Gyroscopic Investing

mathjak107 wrote: i think the problem is i consider swapping out different type funds at different times no more speculating than you in the pp .

Consider why you swap them out: because your intuition and experience tells you that not doing so will lag the performance you expect if you do. You may be right and you may be wrong; if you are right, you will realize performance that beats the market index; if you are wrong, your performance will lag it.

This is not what we do with the PP, or any dumb index fund portfolio for that matter. We hold the assets through thick and through thin, only being or selling according to pre-determined, mechanical rules designed to return the portfolio to the original profile, not over or underweight assets according to our beliefs about what till do better going forward.

the numbers speak for themselves as i said the proof is in the pudding . speculators usually lose , this is far from speculating and i take issue with any pp'er who calls it that . especially when they are weighted with as much riding on the most  likely outcome as the  most remote  outcome .  those are bernsteins words not mine .





http://www.fidelityinsight.com/about/pe ... f2012.html

Mathjak, discussion is impossible if we don't agree on terms. For the purpose of this discussion, or any discussion of investing in the context of Harry Browne, Speculating has nothing to do with your asset allocation among broad asset classes and everything to do with when you change your asset allocation, or how you buy and sell assets. A 100% stock index portfolio is not speculating; a 100% stock portfolio with the different sectors weighted differently over different times according to current events or projected future events is speculating.

You speculated and won. That's great! Hats off to you! "Speculating" is not a dirty word. It's just something we're not very interested in doing.

call it what you want but i do not consider it anything but investing .  if you want to call it speculating  weighting it for a particular out come then in my opinion and bernsteins you have to consider you are weighting it too,  betting more Money in proportion to the remote outcomes .  it does not matter how harry calls it , this is what is being done .



betting equal dollars on  non equal chances of outcomes is weighting .

what you have to wonder is if harry could see 40 years off in to the future would he have allocated differently .

harry likely never imagined a world of zero interest rates , or bonds and stocks both being in what some call a bubble at the same time  . or gold having so few opportunity's to do its thing where it wasn't bested by another asset class.

in harrys world even to bet against the stock market was difficult and the average person could not simply buy an inverse fund .

we will never know the answer but i tend to think he would have balanced the dollars more with those chance of outcomes .

mathjak107 wrote: especially when they are weighted with as much riding on the most  likely outcome as the  most remote  outcome .  those are bernsteins words not mine .

Bernstein's words from where?  Apparently not here http://www.efficientfrontier.com/ef/0adhoc/harry.htm

MJ, on that point I would agree.  I am pretty sure we are in a situation now that was unthinkable/unknowable to Harry.

But your position to me is basically that stocks (whatever variety) will outperform forever, and central banks will be able to dictate that forever with printing, QE, interest rate control, what have you.  That is what drives me to the 25% allocations.

I think you are right, PPers are basically speculating that the 25% split is the right split.  Would Harry have changed that to say 40/20/20/20 if he were alive now?  Who knows.  Maybe his take would have been to take advantage of central bank policies and yes, have a higher % in stocks because of that and lower in bonds/cash because of 0% rates.

rickb wrote:

mathjak107 wrote: especially when they are weighted with as much riding on the most  likely outcome as the  most remote  outcome .  those are bernsteins words not mine .

Bernstein's words from where?  Apparently not here http://www.efficientfrontier.com/ef/0adhoc/harry.htm

his book deep risk

Cortopassi wrote: MJ, on that point I would agree.  I am pretty sure we are in a situation now that was unthinkable/unknowable to Harry.

But your position to me is basically that stocks (whatever variety) will outperform forever, and central banks will be able to dictate that forever with printing, QE, interest rate control, what have you.  That is what drives me to the 25% allocations.

I think you are right, PPers are basically speculating that the 25% split is the right split.  Would Harry have changed that to say 40/20/20/20 if he were alive now?  Who knows.  Maybe his take would have been to take advantage of central bank policies and yes, have a higher % in stocks because of that and lower in bonds/cash because of 0% rates.

perhaps harry may have gone a different route and  even realize that perhaps  a variable allocation may have worked better for the  pp if it was more adaptable .

only difference between my strategy is the pp bets the same amount of money on whether it is  the favorite  fighter who won most of his fights  as you bet on  the underdog who had a good occasional run .

i don't make the bet on the underdog until i see that performance . i am willing to buy high and sell higher once the trend is underway .  i don't bet in advance  on that under dog and sit and wait ., i keep the money placed on the favorite until the time comes to cut back .


i t has worked well and does not take on much additional risk from just indexing but the gains have been better  the last 30 years that i have been tracking it ..but you can hardly call that speculating anymore than you want to hear the pp is speculating because it bets so much on the underdog  which has lagged badly over time . .

MJ,

The way you apply the term speculation to PP holders is similar to how people will say atheists are just people who have faith that there is no god.

Given the way you say that PPers are speculators, how would one hold assets in a way that is not speculating?

thank you , that is my point .  if you read the postings above , they called the fact i  use diversified funds and weight  slightly using different funds with different weights  that fit the big picture better ,  as speculating not investing  . .

my point is it is not speculating , it is still broad based diversified funds  that just fit the big picture better at different times .

so my answer is if you want to call that speculating than the pp betting the same amount of money on the favorite as the underdog with a pretty poor record over many times frames is doing just that .

the fact is i consider both just two different investing styles , and i do not consider either method anymore or less a speculation .

mathjak107 wrote: what you have to wonder is if harry could see 40 years off in to the future would he have allocated differently .

harry likely never imagined a world of zero interest rates , or bonds and stocks both being in what some call a bubble at the same time  . or gold having so few opportunity's to do its thing where it wasn't bested by another asset class.

in harrys world even to bet against the stock market was difficult and the average person could not simply buy an inverse fund .

we will never know the answer but i tend to think he would have balanced the dollars more with those chance of outcomes .

MJ - Keep in mind it isn't just Harry Browne who advocated owning LLTs and Gold.  Look at the Ray Dalio's All Weather Portfolio: http://fmdcapital.com/can-handle-weather-portfolio/

it still does not matter , i still think harry may have revised things if he was doing it today

Damn, MJ.

I check the forum once or twice a day and you are the most recent poster in every thread, every time I read.  Dude, you're in NYC.  Eat some steak, go to a show...

headed  to savannah  ga  for a few days tomorrow for a photo-shoot . ya'all get a break  for a few days  . typing on the nook is brutal . it is hard enough on a keyboard for me .

mathjak107 wrote: thank you , that is my point .  if you read the postings above , they called the fact i  use diversified funds and weight  slightly using different funds with different weights  that fit the big picture better ,  as speculating not investing  . .

my point is it is not speculating , it is still broad based diversified funds  that just fit the big picture better at different times .

That's the critical part. You have confidence in your and other's ability to determine which assets and asset classes fit the big picture of the near future. I don't have the same confidence in my own ability to do this or to evaluate the ability of another to do the same.

It is quite a valid criticism of the PP to say that equal weightings ignore the fact that the four economic conditions have not been historically equally likely. I share this criticism myself on occasion. But you are going beyond that and not merely saying that the weightings should be re-adjusted based on past conditions, but also present and future conditions.

That is speculating. Again, it's not a dirty word, and you're clearly good at it. But it's still speculating. A thing is still a thing even if we object to its name.

actually it has not been hard at all through the years  .  when the dollar was weak fidelity and multinational was a great fund . but once the dollar got stronger it was not the place to be .

remember buy high and sell higher makes a lot of money . these things are not events that happen over night . these are longer term trends that have already started and are underway .

for a while fidelity new market income was the place to be in emerging market debt .  that trend changed years ago and the fund was traded and  gone by the time the real issues hit .

fidelity capital and income was  one of the best high yield funds around and was held for years . but when the valuations for high yield were to high the fund was swapped for total bond fund .

none of these are drastic timing moves but as you see they just reflect the bigger picture as it changes .

market timing is hard and risky but this is not what is done . we hold funds years . some i have for decades .and never changed  in the models .

i can't disclose what is in the models as  subscribers pay for that info but a model is usually 4 or 5 funds of different types and  very few funds get swapped yearly as the bigger picture doesn't change much  .

one of the more recent changes was to take some of the total bond position and  put some in a bond fund less sensitive if bond rates continue to rise .  since  JAN the 10 year  yield is up 30% .  so the trend in rates on bonds has already been in effect  for a while . the flight to safety  brought them  down a bit but they are still 30% higher than feb .

mathjak107 wrote:

rickb wrote:

mathjak107 wrote: especially when they are weighted with as much riding on the most  likely outcome as the  most remote  outcome .  those are bernsteins words not mine .

Bernstein's words from where?  Apparently not here http://www.efficientfrontier.com/ef/0adhoc/harry.htm

his book deep risk

I haven't read it.  It sounds like he's perhaps changed his mind.  In his "Wild about Harry" article he says "Diversifying asset classes, as Harry Browne knew well, can benefit a portfolio. The secret is deploying them before those diversifying assets shoot the lights out. "

I think the real question may be what goal are you trying to achieve?

If you're interested in maximizing long term gain (over a period of decades) and can stomach 50% (or more) drops along the way (and are willing to ignore low probability black swans that can completely wipe you out), 100% stocks is likely the way to go.

If you're interested in minimizing drawdowns and preserving a substantial portion of your wealth in virtually any condition (including some very rare events like total currency collapse) at the expense of giving up some growth, the PP is difficult to beat.

There's definitely a tradeoff, and I suspect Harry was well aware.  The more gold you hold, the better off you'll be in SHTF scenarios.  But these are very rare.  Well, not so rare that it's unthinkable that you'll run into one in your lifetime.  If your gold allocation matches the likelihood of a SHTF scenario, you'd probably only allocate 1% or so - but this isn't enough to preserve a substantial portion of your wealth. 

Would you be OK if your house insurance only paid you 1% of the value of your house if it burned down?

The problem is you can't buy "black swan" insurance.  The PP provides this through its substantial allocation to gold (which also serves to provide at least some inflation and deflation protection as well).

Imagine what your portfolio value would be if a nuclear bomb went off in NYC.  Is this likely?  No.  Is it possible?  I think Buffett has said it's inevitable.

This is only one of many black swans that are out there.

What I hear you saying is that you're willing to bet EVERYTHING that none of these will happen in your lifetime and that you'd rather have an extra 1-2% CAGR (and the wild swings in value, up and down) of a much more stock heavy portfolio.

My guess is most folks here are willing to give up 1-2% CAGR in return for avoiding the wild swings and gaining the black swan protection.

my goal is to meet my retirement needs as well as legacy money since we are retired  . i can feel comfortable with up to a 50/50 mix which is just fine .

my opinion is going forward we are in the new normal and  gains on everything are likely  going to be below average . my investing philosophy at this point is i want a portfolio that plays nice together while not powerfully grabbing each other by the collar and yanking  the likely candidate to run with the ball  back  every time it gets some traction .  i want a portfolio that is adaptable as i described above in to changing with the times and the world  just as it has successfully been doing for me for  almost  30 years now  .

the only difference over the years is i have reduced my equity allocations from  80-100% at times during all my growth years to 45-50% now .

as times change some of that could even be gold funds as in the past we did hold some , but now is not the time i would want to see them added .

my investing mantra is buy high and sell higher . fighting the trend and trying to catch a falling knife rarely works well. you end up tying up good money waiting for a bounce back that can take years , decades or never losing out on making  money all that time waiting for that ship to come in .  sometimes by the time it does even if it doubles you are behind .  buy low sell high sounds great but in practice it has been the biggest money loser historically in execution . .

so i much prefer to give up the early stage , buy a little higher and at least be in an uptrend .  as they say the trend is your friend  as well as don't fight the fed .

Mark Leavy wrote: Damn, MJ.

I check the forum once or twice a day and you are the most recent poster in every thread, every time I read.  Dude, you're in NYC.  Eat some steak, go to a show...

Retired.

When he's not at the Blue Hair-guana or with his grandkids, he's here.

or traveling . headed down to sunny savannah this morning for vacation .

hey i may even let you use my info and counter point  in the next book    ha ha ha 


don't forget for everyone of my valid points you guys have to think of a counter point

To augment what Math suggests, I believe Bernard Baruch (but I suspect it was one of his friends) who suggested, and I paraphrase: I'll give up the first 20% and the last 20% of a bull market run but give the middle 60% any time. 

This bit of early 20th century wisdom summarizes Math's "buy high and sell higher."  This may necessitate stop loss orders.  Jim Rogers said if a person gets stopped out 3 times implementing a trading strategy, time to pause and think about the strategy.

Don't need  stop losses in the plan ever as we do it  nor can you on openen ended funds.

Just got to the hotel in savannah and waiting for the wife to change clothes. Off touring and eating

buddtholomew wrote:

barrett wrote:

Tortoise wrote: Right now money is flowing into cash, which is one of the PP's four assets. So the argument still holds.

Cash doesn't rise in value when money pours into it, but it's not meant to. That behavior is unique to the three volatile assets of the PP.

The argument holds in a technical sense but what Budd is talking about is the implication/claim that something in the PP will be going up when something else is going down.

Ah, I see Budd has just posted. Have I phrased this correctly, Budd?

That's correct Barrett. I am probably the most risk averse investor on this board and I am more comfortable with my 70/30 than the PP. I know what I'm getting with the former and the latter is a pipe dream or better yet provides security from a rent a cop.

I seriously doubt you are more risk averse than I am, and I'm more comfortable with my weird portfolio than the PP too.

What was the question again? 

Reub wrote: I'd like to see the same conviction from them as when they were making hundreds and hundreds of posts on the Bogleheads site and writing a book on the subject. After all, they created this website and persuaded most of us to invest in this manner. I just feel that for the two of them to disappear literally for months at a time when the PP has gone absolutely nowhere for 3 years and has returned  100+% less than stocks since 2009 borders on negligence. It just seems that they have less or no interest in the PP these days and possibly for us.

When will I be banned again for these comments?

The PP doesn't need anyone to defend it. I'm not sure why you think it does.