Gyroscopic Investing

MediumTex wrote:

mathjak107 wrote: i wish we had those old  5-1/4% savings accounts we all used to laugh at .

There was a short period around 1990 when CDs were paying 9% and inflation was far lower than that.

Ah, the good old days.

the best year for cd's was 1982 when the real return that year was  9.42%.  but the worst was 1979 when the real return was almost minus 3%.

historically  they averaged about 2% over inflation  .  so cash instruments have not always been so bad but thety are an asset class and there are times they will not be the place to bet the ranch .

in fact since 1975 , the first year we could own gold legally  a 1 month t-bill rolled over has done better than gold has  40 years later and  has been the better choice to withstand inflation so far..


that 175 buck cost of an ounce of gold  back then in the lowly t-bill  is worth more than that gold is 40 years later .

sure you could argue inflation came down but who's inflation are we talking ?  the cpi or your own personal rate which may well exceed the cpi which is not a cost of living indicator as much as just a price change index on a basket of stuff you may use little of  that went down  .

when it comes to inflation protection you want the biggest cushion you can grow  over time so it can protect your actual cost of living .

that is why tips can be a poor choice for inflation proofing . it may not resemble your personal cost of living at all .

while gold is supposed to protect against inflation so far all it did is stay even with the cpi for the most part with almost no cushion for your own cost of living to be protected .

golds  return  over the last 40 years was 4.50%  or the 175 bucks  is worth 1106 vs 4.90 for the t-bills  worth 1204.00.  ,

short term bonds were 6.40% worth 2151.00  ,  a 60/40 mix around  12.2%  worth 18,500  and global stocks 15.%  worth 63,995.00  for comparison .

so while it is great to have the insurance of the gold my opinion is today that insurance comes at a very heavy price to the growth section of the pp which is expected to have muted gains from what they were  making its job to propel the pp now that much harder .


time will certainly tell if i am correct .

http://www.zerohedge.com/sites/default/ ... 0total.jpg

Nothing to see here, move along.

MediumTex wrote:

dualstow wrote:

Jack Jones wrote: You seem to be under the impression that there is some kind of gold vs equities dick measuring contest going on here. This isn't the gold bugs forum.

But if this were a dick-measuring contest in a gold bug forum we'd have to call it Goldmember. We'd just have to!

To borrow a favorite term from Liar's Poker and its celebration of the piggishness of Wall Street, the contest could be called:

Goldmember vs. The Big Swinging Dicks

Please! Sophie may be listening!!

Sometimes I wonder if I should just let this be an all male forum, but the core contributors are just too intelligent & reasonable, and the discussions sufficiently interesting, to get all antsy about things like this.  Plus it's sometimes kind of fun to see how guys behave when they think no one is looking.

Mathjak - you might check bond yields in the 1930s.  Lower than they are today.  Of course gold was pegged at a fixed price, but otherwise no, what you are seeing now is not necessarily "unprecedented."

I apologize for the rest of my gender.

Are you guys not familiar with the term "BSD"?

It's part of the Wall Street culture and folklore.

The End of the BSD

A Wall Street icon falls.

By Daniel Gross

In New York, happiest among the financial alpha males is the big swinging dick. The term entered the lingua franca via Michael Lewis' Liar's Poker. (Relevant quote: "If he could make millions of dollars come out of those phones, he became that most revered of all species: a Big Swinging Dick.") BSDs are the perennial winners of the game of conspicuous earnings (giant bonuses), conspicuous consumption (giant co-ops and summer homes), and conspicuous philanthropy (giant plaques on public edifices). In recent years, with the explosion of wealth triggered by the credit and housing boom, a large number of BSDs were minted by the Holy Trinity: hedge funds, private equity, and investment banking.

LINK

sophie wrote: Sometimes I wonder if I should just let this be an all male forum, but the core contributors are just too intelligent & reasonable, and the discussions sufficiently interesting, to get all antsy about things like this.  Plus it's sometimes kind of fun to see how guys behave when they think no one is looking.

Mathjak - you might check bond yields in the 1930s.  Lower than they are today.  Of course gold was pegged at a fixed price, but otherwise no, what you are seeing now is not necessarily "unprecedented."

not quite true ,  no where near what we have today  ,  they had negative inflation in the 1930's that made real returns on those supposed low rates  insanely high .

the 1930's had negative inflation big time so the real returns were quite high not low like today , , big difference  . we would all love those real returns on rates  from he 1930's .



1930 had a nominal rate of 3.59% but the real return was 7.87%
1931 nominal 2.564% but real return was 14.04%
1932  nominal 2.73%  real return 15.92%
1933  nominal 1.73% real return 4.54%


the cpi fell 18% so in dollar terms the crash actually recovered in purchasing power in only 5 years .  imagine getting 3% interest when all your bills fell by 18% that year ?  wow what a  lot of money that 3% would be .

understand now why you can't compare to now ?

http://thehardtrade.com/tag/1930s-interest-rates

Desert wrote: Budd!  Are you on here today? 

The HBPP is having a great day today! 

Haven't looked since last Friday...I hope you are not pulling my leg...

Yes. It did almost as well as the overall stock market today.

Reub wrote: Yes. It did almost as well as the overall stock market today.

Oh good, my 3-year returns are finally positive again 

The scales of justice are functioning once more. Bonds offsetting stock losses and gold positive.

That's how it's supposed to work.  Bonds and gold up and stocks down.  This is what makes PP holders happy!

Reub wrote: That's how it's supposed to work.  Bonds and gold up and stocks down.  This is what makes PP holders happy!

Perhaps these exact expectations are the root cause of our frustration with the PP, Reub.

the problem is the fear of rising interest rates has gold and bonds  , normally opposites  , moving together instead.  it works well when they go up together but can be quite over powering when they go down together

mathjak107 wrote: the problem is the fear of rising interest rates has gold and bonds  , normally opposites  , moving together instead.  it works well when they go up together but can be quite over powering when they go down together

Over the past year in particular, the correlation between gold and long bonds have increased, probably for the reason you state. But it's not a particularly strong correlation. Over the past 5 and 10-year periods, they are quite uncorrelated. So not opposites but independent of each other. Nonetheless, the correlation is still positive over all of those periods.

Maybe if you go back farther you can find a negative correlation between gold and bonds.

buddtholomew wrote:

Reub wrote: That's how it's supposed to work.  Bonds and gold up and stocks down.  This is what makes PP holders happy!

Perhaps these exact expectations are the root cause of our frustration with the PP, Reub.

No, that's NOT how it's supposed to work, at least not on a daily basis.  If this is your expectation you will be disappointed.  Was Friday a deflationary day but Thursday not?  Economic cycles do not change on a daily basis. 

During an overall period of prosperity, stocks WILL tend to go up (but not every day, and they may even have significant corrections to the downside during an overall period of prosperity).

During an overall period of deflation, long term bonds WILL tend to go up.

During an overall period of bad inflation (or expectations of bad inflation), gold WILL tend to go up.

During a recession, cash (and possibly gold) will not lose value.

What's supposed to happen is that during any of these overall cycles (except recession) the portfolio value will tend to increase.  On a daily basis, anything can and will happen.

rickb wrote:

buddtholomew wrote:

Reub wrote: That's how it's supposed to work.  Bonds and gold up and stocks down.  This is what makes PP holders happy!

Perhaps these exact expectations are the root cause of our frustration with the PP, Reub.

No, that's NOT how it's supposed to work, at least not on a daily basis.  If this is your expectation you will be disappointed.  Was Friday a deflationary day but Thursday not?  Economic cycles do not change on a daily basis. 

During an overall period of prosperity, stocks WILL tend to go up (but not every day, and they may even have significant corrections to the downside during an overall period of prosperity).

During an overall period of deflation, long term bonds WILL tend to go up.

During an overall period of bad inflation (or expectations of bad inflation), gold WILL tend to go up.

During a recession, cash (and possibly gold) will not lose value.

What's supposed to happen is that during any of these overall cycles (except recession) the portfolio value will tend to increase.  On a daily basis, anything can and will happen.

Yes, we know all that. That's why I said..it's the root cause of our frustration - expecting gold and/or treasuries to offset equity declines.

buddtholomew wrote: Yes, we know all that. That's why I said..it's the root cause of our frustration - expecting gold and/or treasuries to offset equity declines.

Well in general, it can and does (as we are seeing right now). Just not on a daily basis.

ytd we have all 3 down for the year

tlt lost 1.38% including interest
gld lost 3.85%
vti lost 3.05% including dividends

cash is zero.

i show the insight  growth and income model down .88%  and the income and capital preservation model down down .27%.

it looks like all things are negative right now . the pp is just slightly more negative than the conventional models i would follow .

ironically their growth model is up .16%  . even though it is 90% equity it had a much higher cushion when it was up  so even though it fell more it is still positive .

mathjak107 wrote: ytd we have all 3 down for the year

tlt lost 1.38% including interest
gld lost 3.85%
vti lost 3.05% including dividends

cash is zero.

i show the insight  growth and income model down .88%  and the income and capital preservation model down down .27%.

it looks like all things are negative right now . the pp is just slightly more negative than the conventional models i would follow .

ironically their growth model is up .16%  . even though it is 90% equity it had a much higher cushion when it was up  so even though it fell more it is still positive .

Let's be clear: you're comparing the PP not to a "conventional model" but a newsletter portfolio. Most people following newsletters for their investments fare significantly worse than you have. Your portfolio is anything but conventional. Heck, the most conventional portfolio used by real actual people probably consists of 50% or more bank CDs and cash. Everyone I know who has accumulated a significant nest egg considers stock-heavy portfolios to be crazy.

Except the income and capital preservation model is anything but stock heavy. It stands at 30% equity's.

Just about all the non market timing newsletters which is what these types are , have very similiar performance  Fidelity insight and fidelity monitor were always to close to matter. The vanguard ones have similar newsletters with very similar results.

Most funds used are in the models for years. Most of the actual  market timing newsletters come and go as they fail to produce. Never had a use for them. I can't think of more than 2 that are still around vs the hundreds when i started in the 1980's.

If most of the people you know are 50% cash i think you need to get out more. Pop on over to the popular early retirement forum and see how loads of people allocate .
There is a whole world of successful retired investors out there who are not 50% cash instruments.

I am down 3% and it really hurts!
However, I am sticking to my 60% Stocks / 20% TLT / 20% IAU allocation as the portfoliocharts gave such a portfolio good numbers.

lordmetroid wrote: I am down 3% and it really hurts!
However, I am sticking to my 60% Stocks / 20% TLT / 20% IAU allocation as the portfoliocharts gave such a portfolio good numbers.

Not entirely sure if you're joking or not. There were some other threads where people were having a hard time with a 3% loss.

If you're not, your first and second sentence don't really get along well...

it isn't the 60%  stocks in your portfolio  that are dragging you so negative it is more the  fact you have TLT and gold tempering volatility and that is a trade off .

so what you did is trade lower volatility by using gold and tlt instead of a bigger upside cushion.

using the same 60% position  but with bond funds that do not temper the gains as much ,  as well as gold tempering volatility ,  would have given you more volatility but a bigger cushion  when we were up . nothing wrong with  tempering volatility with gold and tlt  except do not be surprised if you are down more at times than a more volatile portfolio .

for comparison to the 60% equity mix he has ,  the 70/30 growth and income model is down .88% and the 90%/10 growth model is up  .16%..

while yes they are equity heavy models and i am not saying buy them the fact is he has a 60% equity model that is down more than 3x  those models .  that is the effect of gold and TLT pulling back the reins when markets were up and not developing that bigger cushion for the way down .

it isn't how much you fall , it is the level you fall from .  being up 15% and falling 15%  is very different from being up 5% and falling 7% .

so while the pp has lower volatility that does not mean you won't or can't be down more .

don't confuse low volatility with the fact you won't be down more than something with higher volatility once the higher volatility portfolio has gone through an up market cycle .

low volatility is one thing but whether negative or positive is sequence risk .

this is a concept you see misunderstood  on all the forums  over and over . folks can't understand how more volatile models are up in these down turns yet their more conservative models are  negative .


we will likely see the same thing when rates rise . short term bond funds will likely do worse than a total bond fund since the difference in interest may offset the total bond funds fall , where the less volatile short term bond fund not having that cushion turns negative and the more volatile total bond fund is positive ..