Gyroscopic Investing

i was a very aggressive investor my entire life . not only in my 80-90% equity portfolio's but in some of the real estate deals i got involved with in nyc.

but now that i am retiring in 4 weeks i no longer am interested in growing richer. now my goal is not to grow poorer. not by black swan events or inflation.

being able to make money during most MAJOR  scenarios except tight money is a big plus in retirement .

buddtholomew wrote: A monkey could have outperformed the PP this week/year. I am sick to my stomach at the performance of this portfolio. Here comes another down year. As HB said himself, when you hear about a strategy that has performed well, the moment you use it it will fail. Should have listened more attentively.

..............

I have heard this argument for years now. The PP is not diversified in my opinion and is far too heavily weighted in non-growth assets. We all fear an equity decline of significant magnitude (2008/9), but gold and treasuries decline the same amount. Peak to trough YTD, TLT is down almost 20%. Gold is down roughly 40% from the high. How is that any different from the equity decline we are trying to protect ourselves from?

Doesn't your overall portfolio hold 50% stocks including international and didn't you reduce your effective bond duration to about 5 years by holding extra cash? And don't you only hold about 10% gold? You've already fixed the "problem" yet you are still so pissed off at your remaining traces of long bonds and gold that their performance is making you sick to your stomach.

Why feel that way? Why not sell them and move on? Is it fear of terrible timing and watching gold and long bonds soar while the market corrects?

Tyler wrote:

buddtholomew wrote: Peak to trough YTD, TLT is down almost 20%. Gold is down roughly 40% from the high. How is that any different from the equity decline we are trying to protect ourselves from?

It's not.  That's the point.  If equities decline 40% we'll be similarly protected. 

Seriously, stop looking at the individual assets in isolation.  You miss the big picture.

The big picture? The big picture is down.

we have had a solid bull run in equities since the down turn. the PP  can't be expected to perform until the next flight to safety happens . you need to compare complete cycles with the pp.

when you do that you will see the 15 years which included both upmarkets for stocks and flight to safety's the PP  ended up doing almost as well as spy and that includes the big run up back from 2008.

iwealth wrote:

buddtholomew wrote: A monkey could have outperformed the PP this week/year. I am sick to my stomach at the performance of this portfolio. Here comes another down year. As HB said himself, when you hear about a strategy that has performed well, the moment you use it it will fail. Should have listened more attentively.

..............

I have heard this argument for years now. The PP is not diversified in my opinion and is far too heavily weighted in non-growth assets. We all fear an equity decline of significant magnitude (2008/9), but gold and treasuries decline the same amount. Peak to trough YTD, TLT is down almost 20%. Gold is down roughly 40% from the high. How is that any different from the equity decline we are trying to protect ourselves from?

Doesn't your overall portfolio hold 50% stocks including international and didn't you reduce your effective bond duration to about 5 years by holding extra cash? And don't you only hold about 10% gold? You've already fixed the "problem" yet you are still so pissed off at your remaining traces of long bonds and gold that their performance is making you sick to your stomach.

Why feel that way? Why not sell them and move on? Is it fear of terrible timing and watching gold and long bonds soar while the market corrects?

Correct on all accounts. Taxable account is entirely PP for the money I can't afford to lose. Didn't realize that meant such pathetic gains and now a second year of losses (I have lost 50% of the time). Nothing that I read indicated that I would have to be satisfied with 3-4% CAGR nominal returns.
You think the PP will respond when equities decline. We'll see...I'm not as confident as you are.

every major  flight to safety in modern times has had had the long treasury bond the benefactor .

when i first tried the permanent portfolio back in 1987 gold was in the 470.00 range.

mathjak107 wrote: every major  flight to safety in modern times has had had the long treasury bond the benefactor .

when i first tried the permanent portfolio back in 1987 gold was in the 470.00 range.

How about quantitative easing and a rise in gold? Sure didn't pan out that way did it?

buddtholomew wrote: The big picture? The big picture is down.

Less than a percent.  My portfolio is a little different in the bands and I'm up this year.

Bipolar investing with zero tolerance for minuscule losses is going to drive you crazy no matter what portfolio you hold. 

We had no real inflation to speak of . Qe was and still is neutral in that regard.

As long as the dollar remains the prettiest face in the morgue there is little reason for gold to increase much.

The dollar and gold are competitors.

buddtholomew wrote: Correct on all accounts. Taxable account is entirely PP for the money I can't afford to lose. Didn't realize that meant such pathetic gains and now a second year of losses (I have lost 50% of the time). Nothing that I read indicated that I would have to be satisfied with 3-4% CAGR nominal returns.
You think the PP will respond when equities decline. We'll see...I'm not as confident as you are.

I wouldn't say I'm confident. Actually it's entirely likely that this is going to end up being a brutal couple years ahead. But I can't ignore historical data and I can't predict the future. I know you saw Pet Hog's visualizations and they provide a detailed look at what the PP has done in the past.

The spread in real CAGRs for new portfolios is pretty wild and volatile. Historically, using monthly start dates and rebalancing yearly, -19.8% to +39.2% after year 1. There was even a NINE year period where real CAGR was negative. The nine year spread is -1.1% to 8.2%. Not until year 10 have all start dates had a positive real return. And it took 37 years of rebalancing before some of those start dates in the 70s finally got to 4% overall real CAGR. But they all got there eventually.

I believe you started with the PP sometime in 2011 and if you've seen 3-4% nominal CAGR that means you've had a real return on your investment. Let's call it 1.5-2% real. PH's data shows the real CAGR spread after 4 years is -3% to 14.8%. So your returns are on the low end, but well within expected range.

What do we use to forecast the future if we don't use this historical data? You don't trust your intuition any more than I do, otherwise we'd have sold our cursed gold and long bonds by now.

Tyler wrote:

buddtholomew wrote: The big picture? The big picture is down.

Less than a percent.  My portfolio is a little different in the bands and I'm up this year.

Bipolar investing with zero tolerance for minuscule losses is going to drive you crazy no matter what portfolio you hold.

It's not the miniscule losses, but rather the reaction of the portfolio to current economic conditions that I question. I'm not going anywhere, but sure glad my retirement accounts were 70/30 else I would be 1 million dollars poorer today. The PP sounds good in theory, but in practice is irritating and disappointing.

buddtholomew wrote: It's not the miniscule losses, but rather the reaction of the portfolio to current economic conditions that I question.

Can you describe how you would expect the portfolio to performing given your assessment of the current economic conditions?

Without a flight to safety the pp has not completed its cycle .that has not happened in 7 years.

If you don't have the patiants to wait long cycles then the pp is not for you.

It needs those flights to safety to do its thing .

I'll say it again. Go to cash and stay away until the next crash.

Pointedstick wrote:

buddtholomew wrote: It's not the miniscule losses, but rather the reaction of the portfolio to current economic conditions that I question.

Can you describe how you would expect the portfolio to performing given your assessment of the current economic conditions?

Whether we are in prosperity or deflation is irrelevant. I would expect one or more of the assets to rise higher than the declining ones. Isn't that the foundation on which the PP was founded?

That assumption can be wrong.  What it is based on is strong trends  not just meandering along.

The pp works on the premise that scenario's that cause something to fall by 50% or so usually have offsetting assets that can double or triple under those conditions.

But we have not had any strong trends. In fact for the most part markets just retraced where they were 15 years ago on an inflation adjusted basis and stalled.

It is the lack of a trend that can have all 3 going down. Stagflation can do that too.

But the good news these conditions are usually temporary  before a major trend starts.

buddtholomew wrote:

Pointedstick wrote:

buddtholomew wrote: It's not the miniscule losses, but rather the reaction of the portfolio to current economic conditions that I question.

Can you describe how you would expect the portfolio to performing given your assessment of the current economic conditions?

Whether we are in prosperity or deflation is irrelevant. I would expect one or more of the assets to rise higher than the declining ones. Isn't that the foundation on which the PP was founded?

In general, yes. However, if they always did, then the PP would be a zero-drawdown portfolio, which is sort of ridiculous to imagine, because then nearly everyone would use it. But that seems to be what you sold it to yourself as, and now the honeymoon's over since that's not what it is.

Pointedstick wrote:

buddtholomew wrote:

Pointedstick wrote: Can you describe how you would expect the portfolio to performing given your assessment of the current economic conditions?

Whether we are in prosperity or deflation is irrelevant. I would expect one or more of the assets to rise higher than the declining ones. Isn't that the foundation on which the PP was founded?

In general, yes. However, if they always did, then the PP would be a zero-drawdown portfolio, which is sort of ridiculous to imagine, because then nearly everyone would use it. But that seems to be what you sold it to yourself as, and now the honeymoon's over since that's not what it is.

What honeymoon are you speaking of? There was a wedding and possibly a divorce. I didn't sell myself anything. That's how the portfolio is portrayed - comparable returns to a 60/40 allocation with less volatility. Not so in the last 6 years. Correct me if I am mistaken

mathjak107 wrote: Without a flight to safety the pp has not completed its cycle .that has not happened in 7 years.

If you don't have the patiants to wait long cycles then the pp is not for you.

It needs those flights to safety to do its thing .

Yes, but look what you are giving up while you wait.

buddtholomew wrote: What honeymoon are you speaking of? There was a wedding and possibly a divorce. I didn't sell myself anything. That's how the portfolio is portrayed - comparable returns to a 60/40 allocation with less volatility. Not so in the last 6 years. Correct me if I am mistaken

Comparable over a period of a decade or more, and the return is not quite as high. During the 90s, a 60/40 portfolio substantially outperformed the PP for like 10 years, which was dragged down by gold. And yet, in hindsight, the PP was performing exactly as planned and continued its boring performance when 60/40 portfolios crashed for multiple years to the tune of 20+% year-over-year drawdowns.

The argument for the PP's performance has always been a long-term one. I mean, if the PP truly had, on a yearly basis, 60/40-like returns with less volatility, why would people have 60/40 portfolios? Are they all just dummies?

Pointedstick wrote:

buddtholomew wrote: What honeymoon are you speaking of? There was a wedding and possibly a divorce. I didn't sell myself anything. That's how the portfolio is portrayed - comparable returns to a 60/40 allocation with less volatility. Not so in the last 6 years. Correct me if I am mistaken

Comparable over a period of a decade or more, and the return is not quite as high. During the 90s, a 60/40 portfolio substantially outperformed the PP for like 10 years, which was dragged down by gold. And yet, in hindsight, the PP was performing exactly as planned and continued its boring performance when 60/40 portfolios crashed for multiple years to the tune of 20+% year-over-year drawdowns.

The argument for the PP's performance has always been a long-term one. I mean, if the PP truly had, on a yearly basis, 60/40-like returns with less volatility, why would people have 60/40 portfolios? Are they all just dummies?

People have 60/40 portfolios because it works. On the other hand, I question whether we are the dummies. I'm in for the long haul, but I want all new PP investors to understand that this portfolio is not the holy grail. It is one of many and has its cons. You have to pray for a disaster in order to realize returns of any magnitude, and even if there is a disaster, the PP may not save you.

Desert wrote: A 60/40 (60% TSM/40% 10 year T) returned 10.87% CAGR from 1975 to 2014.  A PP returned 8.40% over the same time period, with much lower volatility.

Very different portfolios for different goals.

Yup, that's what I am referring to. Comparable returns with less volatility. I want to be clear, I am invested in the PP and want the portfolio to succeed as much or even more than other investors. I just don't buy into the philosophy that money "must" flow into one of the four asset classes. That is simply a misconception. Another one is that one or more assets will rise more than falling assets to produce a positive return.

buddtholomew wrote: Yup, that's what I am referring to. Comparable returns with less volatility. I want to be clear, I am invested in the PP and want the portfolio to succeed as much or even more than other investors. I just don't buy into the philosophy that money "must" flow into one of the four asset classes. That is simply a misconception. Another one is that one or more assets will rise more than falling assets to produce a positive return.

Why is the text in bold a misconception?  Has that not been exactly what has happened?

It is a misconception to think that it will happen every single day, but over time the PP theory of gains offsetting losses has held up pretty well in practice.

buddtholomew wrote: Yes, but look what you are giving up while you wait.

That in a nutshell is why you're driving yourself crazy.  It's also why you are perfectly happy with the PP when your other portfolio struggles.  At some point you need to let go and just be satisfied with your choices.  Otherwise you're going to be perpetually unhappy one way or another. 

On a side note, I know from other posts you already have a very sizable portfolio.  Small fluctuations should not really affect you at all in real life.  Why does money cause so much stress, and what are all the ways (not simply portfolio choice) you can constructively address that? You don't necessarily need to answer here.  Just take some time to think about it. 

Tyler wrote: That in a nutshell is why you're driving yourself crazy.  It's also why you are perfectly happy with the PP when your other portfolio struggles.  At some point you need to let go and just be satisfied with your choices.  Otherwise you're going to be perpetually unhappy one way or another. 

On a side note, I know from other posts you already have a very sizable portfolio.  Small fluctuations should not really affect you at all in real life.  Why does money cause so much stress, and what are all the ways (not simply portfolio choice) you can constructively address that? You don't necessarily need to answer here.  Just take some time to think about it.

Not to speak for Budd here as I'm sure his portfolio is more sizable than mine, not to mention he's still working and replacing lost investment money, but anyway..

Large portfolios + frugality lends itself to an interesting mix of emotions. 1% on a $2 mil portfolio is $20k. Some guys can shrug that off like it's no big deal, just a rounding error. A frugal guy may look at that as having lost an entire year's+ worth of rent. Or groceries for the next 3 years. The family entertainment budget for 5 years, poof, gone with one bad market day. And I'm guessing that only gets worse as the portfolio grows. Or in the case of the PP keeps falling forever