Gyroscopic Investing

show us the data and studies that support your view , we are waiting to see it . 

mathjak107 wrote: show us the data and studies that support your view , we are waiting to see it .

You need a backtest and use historic data to understand that hard assets are safer than paper ones?

Feel your forehead lately...?

I believe you're having a issue with different generations and nationalities.

I think the person with a PP expecting 3-4% real returns are better off than the person expecting his 60/40 will yield 8% real.

Mathjak is right about the weakness of hard assets in that many (not all PPers) have Zombie Apocalypse gold fantasies, but unless you have a functioning metals dealers, financial system and currency, the gold is only useful for barter, and trying to barter 1 oz lumps of high value gold in a social disorder environment will get you killed, or at least you will be robbed. And there is no more climbing over the Austrian Alps into Switzerland scenario for most of us anymore (while singing).

Holding physical metals reduces all the hundreds of unread pages of Terms and Conditions in the ETFs and ETNs to what the gold dealer will pay you for your shiny stuff. It takes assets out of the government's eyes. It doesn't mean you won't get cheated still by the man on the other side of the desk who trades gold for a living, and you bought $50k five years ago, and you think you are a Big Man, too. Nope. You will get a haircut.

I am a big fan of the Desert Portfolio. So much easier to swallow and less volatile than the HBPP. If I mix two-thirds Desert and one-third 60/40 so as to get 40% equities overall in retirement, I would be carrying 6.67% gold. I can handle that. I can handle holding a bunch of US Treasuries with various maturities from 0 - 20 years, centered around 10 years, and hold all of the bonds to actual maturity and remove myself from interest rate mark-to-market roller-coaster. I can handle no cash drag. What's not to like about Desert?

ochotona wrote: Mathjak is right about the weakness of hard assets in that many (not all PPers) have Zombie Apocalypse gold fantasies, but unless you have a functioning metals dealers, financial system and currency, the gold is only useful for barter, and trying to barter 1 oz lumps of high value gold in a social disorder environment will get you killed, or at least you will be robbed. And there is no more climbing over the Austrian Alps into Switzerland scenario for most of us anymore (while singing).

Holding physical metals reduces all the hundreds of unread pages of Terms and Conditions in the ETFs and ETNs to what the gold dealer will pay you for your shiny stuff. It takes assets out of the government's eyes. It doesn't mean you won't get cheated still by the man on the other side of the desk who trades gold for a living, and you bought $50k five years ago, and you think you are a Big Man, too. Nope. You will get a haircut.

I am a big fan of the Desert Portfolio. So much easier to swallow and less volatile than the HBPP. If I mix two-thirds Desert and one-third 60/40 so as to get 40% equities overall in retirement, I would be carrying 6.67% gold. I can handle that. I can handle holding a bunch of US Treasuries with various maturities from 0 - 20 years, centered around 10 years, and hold all of the bonds to actual maturity and remove myself from interest rate mark-to-market roller-coaster. I can handle no cash drag. What's not to like about Desert?

What is a desert portfolio? A google search doesn't come back with anything.

AnotherSwede wrote: I think the person with a PP expecting 3-4% real returns are better off than the person expecting his 60/40 will yield 8% real.

I do not think most folks in touch with reality expect 8% real returns going forward .

my own planning for retirement is around 6% nominal right now

mathjak107 wrote:

AnotherSwede wrote: I think the person with a PP expecting 3-4% real returns are better off than the person expecting his 60/40 will yield 8% real.

I do not think most folks in touch with reality expect 8% real returns going forward .

my own planning for retirement is around 6% nominal right now

I'd call that pretty damn optimistic. http://www.multpl.com/shiller-pe/

ochotona wrote: What's not to like about Desert?

Nothing.

A 10% zombieinsurance, 90% everything goes as advertised(in which case the gold will slightly improve your portfolios drawdown and sharpe, probably even cagr)

It's a better name also.

dutchtraffic wrote: What is a desert portfolio? A google search doesn't come back with anything.

I believe: 30% equity, 60% 5yr, 10% physical gold

Desert is 30% equity, 60% 10-year Treasuries, 10% gold.

Gold is not "zombie insurance". There is no such thing as zombies, so why do we think and plan and spend thousands or even hundreds of thousands of Dollars centered around this idea, which is shorthand for what?

Gold is an asset with advantages and disadvantages. It's not a magical token or anything. But it has such strong symbolism, people set aside all reality in the desire to own it. Goldbuggery, indeed.

It's an obsession for some, sadly.

You're taking me way to literal

dutchtraffic wrote:

mathjak107 wrote:

AnotherSwede wrote: I think the person with a PP expecting 3-4% real returns are better off than the person expecting his 60/40 will yield 8% real.

I do not think most folks in touch with reality expect 8% real returns going forward .

my own planning for retirement is around 6% nominal right now

I'd call that pretty damn optimistic. http://www.multpl.com/shiller-pe/

OPTOMISTIC ?  6% nominal. actually that is quite realistic long term.  the average market returns in the past were higher. a balanced fund even over the  last 15 years still produced 6-7% nominal returns .

just look at Wellesley or fidelity balanced , a diversified portfolio should do even better longer term , especially with rates running higher on new bonds and cash

What seems to be missing from these discussions is an exploration of the relative risk/reward for different portfolios. i.e. something like a Sharpe ratio.

I take it as a given that ANY portfolio can be leveraged up or down to exactly match a given risk tolerance. Melvyr and MachineGhost and KMG and others have provided multiple examples of how to tune the PP up or down while maintaining the same Sharpe ratio.

We all know you can take a standard portfolio of stocks and bonds and leverage it up or down with cash or margin. You can move the slope of the gains up or down and very nearly change the volatility and maximum drawdown by the same percentage - all while keeping the Sharpe ratio constant.

So… let’s say you are comfortable riding out a maximum draw down of 20% (or 30%, or whatever…) If you adjust the leverage on your favorite portfolio so that the worst case historical draw down exactly matches your comfort level - are you happy with the worst case CAGR and with retirement survivability and sequence of returns?

Great! If not, find a different set of assets to tune.

Don’t get caught up in historical CAGR or in maximum draw down. These can both be whatever you want them to be. It’s the ratio of the two and the sequence of returns that you should focus on.  That and a set of underlying assets which matches your world view.

mathjak107 wrote: 
That is hardly true and to date the pp can only claim to be less volatile not safer .

If we are all in agreement with this then I can stop addressing this belief that any other allocation is unsafe and we can all move on and further our education in planning for our retirements and future .

As Harry Browne taught, it is a meaningless, or at least useless, question to ask: "Is this investment safe?"  It is meaningless, or at least useless, to ask: "Is this investment risky?"  Or even: "How risky is it?"  How can you quantify that?  What unit is "risk" measured in?  Meaningless.

The right questions to ask are questions like:

Under what conditions will this investment go down in value?
Under what conditions will this investment go up in value?

Then you can think clearly.

Safe?  Safer?  Less safe?  Muddled muddy meaninglessness.

Mark Leavy wrote: Don’t get caught up in historical CAGR or in maximum draw down. These can both be whatever you want them to be. It’s the ratio of the two and the sequence of returns that you should focus on.  That and a set of underlying assets which matches your world view.

I think this is a critical and under-discussed point. Mathjak is an optimistic person and has faith in the future performance of stocks. This makes it easy for him to ignore stock market drawdowns without panicking. Same for someone like Mr. Money Mustache who is known to have a very stock-heavy portfolio. But someone without that same underlying confidence will panic in the same situation.

This is actually a problem with the PP, too. Almost nobody loves all four of the PP assets, and as we can see from many of the panicked posts here, when a disfavored asset--usually gold or treasuries--falls, people panic because holding the asset itself chafes uncomfortably with their world view.

The usual advice given is to just suck it up. Easier said than done. And in the end, people who just hate a particular asset seem to wind up underweighting it and being happier for it. It's interesting that the basic PP concept still mostly works if you underweight the assets you hate and have difficulty seeing fall and overweight the ones you love and whose volatility you can stomach.

mathjak107 wrote: there have been no bad markets to date, only bad planning.

Well, maybe there's no such thing as a "bad" market, but there certainly is such a thing as an unprofitable-to-investors market.

Pointedstick wrote:

Mark Leavy wrote: Don’t get caught up in historical CAGR or in maximum draw down. These can both be whatever you want them to be. It’s the ratio of the two and the sequence of returns that you should focus on.  That and a set of underlying assets which matches your world view.

I think this is a critical and under-discussed point. Mathjak is an optimistic person and has faith in the future performance of stocks. This makes it easy for him to ignore stock market drawdowns without panicking. Same for someone like Mr. Money Mustache who is known to have a very stock-heavy portfolio. But someone without that same underlying confidence will panic in the same situation.

This is actually a problem with the PP, too. Almost nobody loves all four of the PP assets, and as we can see from many of the panicked posts here, when a disfavored asset--usually gold or treasuries--falls, people panic because holding the asset itself chafes uncomfortably with their world view.

The usual advice given is to just suck it up. Easier said than done. And in the end, people who just hate a particular asset seem to wind up underweighting it and being happier for it. It's interesting that the basic PP concept still mostly works if you underweight the assets you hate and have difficulty seeing fall and overweight the ones you love and whose volatility you can stomach.

lack of investor discipline is the biggest cause of poor returns.

if anyone is not aware of it , Morningstar tracks small investor returns based on money flow in and out.

they give 2 returns on most funds .

it rarely matters how conservative or aggressive a fund is . there is always a big lag between what the fund got vs what the investor got.

you would think a balanced fund would have better investor returns than a growth fund but nope . they all show no matter what the fund when things get  volatile the small investor does the wrong thing.


Ibbotson compiled some interesting data on the results which I will post later

First let me check... OK, I'm on the Mathjak rant thread.

I think the main point for me is sequence of returns risk. Gold and LT Treasuries are having bad downdrafts now, so few will volunteer to enter the portfolio now in order to be subjected to a beating, in hopes of better days. I started the end of 2014, and like getting into a too-hot bath, I just pulled my foot out. Why volunteer for immediate losses in a "low volatility" portfolio? Something is not right.

Someone called me a Nervous Nellie. Well, I've been in 60/40 or so since 1986, I was buying stocks all during 2009, I have been blissfully unaware of most events and volatility, I only started looking at the PP because I can see my retirement in the distance, and I wanted to gradually glidepath into a different strategy in order to take down my risk, or so I thought. Getting caught in turbulence in gold and LT Treas was not what I signed up for.

From backtesting, I still think HBPP is very interesting, after gold settles at a new low for a bit, and after we see what the Fed manages to do. That's another thing, why fight the Fed? They want interest rates to go up, the may not be able to raise this year, but it's out there as an objective, it will happen. Timing is not known.

Mark Leavy wrote: What seems to be missing from these discussions is an exploration of the relative risk/reward for different portfolios. i.e. something like a Sharpe ratio.

I take it as a given that ANY portfolio can be leveraged up or down to exactly match a given risk tolerance. Melvyr and MachineGhost and KMG and others have provided multiple examples of how to tune the PP up or down while maintaining the same Sharpe ratio.

We all know you can take a standard portfolio of stocks and bonds and leverage it up or down with cash or margin. You can move the slope of the gains up or down and very nearly change the volatility and maximum drawdown by the same percentage - all while keeping the Sharpe ratio constant.

So… let’s say you are comfortable riding out a maximum draw down of 20% (or 30%, or whatever…) If you adjust the leverage on your favorite portfolio so that the worst case historical draw down exactly matches your comfort level - are you happy with the worst case CAGR and with retirement survivability and sequence of returns?

Great! If not, find a different set of assets to tune.

Don’t get caught up in historical CAGR or in maximum draw down. These can both be whatever you want them to be. It’s the ratio of the two and the sequence of returns that you should focus on.  That and a set of underlying assets which matches your world view.

@Mathjak -- I actually prefer your pro-PP comments from the two weeks when you tried it out.  You were quite insightful.

mathjak107 wrote: the problem looking with the PP is the cycles are very very long for assets like gold to have their day in the sun and things can look no so hot for quite a while. that was why i abandoned it back in the 1980's.  in hind site it did  well over such a long period.

did you know if you bought the PP  BACK IN THE 1980'S on the worst possible day when gold  peaked around 800 that just by rebalancing over those decades that before gold fell from the almost 2k high your return would have beaten the s&p return if you bought that too on the same day. i believe the gold averaged 9.80% vs the s&p 500 9.6%

mathjak107 wrote:

buddtholomew wrote: I am at a loss for words...this portfolio is very disappointing and it has trailed my 60/40 allocation substantially since 2009. No matter what anyone says, if gold sucks the PP sucks.

the portfolio didn't do much because it didn't loose much.  traditional portfolios needed those gains to get  back to where they were . the PP wasn't down .

in fact looking at the last 15 years the return is about the same as a 100% equity investment in the s& p 500

mathjak107 wrote: (The PP) counts heavily on trends . gold has been a loser , bonds a loser and stocks treading water,.  the other conservative model i used  was up 1.10% this year  and was a heavy bet on good times and low rates,

i swapped it this week for the permanent portfolio and put over 7 figures in.  i think it is a safer bet since once we get something negative happening the pp can make some money

The shift in tone since then is striking.  But the basic facts about the portfolios or the markets didn't change in the last month.  The same qualities that made the PP appealing enough for you to invest millions and eloquently defend it just a few weeks ago still exist.  The only thing that changed seems to be that you got cold feet and had a change of heart.  Perhaps you realized that the PP outlook does not match your own, or even that it may not meet your personal needs.  Frankly I think it's admirable to acknowledge when you made a decision against your nature.  It would have been much less expensive to sleep on it before allowing the "lack of investor discipline" to take over and switching millions in the first place, but it happens to the best of us.

Where I think the discussion has gotten a little off course since then is the degree you have gone to justify your perfectly reasonable decision by going scorched earth on the PP in dozens of posts per day.  I get the feeling you're trying to convince yourself you did the right thing more than you are trying to truly discuss the relative merits here to the same degree you did when you first joined.  And that's a shame -- you have a lot to contribute.

In any case, please realize nobody here is attacking you for changing your mind and you do not need to justify or defend your decision.  Just do it and be happy!

Aren't you retiring tomorrow? 

Mark Leavy wrote: What seems to be missing from these discussions is an exploration of the relative risk/reward for different portfolios. i.e. something like a Sharpe ratio.

From what I've gathered Mathjak don't care about Sharpe, or drawdown or months to recover or stdev.

But sharpe of equity only sucks, add bonds a bit better, a little gold way better. Cash don't move sharpe or recovery time, cash is leverage.

I have savings and a mortgage. That's leverage, so I want a higher sharpe.

ochotona wrote: Someone called me a Nervous Nellie. Well, I've been in 60/40 or so since 1986, I was buying stocks all during 2009, I have been blissfully unaware of most events and volatility, I only started looking at the PP because I can see my retirement in the distance, and I wanted to gradually glidepath into a different strategy in order to take down my risk, or so I thought.

I like Mathjak's idea for this. Transition mostly into the PP so you can hit your number for retirement, then gradually back into your more volatile allocation that you were previously fine with.

I put 40% of a large portfolio into the HBPP and got slapped.

Pointedstick wrote: I like Mathjak's idea for this. Transition mostly into the PP so you can hit your number for retirement, then gradually back into your more volatile allocation that you were previously fine with.

ochotona wrote: I put 40% of a large portfolio into the HBPP and got slapped.

Pointedstick wrote: I like Mathjak's idea for this. Transition mostly into the PP so you can hit your number for retirement, then gradually back into your more volatile allocation that you were previously fine with.

The PP is a low-volatility portfolio, not a zero-volatility portfolio. If that's what you thought you were getting, you were mistaken. Maybe cash or extremely short-duration bonds would have been a better bet if your time horizon was measured in days or weeks.

Over my short tenure, PP was a portfolio with a large drawdown relative to 60/40. My time horizon is 11 years to retire.

Pointedstick wrote: The PP is a low-volatility portfolio, not a zero-volatility portfolio. If that's what you thought you were getting, you were mistaken. Maybe cash or extremely short-duration bonds would have been a better bet if your time horizon was measured in days or weeks.