Gyroscopic Investing

In my opinion, the PP is more risky in the short to intermediate term as the volatile asset classes lose their negative correlation when markets decline. Our only hope is for one of the investments to rebound and produce gains that outpace the losses in the remaining assets. Adding additional funds to the portfolio while still within tolerance bands may only result in further losses as SPY, GLD and TLT continue to fall. Re-balancing when outside of tolerance bands makes sense as we do not know which asset will fulfill this role during the portfolio recovery.

buddtholomew wrote: Our only hope...

Surely we aren't down to our last hope.

Is it THAT dire?

MediumTex wrote:

buddtholomew wrote: Our only hope...

Surely we aren't down to our last hope.

Is it THAT dire?

No, absolutely not. I am somewhat pleased with this recent decline as I now have a perspective on the portfolio that is difficult to attain through charts alone. It has certainly been a rough week for my other investment strategy as well. Re-balancing bands have moved only slightly and I am well prepared to sustain this decline.

My concern of late has been the rise in muni yields, with a percentage loss on par with the permanent portfolio. Never in my wildest dreams did I expect bonds to behave in this fashion. I'm genuinly shocked...where is the flight to the safety of treasuries and how long can interest rates rise until the mortgage and lending market collapses?

MediumTex wrote:

buddtholomew wrote: Our only hope...

Surely we aren't down to our last hope.

Is it THAT dire?

I don't know. Interest rates heading to 18%, gold to $300/oz., Dow to 7,000 and cash losing 20% of its value to inflation each year.  Looks pretty dire to me.

Haven't checked in here in a while but thought I'd drop by and say hello.

I stopped tracking my portfolio very closely more than a year ago, but as best I can tell YTD the PP is down 5-6%.  While I'm not happy to see that (although I am very happy that I was unsuccessful in getting my folks to invest in the PP late last year), this is not dire at all.  In 2008 I saw losses of around 30% or more. This is nowhere near that stomach-churning period.

I do wish I had set rebalance bands at 20/30 rather than 15/35, but that is just hindsight and no guarantee it will be the best approach in the future. I can't say what will happen the rest of this year, or any other period of time for that matter, but I don't have any regrets about getting into the PP and have no intentions to change anything now.

buddtholomew wrote:

MediumTex wrote:

buddtholomew wrote: Our only hope...

Surely we aren't down to our last hope.

Is it THAT dire?

No, absolutely not. I am somewhat pleased with this recent decline as I now have a perspective on the portfolio that is difficult to attain through charts alone. It has certainly been a rough week for my other investment strategy as well. Re-balancing bands have moved only slightly and I am well prepared to sustain this decline.

My concern of late has been the rise in muni yields, with a percentage loss on par with the permanent portfolio. Never in my wildest dreams did I expect bonds to behave in this fashion. I'm genuinly shocked...where is the flight to the safety of treasuries and how long can interest rates rise until the mortgage and lensing market collapses?

Remember 2008 when things really looked dire?  Stocks were tanking daily.  It took LTT's a month or so to kick in but when they did they did it with a vengeance to save the portfolio.  I believe LTT's are the portfolios most over sold asset at this time.

buddtholomew wrote: My concern of late has been the rise in muni yields, with a percentage loss on par with the permanent portfolio. Never in my wildest dreams did I expect bonds to behave in this fashion. I'm genuinly shocked...where is the flight to the safety of treasuries and how long can interest rates rise until the mortgage and lending market collapses?

Are you saying it's a good time to buy munis? I honestly am really tempted with rates where they're at right now.

One lesson i've learned of late is to wait until a tolerance band is breached before contributing additional funds. Re-balancing methodically removes any self doubt, unlike buying or selling based on recent price removements. In other words, the yields are attractive, but may become more attractive.

buddtholomew wrote: One lesson i've learned of late is to wait until a tolerance band is breached before contributing additional funds. Re-balancing methodically removes any self doubt, unlike buying or selling based on recent price removements. In other words, the yields are attractive, but may become more attractive.

True. But this would be for my VP and would be purely for the income stream; I would never add munis to my PP.

PkgMan,

Nice to hear from you.

I'm glad you stopped by.  I wondered if you were gone for good.

Come around more.

MediumTex wrote: PkgMan,

Nice to hear from you.

I'm glad you stopped by.  I wondered if you were gone for good.

Come around more.

+1, but congrats on ignoring your portfolio for the past year!

moda0306 wrote:

doodle wrote: If you think 25% gold is too much...

1. Do you not follow the traditional PP?

2. What do you think the right amount would be?

I follow pretty close to a traditional PP, with the exception that I try to keep gold to more like 10% of my portfolio, and cash to little-more than my emergency fund (6 months income).

This doesn't skew my cash too much btw .

I tend to see gold as a leveraged asset, not just a simple store of value.  So I think it would absolutely explode in real terms if there was a currency collapse of the USD.  So I really see it more as insurance.  I don't need 25% of my assets in it to get the desired effect.. plus I have a lot of home on my balance sheet so I see an inflation hedge as less vital to me than it would be to a retiree or a renter.

Adding gold to my portfolio is what I've really learned from Browne and the PP. I remember laughing about investing in gold a couple of years ago but now I would feel completely naked without it

Given gold's volatilty, I believe 25% is a bit over the top though and it's the main reason I will probably never go 4x25. I'm at 10% right now and might go to 15%, but that's it for me. I do like the symmetry of 4x25 though...

koekebakker wrote:

moda0306 wrote:

doodle wrote: If you think 25% gold is too much...

1. Do you not follow the traditional PP?

2. What do you think the right amount would be?

I follow pretty close to a traditional PP, with the exception that I try to keep gold to more like 10% of my portfolio, and cash to little-more than my emergency fund (6 months income).

This doesn't skew my cash too much btw .

I tend to see gold as a leveraged asset, not just a simple store of value.  So I think it would absolutely explode in real terms if there was a currency collapse of the USD.  So I really see it more as insurance.  I don't need 25% of my assets in it to get the desired effect.. plus I have a lot of home on my balance sheet so I see an inflation hedge as less vital to me than it would be to a retiree or a renter.

Adding gold to my portfolio is what I've really learned from Browne and the PP. I remember laughing about investing in gold a couple of years ago but now I would feel completely naked without it

Given gold's volatilty, I believe 25% is a bit over the top though and it's the main reason I will probably never go 4x25. I'm at 10% right now and might go to 15%, but that's it for me. I do like the symmetry of 4x25 though...

I sympathize. Gold is my least favorite asset and I agree that its volatility is much higher than either stocks or LTTs. But I too have come to accept that having a portfolio without gold is like driving a car without insurance. That 25% is really hard for me though.

Ad Orientem wrote:

koekebakker wrote:

moda0306 wrote: I follow pretty close to a traditional PP, with the exception that I try to keep gold to more like 10% of my portfolio, and cash to little-more than my emergency fund (6 months income).

This doesn't skew my cash too much btw .

I tend to see gold as a leveraged asset, not just a simple store of value.  So I think it would absolutely explode in real terms if there was a currency collapse of the USD.  So I really see it more as insurance.  I don't need 25% of my assets in it to get the desired effect.. plus I have a lot of home on my balance sheet so I see an inflation hedge as less vital to me than it would be to a retiree or a renter.

Adding gold to my portfolio is what I've really learned from Browne and the PP. I remember laughing about investing in gold a couple of years ago but now I would feel completely naked without it

Given gold's volatilty, I believe 25% is a bit over the top though and it's the main reason I will probably never go 4x25. I'm at 10% right now and might go to 15%, but that's it for me. I do like the symmetry of 4x25 though...

I sympathize. Gold is my least favorite asset and I agree that its volatility is much higher than either stocks or LTTs. But I too have come to accept that having a portfolio without gold is like driving a car without insurance. That 25% is really hard for me though.

Unlike others I love gold, always have. About a year or so ago I came close to a re-balance point, it reached close to 32,33% and since I set my mind to rebalanced at 35% I did not re balance, in hind site maybe 20/30 band would have worked better at least for the short term. Who really knows over time what will be better,  but since I do not have a crystal ball I have no regrets.  The PP strategy suits me better than anything else I have ever examined.

AdamA wrote:

MediumTex wrote: PkgMan,

Nice to hear from you.

I'm glad you stopped by.  I wondered if you were gone for good.

Come around more.

+1, but congrats on ignoring your portfolio for the past year!

Thanks MT and AdamA, I'll try to visit more often

Pkg Man wrote:Thanks MT and AdamA, I'll try to visit more often

Please do!  It's always nice to see another Southern flag avatar.  :-)

MediumTex wrote:

buddtholomew wrote: Our only hope...

Surely we aren't down to our last hope.

Medium Tex an Craig Roland,

the european citizen should continue to have an EU-HB-PP, right?

What are the dangerous comparing to US-HB-PP ?


Tks

annieB wrote: Frugal:

The US PP is down right at five percent for 2013.

What is your PP doing where you are?

Cheers to you.

similar negative performance 

well to confort myself and you all, this phrase:

Can I just say:

Ahhhhhhhhhhhhhhhhhhhh!

(I'm continuing to hold the PP, but I rebalanced out of cash fairly recently do I don't like this huge drop in net worth)

Xan wrote:

Pkg Man wrote:Thanks MT and AdamA, I'll try to visit more often

Please do!  It's always nice to see another Southern flag avatar.  :-)

Likewise

Tyler wrote: ↑Thu May 16, 2013 10:04 am

hoost wrote: I had a similar experience last year when I started my portfolio.  Looking backward, I had chosen the worst month of the year to start a PP; I still ended the year up 4 or 5%.  It all evens out eventually, but starting out it can be painful to watch.

Starting a PP in a bad month sure beats ending a VP in a bad month.

The grass is always greener until it catches fire.

Another "Tyler" phrase to incorporate into the future written Permanent Portfolio Creed!

Vinny

Of course the question is how many times has your lawn caught fire ?

One of the problems with sayings and mantras is they sound so good but have little meaning..

Will Rogers was just full of great sounding stuff that was either really quite silly or just wrong.

Some of my favorite are buy land , they are not making anymore of it ...yet the huge battery park city here in nyc sits where the water was .

Buy low sell high , we know how that turned out when investors thought when we fell 2000 points in 2008 was low ..who knew we had 4000 more to go .....buy high and sell higher has made far more money for investors as the trend is your friend

Live below your means is quite useless and really not actionable ....how much is living below your means ?. It is actually the savings rate that is important and builds slack in a plan..simply living slightly below income with most of the budget in non discretionary bills don’t help

Only buy stocks that go up , if they are not going to go up don’t buy them.

There are loads of these meaningless quips

Pointedstick wrote: ↑Sat May 18, 2013 3:15 pm

Ad Orientem wrote:

melveyr wrote: Budd,

You might enjoy a copy of Zvi Bodie's book "Worry Free Investing." You might be an investor that should be 100% short-term TIPS.

+1

Based on his comments it sounds like Budd has a near zero risk tolerance, even in the short term. 100% T Bills / ST TIPS is the only place I can think of that fits his risk profile.

Knowing what I know about Budd from his posts here, I believe there are two things at play:
1. Near-zero downside volatility tolerance
2. Envy at not being invited to the stock party

Despite the contradictory nature of these desires, I think it's possible to find a happy medium by separating them into a PP/VP split portfolio model. So my recommendation would be as follows:

PP: 80% I-Bonds, T-bills, 2-yr treasuries, S-TIPS
VP: 20% total stock market fund

The PP part has almost no fluctuation so you don't have to worry about nominal dollar losses, while the VP part allows you to "ride the lightning" when stocks are hot, but your downside has a hard limit of 20% of your total assets. And in practice most stock crashes don't result in 100% losses.

Such a short-term-bond-heavy portfolio has historically performed a lot stronger than many may realize:

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If one were interested in achieving even less volatility with the corresponding less income than the Permanent Portfolio what do you think of having a "Variable Portfolio" consisting of what Pointedstick proposed for Budd's Permanent Portfolio: PP: 80% I-Bonds, T-bills, 2-yr treasuries, S-TIPS?

Typically the Variable Portfolio is proposed and viewed as "gambling" money in search of greater return (but along with the greater risk)? So, this would be opposite to that theme in that it'd be, instead, seeking primarily lower risk and accepting the lower return.

Vinny