Gyroscopic Investing

Reub wrote: I've joined also. The investing strategy is quite active and very fluid. They really manage and move your money for you. My stock exposure has gone from minimal to over 30% this week alone. It's as if I have Goldman Sachs investing my assets for me every morning.

No, no, you mean as if Bridgeway Partners was investing your assets for you every morning.  Goldman Sachs would just rip your face off as that is what they do to their retail muppets.

Reub wrote: I've joined also. The investing strategy is quite active and very fluid. They really manage and move your money for you. My stock exposure has gone from minimal to over 30% this week alone. It's as if I have Goldman Sachs investing my assets for me every morning.

you mean they brought you up to 30% equity a week after the 1000 point move  upward happened and had you at only 6 % that week of the big move ?

mathjak107 wrote: you mean they brought you up to 30% equity a week after the 1000 point move  upward happened and had you at only 6 % that week of the big move ?

You don't seem to understand all facets of risk management.  Avoiding [potential] downturns is far more important for long-term compound growth than being in the market at all times.  Losses compound too, you know.

When you're talking about an asset allocation portfolio which really doesn't generate more than 8% long-term, you cannot afford to be taking on gaping wounds of "downside volatility" that goes down to approximately -25% real as with the PP or even worse with less diversified portfolios such as only stock and bonds.  It would take far longer than anyone's natural lifespan to just get back to breakeven (yes, that's hyperbole!).  Like you, Reub and me are retired and cannot deal with such losses to our precious capital.

Desert wrote: You're retired, MG?  I somehow missed that fact before.

Well, semi-retired.  I don't believe in retirement.  I'm not that old to be formally retired anyway and even if I was, I still wouldn't do it.

MachineGhost wrote:

mathjak107 wrote: you mean they brought you up to 30% equity a week after the 1000 point move  upward happened and had you at only 6 % that week of the big move ?

You don't seem to understand all facets of risk management.  Avoiding [potential] downturns is far more important for long-term compound growth than being in the market at all times.  Losses compound too, you know.

When you're talking about an asset allocation portfolio which really doesn't generate more than 8% long-term, you cannot afford to be taking on gaping wounds of "downside volatility" that goes down to approximately -25% real as with the PP or even worse with less diversified portfolios such as only stock and bonds.  It would take far longer than anyone's natural lifespan to just get back to breakeven (yes, that's hyperbole!).  Like you, Reub and me are retired and cannot deal
with such losses to our precious capital

Longterm we never had those losses in a conventional 50/50 mix you speak of . Not in any 10, 20 , or 30 year time frame.

Could it happen ? Sure but it could happen to the pp too. If you are concerned about the short term you should not be in long term assets. If it is long term money then forget the short term .

The 4% safe withdrawal rate is already based on the worst out comes to
date .
It has so much slack for the awe craps built in that 90% of thetime you die with more than you started with a 50/50 -60/40 mix.

mathjak107 wrote: Longterm we never had those losses in a conventional 50/50 mix you speak of . Not in any 10, 20 , or 30 year time frame.

A 50% equity, 50% 5-year blend has a real maximum drawdown of -30.73% on a yearly basis (i.e. may have been larger intra-year).  The trough occured in 1974 and it took 13 years just to get back to breakeven in real terms.  The real CAGR is only 4.29% since 1928.

Subsequent to the above, the worse real maximum drawdown was -24.65% on a yearly basis.  The trough occured in 1941 and it took 16 years just to get back to breakeven in real terms.  There was one year in the middle where it reached breakeven but then immediately another drawdown started and troughed at -23.06%, delaying ultimate breakeven by 7 more years.

Just too risky for me.  My life expectancy is 120+ years.  A .29% real margin is very slim for 25%-30% real drawdowns.

And of course, assuming that the future will be exactly like the past (i.e. no worse) is not sound financial planning.  The past did not have simultaneously overvalued equity and bond markets, just one or the other.

But how many more dollars did you have when the fall occured?
As an example my 25 plus years in a growth model grew a lot of money compared to the pp . So even if i fell 25% as an example that 25% would still be away higher balance than the pp balance even though the pp fell way less.

Compared to a bank cd i could fall more than 60%  and still have a bigger balance.

That is why i pay very little attention to draw down.

But taste in volatility is a personal issue.

This year i found the pp more volatile then my 50/50 mix.

mathjak107 wrote: But how many more dollars did you have when the fall occured?
As an example my 25 plus years in a growth model grew a lot of money compared to the pp . So even if i fell 25% as an example that 25% would still be away higher balance than the pp balance even though the pp fell way less.

Compared to a bank cd i could fall more than 60%  and still have a bigger balance.

That is why i pay very little attention to draw down.

But taste in volatility is a personal issue.

That assumes you have market timing skills to avoid buying near a top.  It's not so much a concern for someone starting out, but in retirement, its deadly if a drawdown occurs in the beginning years.  Didn't you make that point?

I really don't consider a loss of capital via compounded losses as "volatility".  Volatility is not risk.  Risk is losing actual money.  A drawdown is lost money.  You already know this intuitively otherwise you would just stay 100% in equity.  'cuz why not?  You'd have a higher base to lose 50% from and still come out ahead over a 50/50 portfolio, right?

Anyway, to bring this back on topic, he who has the least [downside] "volatility" has the higher capital base to compound gains upon.  That's the bottom line for risk control.  So ignoring it is just silly.

I don't even like the Browne PP.  It is risk unbalanced, overweight certain assets and underweight certain assets.  The volatility is incidental to the bigger issues of its lack of risk management.  What is has going for it is the "all weather" concept, i.e. proper diversification not faux.

If i didn't mind the volatilty  i would be 100% equity . But at this stage in life i don't need the volatility or maximum gains anymore.

I prefer something in the middle .

So the question is since they  first brought your equity level up after a thousand point plus run up why would you think they would get you out and save you from a quick thousand point or greater loss?

It sounds no different to me then any of the other timing schemes now in the market timing grave yard of failed attempts that only worked until they didn't.

mathjak107 wrote: So the question is since they  first brought your equity level up after a thousand point plus run up why would you think they would get you out and save you from a quick thousand point or greater loss?

It sounds no different to me then any of the other timing schemes now in the market timing grave yard of failed attempts that only worked until they didn't.

In my experience, you have to be willing to give up participating in both tops and bottoms in exchange for risk management.  The recent context of August and September was the potential start of a bear market which is why it had reduced its equity exposure and is now in the process of re-normalizing it.  That's what proper risk management should do, get you out if market conditions start becoming or is averse and get you back in when market conditions start renormalizing or is normal.

The only graveyard of market timing I see is littered with bad behavorial decisions galore.  We can argue that it has been traditionally difficult to implement and stick to a discipline for all but the most steely-eyed investor, but Hedgeable takes that variable out of the equation (so long as you're not second-guessing decisions and changing the proscribed risk portfolio all the time).  Emotions are an investors own worst enemy.

in my experience  it only work until it doesn't . in the days of 1,000 point moves in a matter of minutes these systems eventually crumble  like cheap suits . there has not been one of these we will preserve the 80% in the middle  systems that i know of that have with stood the test of time .

mathjak weren't you the guy who bought into the PP and then when it had a down week you bailed and started attacking it? Now you're criticizing a sophisticated risk management portfolio after doing that?

yep!

mathjak107 wrote: in my experience  it only work until it doesn't . in the days of 1,000 point moves in a matter of minutes these systems eventually crumble  like cheap suits . there has not been one of these we will preserve the 80% in the middle  systems that i know of that have with stood the test of time .

Well the honest truth here is you're simply not looped in.  You're pointing more at yourself about your inexperience (and that of others that are so-called "professionals" that you like to read) than some kind of universal truth.  Buy and hold "works" until it doesn't.  No system works 100% of the time.  It's a negative behaviorial bias to want to be right all the time over making money.  The vast majority of investors fall into the former camp.  You are always right 100% of the time by being in the market 100% of the time with buy and hold (or buy and fold as its more accurately called).

Lets put it this way...  if Fidelity Insight had been using a 39-week moving average and stuck to it unlike giving up the first couple time there was a whipsaw or whatever happened with neophyte Fabian Jr, and you followed the advice every week as diligently as you did their fund pick suggestions, you would be an order of a magnitude wealthier than you are today from avoiding compounded losses.  What made it work was your discipline.  All systems require discipline to succeed.  Even buy and hold indexing is a system; its a momentum methodology of dropping deadwood and replacing it with goodwood.  If indexes did not do that, then no one would make money long-term because only 25% of all stocks do.  There MUST be some kind of system to stop and/or get rid of the compounded losses.

[img width=800]http://i.imgur.com/IquI1qL.png[/img]

so harry's feeling about moving averages not working is wrong then ?    read his section in how the best laid plans go wrong  .  if he was wrong about that perhaps he is wrong about the whole pp concept being forever .

ask yourself this ,. if it was that easy why would goldman  not have bought the rights for billions to the trading system ,.

mathjak107 wrote: so harry's feeling about moving averages not working is wrong then ?    read his section in how the best laid plans go wrong  .  if he was wrong about that perhaps he is wrong about the whole pp concept being forever .

ask yourself this ,. if it was that easy why would goldman  not have bought the rights for billions to the trading system ,.

Of course he was wrong.  He was an author, not a trader.  In fairness, he did ultimately mean failure was due to behavorial issues, but hes a product of an era before behavorial finance existed, deregulated brokerage commissions, easy online trading, etc..

GS has way more sophisticated systems to play with.