should I really be buying more stocks in the middle of the summer...at these valuations...in the midst of a potential market correction?

buddtholomew wrote:

l82start wrote:

buddtholomew wrote: Yup, just as I figured. PP down on a down day and down on an up day. What a joke!

the bolded above may be the problem.. the PP was not made to be successful with a day to day investment horizon, it is only going to start looking good in the 5 year time range and only really hit its stride with a ten year horizon.. a day trader outlook and a PP portfolio are oil and water and will never mix.. 

if i hear "PP down on a down decade and down on an up decade. What a joke!" i am going to that think it and i have failed, but i don't expect that to come to pass..  (check back with me in ten years...)

I understand the premise that each asset is designed to respond in a certain economic climate.
I find it difficult when equities decline and the PP declines as well.
I have more faith in equities than I have in gold.
I like the benefits of LTT's and Cash held in a barbell.
Losing money is painful. Losing less is still painful.

nobody likes losing money.... that is why i try to avoid looking at returns between an arbitrarily chosen date and some other arbitrarily chosen date (IE ytd returns) i personally follow an XIRR for my portfolio that starts when i started investing and runs till today, i know how much i am up in dollars and what the % is..  this may not be the idealized maths for investing, but it may be just the ticket for psychology

buddtholomew wrote:

l82start wrote:

buddtholomew wrote: Yup, just as I figured. PP down on a down day and down on an up day. What a joke!

the bolded above may be the problem.. the PP was not made to be successful with a day to day investment horizon, it is only going to start looking good in the 5 year time range and only really hit its stride with a ten year horizon.. a day trader outlook and a PP portfolio are oil and water and will never mix.. 

if i hear "PP down on a down decade and down on an up decade. What a joke!" i am going to that think it and i have failed, but i don't expect that to come to pass..  (check back with me in ten years...)

I understand the premise that each asset is designed to respond in a certain economic climate.
I find it difficult when equities decline and the PP declines as well.
I have more faith in equities than I have in gold.
I like the benefits of LTT's and Cash held in a barbell.
Losing money is painful. Losing less is still painful.

If what you want is a "don't lose any money no matter what" portfolio, you don't want the PP. 

Over 5-10 years the PP will reliably produce about a 4-5% real return.  The cost of this is that it can also (temporarily) decrease by relatively small amounts.  So it's a "small losses but moderate real gains" portfolio.

"No nominal losses with moderate negative real gains" is what cash in the bank gives you.

"Virtually no losses and float along at the rate of inflation" is also possible, see Bridgewater's "depression proof" portfolio described in an article I've linked several times, for example from this thread http://gyroscopicinvesting.com/forum/pe ... #msg122275

The question is what do you want from this portion of your money?  If you want any real gains, as far as I can tell you HAVE to put up with occasional losses.  You can't have your cake and eat it, too.

I think Budd is fine with stock losses, just not PP losses, because everybody knows that the stock market gan go down a lot, but the PP is supposed to minimize losses. It's a mismatch between expectation and reality.

Given that Budd appears to be able to tolerate some stock volatility and likes big gains, I would recommend a more traditional Boglehead-style portfolio, with maybe a bit of gold thrown in for some diversification.

Given that this is basically the overall allocation that Budd already has, I have no freakin' idea what the problem is.

Pointedstick wrote: Given that this is basically the overall allocation that Budd already has, I have no freakin' idea what the problem is.

I think Budd's investments can be broken into 4 portfolios:

1) the PP (taxable)
2) a 60/40 (retirement)
3) extra cash to reduce bond duration (I'm guessing taxable, but unsure)
4) a VP which he adds to discriminately such as buying stocks yesterday at the close (I'm guessing retirement, but unsure)

Apparently it's a tidy 50% equities/40% intermediate bond/10% gold mix, but it's probably incredibly difficult to see it that way when you look at your portfolio as a bunch of buckets meant for different timeframes.

In-line comments in bold.

iwealth wrote:

Pointedstick wrote: Given that this is basically the overall allocation that Budd already has, I have no freakin' idea what the problem is.

I think Budd's investments can be broken into 4 portfolios:

1) the PP (taxable) - Correct
2) a 60/40 (retirement) - 65/35/5 GOLD
3) extra cash to reduce bond duration (I'm guessing taxable, but unsure) - Correct
4) a VP which he adds to discriminately such as buying stocks yesterday at the close (I'm guessing retirement, but unsure) - Correct, retirement. I stay within my tolerance bands. I did buy SPY in taxable yesterday as well as mentioned previously.

Apparently it's a tidy 50% equities/40% intermediate bond/10% gold mix, but it's probably incredibly difficult to see it that way when you look at your portfolio as a bunch of buckets meant for different timeframes. - Correct. I do look at it as a whole, but taxable is for the money I cant afford to lose.

During a period where the stock market is experiencing some of the wildest volatility in quite a while and the PP is more or less doing its normal thing and eating a bag of popcorn while watching the chaos on TV, I find the fact that some people are actually taking the time to complain about the PP to be telling.  Either the PP is the wrong portfolio for you emotionally (a perfectly fine realization if true), or perhaps the root cause of your anxiety really has nothing to do with asset allocation and no portfolio will ever make you happy. 

When the markets stress you out, ask not what portfolio changes you should make in response.  Ask what life changes you can make so markets don't stress you out. 

Tyler wrote: During a period where the stock market is experiencing some of the wildest volatility in quite a while and the PP is more or less doing its normal thing and eating a bag of popcorn while watching the chaos on TV, I find the fact that some people are actually taking the time to complain about the PP to be telling.  Either the PP is the wrong portfolio for you emotionally (a perfectly fine realization if true), or perhaps the root cause of your anxiety really has nothing to do with asset allocation and no portfolio will ever make you happy. 

When the markets stress you out, ask not what portfolio changes you should make in response.  Ask what life changes you can make so markets don't stress you out.

Right. And I say this as someone who has a really unusual portfolio with way more volatility than the PP.

buddtholomew wrote: In-line comments in bold.

iwealth wrote:

Pointedstick wrote: Given that this is basically the overall allocation that Budd already has, I have no freakin' idea what the problem is.

I think Budd's investments can be broken into 4 portfolios:

1) the PP (taxable) - Correct
2) a 60/40 (retirement) - 65/35/5 GOLD
3) extra cash to reduce bond duration (I'm guessing taxable, but unsure) - Correct
4) a VP which he adds to discriminately such as buying stocks yesterday at the close (I'm guessing retirement, but unsure) - Correct, retirement. I stay within my tolerance bands. I did buy SPY in taxable yesterday as well as mentioned previously.

Apparently it's a tidy 50% equities/40% intermediate bond/10% gold mix, but it's probably incredibly difficult to see it that way when you look at your portfolio as a bunch of buckets meant for different timeframes. - Correct. I do look at it as a whole, but taxable is for the money I cant afford to lose.

http://www.etfreplay.com shows that the biggest total drawdown for the PP in the last 3 years has been about 7%, and the biggest one in the past 10 years was -17% (in 2008). If you're not comfortable with your "can't afford to lose" money losing this much over the span of maybe a year, then it simply should not be invested in the PP. "Can't afford to lose" in the context of Harry Browne and the PP means "won't go to zero" or "won't crash and take decades to recover", not "never experiences any principal decline ever." If that's what you're looking for, then this money should be in cash instead, case closed.

If I recall, this money is earmarked for living expenses in the event of a job loss, and every drawdown makes you nervous because it makes you feel like the time you would have before needing to find a new job is diminished. For heaven's sake, stop torturing yourself and just put it in cash!

buddtholomew wrote: I understand the premise that each asset is designed to respond in a certain economic climate.
I find it difficult when equities decline and the PP declines as well.
I have more faith in equities than I have in gold.
I like the benefits of LTT's and Cash held in a barbell.
Losing money is painful. Losing less is still painful.

Budd, sorry we are all ganging up on you.  I just think your position is a bit hard to understand, but let me take a stab at it...

From above, it sounds like a) the element you mainly dislike is gold, and b) you're not too concerned about declines in the stock allocation as long as you are holding enough cash for security's sake.  Sounds to me like what you'd really like is something like the Desert Portfolio, but maybe with the stocks (and thus risk) amped up a bit.

There's zero wrong with that of course.  As long as you are ok with 60+% of your holdings nosediving by 30% or more in a stock market crash, that is.  Are you sure that's ok with you?

I would suggest scaling back the stocks a bit and increasing gold to 10%, plus being sure to hold enough cash to see you through a big stock market decline (like the 1970s).  Otherwise I don't see the problem.  However, please note that you have something similar to, but that is clearly NOT, the PP.  So what the PP is doing currently is not really relevant to you, is it?