Gyroscopic Investing

Xan,

My feelings about insurance are on a sliding scale. I definitely do a mental calculation on health insurance to see if I am coming out ahead from year to year. But, of course, I don't know what value to put on a hit-by-a-bus scenario. Life insurance is just creepy because people are reduced to numbers on the actuarial tables. But, no, I don't regret not dying each year. At least not so far. We'll see how I feel another ten years down the line when I will have invested more money in that policy.

The folks across the street from us here in CT had their house burn down last year and they now have a much nicer dwelling (and I think a bit of extra cash in the bank). I guess I feel that not all insurance is equal.

Budd, I think the gold insurance policy can feel like a really bad idea until it's genius. Ditto with LTTs from my point of view.

The other thing I would add (as others have before me), hedging against inflation with only 5% of assets in gold, as is often recommended, seems a bit like buying too little life insurance.

Just babbling here so no need for anyone to pay attention.

Xan wrote:

buddtholomew wrote:Unfortunately, I would have been better off financially not investing in the metal as I have been paying premiums over the last few years without collecting on the insurance policy.

But isn't that the nature of insurance?  You don't pay your homeowner's premium and complain that your house didn't burn down that year.  You don't pay your life insurance premium complaining that you didn't die.  Or do you?

This is a more interesting discussion that you may have intended! I think the value of insurance depends on many things, but most notably your capacity to replace the loss. For example, I don't carry collision or comprehensive car insurance because if my car is damaged beyond repair, I can easily afford to replace it without any real financial hardship.

With a financial portfolio, it's a little bit different, though, since it's that very portfolio that you would be using to recover your other losses. "Insuring" your portfolio is a lot less about buying insurance than it is hedging risk, which is almost never a return-boosting endeavor.

Reub, I root for both BH and HB portfolios as I separate retirement assets from intermediate term investments. I am merely pointing out YTD perfomance for those interested.

Dualstow and Xan, gold is my achilles heel. GDX and GLD only comprise 10% of my portfolio and even this small amount carries angst. I realize that the metal can have long periods of under-performance and that is what concerns me the most. I don't want to be the investor that marked the top of the LAST bull market.

I'm with you. I guess gold now makes up less than 8% of my (pp + vp). But even though I would have done well by staying in nearly all stocks, that falls into the "if horsesh*t were butter, we'd spread it on bread" files.

It's not unusual (Tom Jones voice) to have at least one of the four assets down, especially if one's portfolio is young, right? Mine isn't that seasoned, for sure. I think I first bought gold in 2010.

When I'm closer to retirement age, I would like the pp core to be an even larger part of my total and that of course means more gold.

With the S&P above 2000 and people seeking yield, it's tempting to second-guess the pp and and run back to stocks and dividends. I'm not falling for it, though. I'm not going to be a performance chaser.

Budd,

At 10% of your holdings (dare I say HBPP?), even the 30% drop in gold in 2012 and 2013 was only about 3% of your total portfolio, correct? Surely you did well in stocks during that time, no? As you know, the PP is built to hedge against all kinds of scenarios and some of them don't happen very often. I think that is tough to get used to. "I'm hedging against inflation, so how long to I have to wait until that pays off?" "I am holding these damn LTTs, and what for? Deflation? Ha! Big chance of that happening."

I'll readily admit that it's hard for me not to look at this stuff frequently. A day like yesterday when the PP was down .8% or so feels painful to me. For now you are the guy who bought gold at its peak. But if it moved to $5000, would that really matter so much? We have all bought something when it was expensive. In fact when you start a PP, it's a given that you are overpaying for something. You just don't know what.

Not saying anything you don't already know, I'm sure. Chin up. Don't look at assets too much in isolation, etc.

I now have a clear picture in my head of Pointedstick driving around a smoking, clanking jalopy in the New Mexican desert.

Damn you Dualstow! Just saw your post and I have Tom Jones' hairy chest floating around my brain.

Barrett, here is the breakdown:

BH (401K) - earmarked for retirement

65/35/5 equities/fixed income/PM&M

HBPP

4x25 (taxable) - intermediate term
Cash to reduce FI duration to 5.6

When looking at the portfolios in total, the breakdown is as follows:

50/40/10 equities/fixed income/PM&M and gold.

Fortunately (TLH) or unfortunately the entire gold position is in taxable so the discomfort is more immediate.

barrett wrote: Just saw your post and I have Tom Jones' hairy chest floating around my brain.

Writing you a prescription for 'The Walker' by Fitz & the Tantrums. Readily available on youtube, it'll get T.J. right out of there.

And now back to moaning about gold...

This is always fun (not moaning):
http://www.visualcapitalist.com/category/gold/

Budd,

Aren't you also super young? Gold could save your bacon a few times before you ride off into the sunset.

Also, any possibilities for taking a loss for tax purposes with your gold in taxable? Bet you never thought of that one!

One final question... Is there any special reason you want that fixed income portion to have a duration of 5.6 years?

barrett wrote: Budd,

Aren't you also super young? Gold could save your bacon a few times before you ride off into the sunset.

Also, any possibilities for taking a loss for tax purposes with your gold in taxable? Bet you never thought of that one!

One final question... Is there any special reason you want that fixed income portion to have a duration of 5.6 years?

"Super" young is subjective...I am 40. Yes, I am well acquainted with tax loss harvesting and plan to sell GLD for physical before year's end. Don't want the hassle of filing an additional form for GTU. Also, the discount/premium variance would annoy me.

In response to your question, 5.6 years is the duration of the Vanguard Total Bond Market Index (BND ETF). The fund provides a benchmark and re-balancing target should duration in my portfolio deviate in either direction.

buddtholomew, I have a question specifically for you:

Unless i have this detail confused with that of another member, you have more than enough to live on for the rest of your life. *If* this is the case, why do you worry about the performance of gold? Or, why not just put enough money into investments that let you live off the interest and dividends (if work or main income sources fall through), and the rest in the pp?

Just curious.

buddtholomew wrote: The stronger dollar is disastrous for gold. Am I the only one concerned? I feel trapped with no way out. I don't want to sell. Can someone please outline how gold has performed under similar circumstances.

But circumstances change: This is the reason I invest in the PP, because no one has a clue as to what will happen tomorrow, no matter how strong and apparently unchangeable current circumstances may be, or appear to be.

Who knows? In the blink of an eye, a "loser asset" such as gold may be miraculously transformed into a financial savior. This is why I trust the wisdom of St. Harry B's asset allocation.

dualstow wrote: buddtholomew, I have a question specifically for you:

Unless i have this detail confused with that of another member, you have more than enough to live on for the rest of your life. *If* this is the case, why do you worry about the performance of gold? Or, why not just put enough money into investments that let you live off the interest and dividends (if work or main income sources fall through), and the rest in the pp?

Just curious.

dualstow, you have me confused with someone else. I am in the accumulation phase, but not contributing to PP assets as often as retirement investments (taxable vs. tax-deferred respectively). Gold comprises 20% of taxable and is my least favorite. The strong dollar is another issue for gold to overcome before we see any upward movement in the metal. I don't want to sell, but I honestly don't have faith in this asset.

Budd, if you are looking for PP like returns with low volatility and you don't like gold then why not invest in something like Vanguard Wellesley? The one caveat would be to have it in a tax deferred account.

Hey Budd,

Check out this graph from Fred:

http://research.stlouisfed.org/fred2/series/DTWEXM

That is the US$ against some kind of basket of foreign currencies. Maybe overlay that with PP performance and see how the PP has done historically when the dollar is strong. It goes back to 1973 which is pretty damn convenient in PP terms.

Gold is of no fan now...wake up and smell the coffee.. Low rates that the Fed clings to like a security blanket to keep air under the Democrates, duh, raise rates, crash, boom..goodbye White House.  A market that is the only place to make money.

Ahh, the minute you dump that gold and uh, oh. The paper currency runs great as long as the myth of the US Dollar remains intact. How do you spell zillions of dollars in debt? Keep all your life savings in equities??? Are you kidding me? I have seen this act before. You buy insurance because your nice little house can burn down, healthy people get sick, and the world is a precarious place.

So sell your gold and gamble the party will go on or get a PP and have a piece of everything..insurance, growth, bonds, gold and cash.  Remember 2008 and the house of pain.

portart wrote: Gold is of no fan now...wake up and smell the coffee.. Low rates that the Fed clings to like a security blanket to keep air under the Democrates, duh, raise rates, crash, boom..goodbye White House.  A market that is the only place to make money.

Ahh, the minute you dump that gold and uh, oh. The paper currency runs great as long as the myth of the US Dollar remains intact. How do you spell zillions of dollars in debt? Keep all your life savings in equities??? Are you kidding me? I have seen this act before. You buy insurance because your nice little house can burn down, healthy people get sick, and the world is a precarious place.

So sell your gold and gamble the party will go on or get a PP and have a piece of everything..insurance, growth, bonds, gold and cash.  Remember 2008 and the house of pain.

Let's assume I buy into your argument, the same one I have been hearing for years. At what point is the cost of owning insurance outweigh the benefit? A fraction of people own earthquake insurance in CA given the same tradeoff.

barrett wrote: Hey Budd,

Check out this graph from Fred:

http://research.stlouisfed.org/fred2/series/DTWEXM

That is the US$ against some kind of basket of foreign currencies. Maybe overlay that with PP performance and see how the PP has done historically when the dollar is strong. It goes back to 1973 which is pretty damn convenient in PP terms.

Thanks barrett. I compared UUP (USD index) to GLD and the relationship was inconclusive. Do you know whether HB spoke of a rising USD in his radio show or one of his novels?

buddtholomew wrote:

barrett wrote: Hey Budd,

Check out this graph from Fred:

http://research.stlouisfed.org/fred2/series/DTWEXM

That is the US$ against some kind of basket of foreign currencies. Maybe overlay that with PP performance and see how the PP has done historically when the dollar is strong. It goes back to 1973 which is pretty damn convenient in PP terms.

Thanks barrett. I compared UUP (USD index) to GLD and the relationship was inconclusive. Do you know whether HB spoke of a rising USD in his radio show or one of his novels?

I didn't know HB wrote novels. 
But he definitely did say that the dollar was the world's primary currency for savings, and that only when the dollar was in trouble would gold be the primary beneficiary from financial chaos.

Budd,

I actually haven't listened to all of HB's podcasts nor have I read all of his books. Just enough to know that he was really consistent in what he preached and that he had solid reasons for setting up the PP the way he did.

Here is the podcast link if you don't already have it:

https://web.archive.org/web/20160324133 ... wne/radio/

Unfortunately, they are not labeled so you just have to work your way through them in your free time.

It does seem to me that you are taking a really short-term view of "the rising dollar." I wouldn't be surprised if the next move by the FED isn't to reverse course and start amping up the printing again. They'd love to see more inflation and a cheaper dollar is good for imports in general. But that is just a guess.

Perhaps someone on here who knows HB's work better will have other thoughts

And no, Tech, I don't think Harry Browne wrote any novels but I will let you know if I hear of any!

Some possible titles:

Gold Also Rises
The Girl Who Found Freedom In An Unfree World
Love In The Time Of Rising Rates
See What Browne Can Do For You

barrett wrote: Budd,

I actually haven't listened to all of HB's podcasts nor have I read all of his books. Just enough to know that he was really consistent in what he preached and that he had solid reasons for setting up the PP the way he did.

Here is the podcast link if you don't already have it:

https://web.archive.org/web/20160324133 ... wne/radio/

Unfortunately, they are not labeled so you just have to work your way through them in your free time.

It does seem to me that you are taking a really short-term view of "the rising dollar." I wouldn't be surprised if the next move by the FED isn't to reverse course and start amping up the printing again. They'd love to see more inflation and a cheaper dollar is good for imports in general. But that is just a guess.

Perhaps someone on here who knows HB's work better will have other thoughts

And no, Tech, I don't think Harry Browne wrote any novels but I will let you know if I hear of any!

Some possible titles:

Gold Also Rises
The Girl Who Found Freedom In An Unfree World
Love In The Time Of Rising Rates
See What Browne Can Do For You

You guys and your humor are precious...books, not novels. In my defense, anything over a paragraph starts to read like an epic.

I am familiar with HB's radio archive, but it is a good reminder to listen to his material for assurances.

Gold at $1245. Time to buy, market timers? I mean, of course, assuming that your gold is less that 25% of your PP!

barrett wrote: Gold at $1245. Time to buy, market timers? I mean, of course, assuming that your gold less that 25% of your PP!

That wouldn't count as market timing, would it? It would be "opportunistic rebalancing". 

Just waiting for you to give me the buy signal, Tech. Yes, I think "opportunistic rebalancing" is the term I was looking for. Either that or "buying lowish."

Yeah risk "diversification" isn't really "insurance" per se.  It's a different risk-management strategy.  But Gold is sort of the insurance asset on a portfolio, if one had to call an asset insurance.  Essentially, the economic affects on your wealth are the same... accept bad financial traits in smaller doses to prevent a total loss.  Instead of an insurance premium, you invest in a volatile asset that we don't expect to perform well but for problems elsewhere in the vast majority of the rest of our portfolio.

Economically, tons of decisions sorta look like insurance.  Accepting less to protect the rest... to sorta rhyme it .

barrett wrote: Just waiting for you to give me the buy signal, Tech. Yes, I think "opportunistic rebalancing" is the term I was looking for. Either that or "buying lowish."

If you look at a 1.5 year chart you've got a clear double bottom at $1,180. That should provide support. It looks like a strong level so you're downside from a buy here is $70 or 5.7%ish if it does hold.

$1,245 found a lot of buyers back in early June. It only took about 6 weeks to make it up to $1,345.

It's taken over 9 weeks to get back down there. The bearish pressure hasn't been as strong as the buying pressure when you measure the momentum of the moves, but Gold is definately looking to be at a decision point.

I think we've transitioned to a sideways trend even though technically we're still in a downtrend until we get back to $1,440 or so. If we break that level and price accepts the new range we'll be back in an uptrend.

I think this is a good price. I'm actually gonna pull the trigger on NUGT now that RSX isn't moving down anymore. I doubled my shares there at $25.04 on the day the plane went down. It's clawed it's way back up into the green despite all the sabre rattling.