Gyroscopic Investing

mathjak107 wrote: ↑Fri Mar 12, 2021 4:35 pm I have my doubts about Bitcoin since central banks can’t pee on bit coin

I have doubts as well. One of my favourite things about gold is the fact that it's, well, physical.

This post may be a big muddled mush of nonsense but maybe I can express the thoughts well enough to foster some good comments as it's something I've been thinking about but have not formed any conclusions.

1. What do we really know about any asset class? Are there any "truths" to various asset classes or just a historical record that we assume will continue as the past?

2. If so, what are those "truths" and what makes us think they are something enduring vs. simply artifacts of the historical record?

3. In reference to #2 and 3 above and the 4 core PP assets classes what do we think are the "truths" and why do we think that? What's our evidence, what do we worry is artifact? Why?

Yeah I know, very philosophicalish. There's a significant, maybe growing part of me that wonders if it's all just historical artifact carried forward by hope of historical repeat. I think if we peel the onion back, most thread back and forths on the PP (or any portfolio on this and other boards) come down to a discussion of whether history will hold or if "this time is different." I think this completely explains the gold vs. BTC threads that have popped up as of late.

So I propose we take the assets one at a time, dissect them individually and then reassemble for a portfolio level review.

Anyone interested in this approach?

Kbg wrote: ↑Fri Mar 12, 2021 5:16 pm I think if we peel the onion back, most thread back and forths on the PP (or any portfolio on this and other boards) come down to a discussion of whether history will hold or if "this time is different." I think this completely explains the gold vs. BTC threads that have popped up as of late.

So I propose we take the assets one at a time, dissect them individually and then reassemble for a portfolio level review.

Anyone interested in this approach?

I think this is a fair point (if I understand it) and could yield a good discussion.

I'm not sure I 100% agree with your premise -- one aspect of the PP that resonates with me is it's not purely based on historical record (look at all the outcomes -- 60/40 is the way to go!), but instead has a philosophy, hypothesis, and then data to back it up. It's not simply about following the trend, though if the historical data didn't support it then no one would jump on board.

I think your point is valid, though -- just because there's a hypothesis that is supported by existing data doesn't mean that it's a law by any means -- it may just mean that we haven't collected/encountered/discovered the data that shows we've just been tracking a "short"-term trend in the bigger picture of things.

drumminj wrote: ↑Fri Mar 12, 2021 7:15 pm I'm not sure I 100% agree with your premise -- one aspect of the PP that resonates with me is it's not purely based on historical record (look at all the outcomes -- 60/40 is the way to go!), but instead has a philosophy, hypothesis, and then data to back it up. It's not simply about following the trend, though if the historical data didn't support it then no one would jump on board.

I think your point is valid, though -- just because there's a hypothesis that is supported by existing data doesn't mean that it's a law by any means -- it may just mean that we haven't collected/encountered/discovered the data that shows we've just been tracking a "short"-term trend in the bigger picture of things.

I agree as well. I've read way too many investment books in my life and "Best Laid Plans" is still one of my faves. It is really, really good on the philosophy and hypothesis aspects of the approach.

Let's see if enough people decide they want to join in and help out. I don't think my suggestion will be an easy one to accomplish if it is done well and I don't have the personal time to take it on by myself. I do believe we can check most of the key premises of the HBPP to see how they've done post publication with data to see if there are any anomalies or if the data confirms the premises are holding. Another thing is to capture the theory of why the assets behave the way they do from other sources.

vincent_c wrote: ↑Fri Mar 12, 2021 7:21 pm

doodle wrote: ↑Fri Mar 12, 2021 4:12 pm I for one think it's going to be interesting to see how the portfolio extricates itself from its current position. Honestly, the next few years in my opinion will be an amazing stress test

Me too.

Just want to thank you as one of the people who have contributed to my attempts to engage in discussion constructively. It's easy to tell who's here to learn from each other and who isn't.

One of the factors that convinced me to go ahead with this portfolio initially was how open and receptive this board was twelve years ago to any sort of criticism of the portfolio. There was no defensiveness or cultish adherence to it's tenets....everyone seemed open to discusssing any potential weakness one could conceive of. That sort of discussion gave me a lot of confidence that the people here were not just blindly jumping into this....they had and we're willing to continue to put considerable thought into it.

I remember freaking out when long term rates started to drift under 4% convinced everything was doomed. Now that they are about half that I am having similar feelings....has the moment finally come? I'm not sure, this portfolio is like a jiujitsu black belt fighter...it might look like it's been mounted and about to get pounded but somehow it always manages to find a way to sneak itself out with minimal damage and keep fighting.

Tyler wrote: ↑Fri Mar 12, 2021 3:54 pm

vincent_c wrote: ↑Fri Mar 12, 2021 3:08 pm But why do you feel the need to say that though.

I'm sure I'm not the only one with an interest in further discussion. I just don't understand why others have to come in and essentially share that they're not interested.

I can't speak for everyone else, but I've been here for a while and can offer a bit of perspective.

Everyone is here because they have some sort of interest in the Permanent Portfolio. Sure, it has been talked about for years, but most people are happy to continue discussing how it works, talk about performance in different economic environments, help others set up their own PP, and generally share Harry's ideas in new ways. We certainly don't all agree on everything, but that's our common bond.

Sometimes, though, we run across someone who just wants to filibuster threads, crap on the core ideas, point out every negative day for the portfolio, imply that PP investors are stupid, and generally just tear things down. Over the years several people have been banned for that kinda thing, not because the mods don't tolerate dissent but because the behavior of the individuals was fundamentally destructive to the community. Some never returned, which is honestly for the best for them as well since obsessing over a topic completely misaligned with your values can't be good for your health. Others are back with toned-down rhetoric and offer lots of good insights rather than simply always taking the negative side of the argument. I'm not going to name names -- you know who you are and I'm glad you're back.

Now I don't think this thread is a problem, but based on the history of the forum I can understand the reaction based on the title. "Great, another thread trying to prove everyone wrong." To encourage good discussion, I simply recommend that everyone try to avoid the temptation to exclusively argue the negative. Be constructive.

Thanks for the kind words. Lol

One thing though I do want to comment on is this .

One of the biggest factors where we as humans hurt ourselves more often than not is what an article in Forbes called sleeping with the enemy .

Most people tend to hang out , high five and support only those who support their view ....they never spend time really getting in to the enemies camp ..they never really understand the negatives the other side sees because they never sleep with the enemy .

When one fully understands the enemy’s side and can argue for or against some thing then they likely have a full understanding which they never got just hanging with their own. it is very different when you intimately learn the other side vs believing our own bull shit about the other side

Unless one made a poor choice and needs a support group , then one sided discussions supporting each other’s same decisions are not going to be educational or informative....

mathjak107 wrote: ↑Sat Mar 13, 2021 2:53 am

Tyler wrote: ↑Fri Mar 12, 2021 3:54 pm

vincent_c wrote: ↑Fri Mar 12, 2021 3:08 pm But why do you feel the need to say that though.

I'm sure I'm not the only one with an interest in further discussion. I just don't understand why others have to come in and essentially share that they're not interested.

I can't speak for everyone else, but I've been here for a while and can offer a bit of perspective.

Everyone is here because they have some sort of interest in the Permanent Portfolio. Sure, it has been talked about for years, but most people are happy to continue discussing how it works, talk about performance in different economic environments, help others set up their own PP, and generally share Harry's ideas in new ways. We certainly don't all agree on everything, but that's our common bond.

Sometimes, though, we run across someone who just wants to filibuster threads, crap on the core ideas, point out every negative day for the portfolio, imply that PP investors are stupid, and generally just tear things down. Over the years several people have been banned for that kinda thing, not because the mods don't tolerate dissent but because the behavior of the individuals was fundamentally destructive to the community. Some never returned, which is honestly for the best for them as well since obsessing over a topic completely misaligned with your values can't be good for your health. Others are back with toned-down rhetoric and offer lots of good insights rather than simply always taking the negative side of the argument. I'm not going to name names -- you know who you are and I'm glad you're back.

Now I don't think this thread is a problem, but based on the history of the forum I can understand the reaction based on the title. "Great, another thread trying to prove everyone wrong." To encourage good discussion, I simply recommend that everyone try to avoid the temptation to exclusively argue the negative. Be constructive.

Thanks for the kind words. Lol

One thing though I do want to comment on is this .

One of the biggest factors where we as humans hurt ourselves more often than not is what an article in Forbes called sleeping with the enemy .

Most people tend to hang out , high five and support only those who support their view ....they never spend time really getting in to the enemies camp ..they never really understand the negatives the other side sees because they never sleep with the enemy .

When one fully understands the enemy’s side and can argue for or against some thing then they likely have a full understanding which they never got just hanging with their own. it is very different when you intimately learn the other side vs believing our own bull shit about the other side

Unless one made a poor choice and needs a support group , then one sided discussions supporting each other’s same decisions are not going to be educational or informative....

I agree and it's one of the reasons why I ultimately chose this forum and this portfolio. This place was not the cult of Harry Browne. No one dismissed solid arguments in order to deflect attention from the portfolios potential weaknesses. My life is invested in this thing and I want to know if I'm staring down the barrel of a gun.

But, it's important to realize that everyone has different priorities when investing and this portfolio is not the be all end all of asset allocations. By it's nature, it appeals to individuals of a particular personality and mindset who perhaps analyze data and weigh or discount potential risks differently than the average person. For example, there are people who are completely comfortable building multi-million dollar mansions on sandbars in the Florida Keys....or at the base of active volcanos. That doesn't work for me.

When we have a period where the portfolio is down I ask myself whether it's just some strange anomaly of the markets that will eventually right itself or whether the assets are fundamentally broken...in other words, do the assets contained in the portfolio still respond powerfully to the four economic conditions of inflation, deflation, growth and recession? If not, then we truly have a problem. At this moment I think we have a market that is confused and there has been a flight to cash...Harry Browne recognized that this was the Achilles heel of the portfolio. He didn't hide the fact that this type of environment would be tough..but sooner or later another pattern will emerge and the portfolio always seems to plug along just fine. The last two years we're extremely strong compared to portfolios average...I wouldn't be surprised at all if it takes a breather.

A couple things on my monitor as potential issues to portfolio in the medium to long term

Crypto...I do think that the recent mania has pulled some money from the gold market and perhaps in a world absent crypto we would be a a few hundred dollars higher at this point...this could account partially for the portfolios recent weaknes. One can do some estimating of that by looking at the sizes of both markets...I'm guessing gold is probably around 10x the crypto market at this point. Going forward though this will change as absent government interference, Crypto as an alternative to government fiat will continue to grow. It's not clear yet at all who will be the winner...but ultimately one platform will emerge. The market seems to have gravitated to bitcoin at this point but as far as I'm concerned it's not a store of value rather than a wild speculative asset. Also, going forward bitcoin faces some serious challenges and has drawbacks that would make me very hesitant to put money into it. Anyways, these are topics for another thread but as it concerns this one I think this new money is relevant to future of portfolio and should be monitored.

Long bonds...I do think the deflation thesis is possibly weakening. It's very tough to say however as there are so many trends that I think could send us in that direction. Whether it's tech and AI, aging demographics, reduced demand for labor and downward pressure on wages, changing consumption patterns. Also government actions in fiscal and monetary arenas have been unprecedented...

China and emerging markets..while the US dollar status as reserve currency is solid at this point China will shortly overtake US as world's largest economy. US economic growth rates are also forecast to be significantly lower in our mature economy vs the potential for growth in other areas of the world...perhaps robbing equity gains in future? What implications this has is an unknown for me...

Political instability...the US centric approach of portfolio worries me in a country that just had it's Capitol building overrun during process of democratic elections.

Which is why my view is always , if it’s good it’s good and if it isn’t well it isn’t until it is .... maybe things won’t turn in my lifetime , maybe they will turn in 6 months ...

It does not mean you react , unless you want to.... but that is the only benchmark that matters .

Plus when portfolios are at record highs what happens now is going to have a far greater effect in dollars then any market action was on smaller amounts . So what happens going forward if your portfolio has full fuel tanks is very different then someone in their accumulation stage with many years yet before their fuel tanks are full .

The fact the past decade was good , but it was on far less money then now , can have the down far out way the good .

This is why kitces did a whole paper on what is called the red zone

That red zone is when we have the greatest amount acquired . It is the ten years leading in to retirement and the first ten years in retirement where one needs to temporarily tone things down ..once you clear that red zone one can go back to being more aggressive.

https://www.kitces.com/blog/managing-po ... -red-zone/

vincent_c wrote: ↑Sat Mar 13, 2021 10:07 am

vincent_c wrote: ↑Fri Mar 12, 2021 12:46 pm A dollar invested in the PP today has to reflect the aggregate of the expected returns (nominal and real) for each individual component of the PP.

For stocks, because ​PE ratios are high, stock returns are expected to be lower than average in both real and nominal terms. Bond returns are highly correlated to starting yield and we know how low bond yields are in absolute terms. In real terms, bond returns are either negative or the alternative is not good for gold.

If gold has positive nominal returns going forward then the real return of bonds again is likely to be negative. Current gold prices are way off the peak but also relatively high in recent history. We can say that there is likely an equal chance of gold going higher or lower in nominal terms which is the same as a 50/50 bet with no expected long term returns. This makes sense when in real terms, we don't expect gold to produce a real return.

For cash, we expect negative real returns but we're getting zero nominal returns. The expected return for well-managed cash equivalents/short term bonds is likely to do slightly better than inflation in the long run.


So if we start with nominal returns and weight the expectations according to PP allocations.

We get 1/4 lower than average returns for stocks + 1/4 low returns for LTT + 1/4 no (risk adjusted) return for gold + 1/4 zero/low return for cash.

The weighted average seems to be somewhere around lower than average returns for a dollar invested in the PP today.

In real terms.

We get 1/4 lower than average returns for stocks + 1/4 negative returns for bonds + 1/4 no return for gold + 1/4 negative return for cash.

The weighted average seems to be low to negative real returns for a dollar invested in the PP today.

MJ,

This was actually my way to kick start our debate in case you missed it.

I'm eagerly waiting your response on the positive side for the PP. Looking forward to it.

The positive side is if the economic outcomes align properly you can actually make money when equities are failing ....

At one time I would have said losses would be constrained , but going forward if three asset groups fall then the pp will sustain far greater damage than other models that may be 25% equity .

So right now I can’t really come up with a lot of positives that I found other portfolios like the one I was using did better so far ...

At one time I would have had a lot more positives for the pp then I do in this environment simply because we have never had all the conditions in play that we do now ...I mean in March without the fed intervening we had things like margin calls and liquidity issues cause the number one flight to safety vehicles to plunge when normally they would have soared in the past on their own .

So right now I will refrain from the positives until I actually see the positives at work

mathjak107 wrote: ↑Sat Mar 13, 2021 2:53 am Most people tend to hang out , high five and support only those who support their view ....they never spend time really getting in to the enemies camp ..they never really understand the negatives the other side sees because they never sleep with the enemy .

When one fully understands the enemy’s side and can argue for or against some thing then they likely have a full understanding which they never got just hanging with their own. it is very different when you intimately learn the other side vs believing our own bull shit about the other side

I totally agree that it's important to understand different viewpoints. And to be fair, I've always found this forum to be extremely open-minded. If it wasn't, both of us would have been run off long ago with our talk about Fidelity Insights and Golden Butterflies. Yet here we are.

In any case, sorry if I derailed things, vincent-c. Let's get back to the PP discussion.

vincent_c wrote: ↑Fri Mar 12, 2021 7:51 pm

Kbg wrote: ↑Fri Mar 12, 2021 5:16 pm This post may be a big muddled mush of nonsense but maybe I can express the thoughts well enough to foster some good comments as it's something I've been thinking about but have not formed any conclusions.

1. What do we really know about any asset class? Are there any "truths" to various asset classes or just a historical record that we assume will continue as the past?

Yes I think there are some truths.

There are 3 asset classes (I prefer to call them types of risk)

1) Money (which is a store of value/unit of account) or the lack of risk.

2) Someone else's debt (which under any normal market condition, if somewhere were to lend out money then they would demand their principal + interest)
- The risks here is just what the credit worthiness of the borrower is as well as how long the loan is for because that affects the likelihood of them remaining credit worthy.

3) An interest in the nature of trade (equity, work, business, etc basically exposure to some form of productivity)
- because any business when you find something that produces a positive return you typically will borrow money to multiply those returns then it exposes those who have an interest in this kind of activity to credit risk.

When you can obtain exposure to 2 and 3 at a fair value, then you can guarantee that in the long run you can have a positive return.

Just so people don't point out that I should be arguing in the negative for the PP.

I would point out that it may be that there are times where you are buying into the PP where the credit and duration risks are overvalued. Is that possible?

v_c,

I was hoping you would bite on this one, excellent.

Item 1, since I think it is important to determine before we go forward. Are we talking nominal or real with regard to store of value? I think unit of account holds in all cases up and until it is discarded because the "money unit's usefulness as a measure goes away for some reason...but until that point it is "the" unit of measure. The reason for that could be devaluation, obsolescence or political decision (probably more, those are just the ones i could think of off the top of my head.)

Item 2, agree. "Normal conditions" will be fun to discuss when we get to the bond class. :-) I would also add that bonds are, excluding credit risk, completely predictable and mathematic in nominal terms.

Item 3, agree in theory, not sure I buy off in practice. I think fair value is really difficult to assess and more artistic than fundamentals based. The richest people in human history that gained wealth via commercial activity have almost always (maybe 100% always) been those who could see "fair value (opportunity) in the future" of something completely new. Is that value? Or is value buying an earnings stream cheaply? But what if it is "cheap" for a reason?

I recommend we proceed from easiest to hardest asset in the PP...cash, bonds, stocks and end with gold. When I get a chance I'll put some statements from HB or Craigr on cash and we can go from there. I don't really care if we go in that order, but I think we should take one at a time. A couple of admin things...

Start threads for each asset to make the discussion easier to follow later down the road?

Maintaining a separate thread for each asset makes it easier to navigate but we need a 5th thread for discussing how the assets relate to one another and the value of looking at the portfolio in its entirety. Trees and then forest...

Interesting proposal! I'm excited to see where this leads.

vincent_c wrote: ↑Thu Mar 11, 2021 12:10 pm

sophie wrote: ↑Thu Mar 11, 2021 11:35 am Let's not.

Yeah let's not debate the permanent portfolio on this forum!

Don't want to speak for Sophie but I share her lack of enthusiasm because we long time users of the PP have lots of experience listening to why the PP has worked in the past but won't or might not in the future. In other words, we've heard it all before and rejected it so unless you have something new to add this is an exercise in futility.

If you and others enjoy this sort of debate however, go for it and have fun. It's an open forum and the information brought forth will probably be valuable to those who might be contemplating using the strategy.

I have nothing left to add that hasn’t already been said as well

The authors who wrote the book on the PP used to contribute to this forum (one started it), so why will this new thread propel the discussion to new heights?

buddtholomew wrote: ↑Sat Mar 13, 2021 6:17 pm
The authors who wrote the book on the PP used to contribute to this forum (one started it), so why will this new thread propel the discussion to new heights?

There are now some people here who were not here then?

yankees60 wrote: ↑Sat Mar 13, 2021 6:20 pm

buddtholomew wrote: ↑Sat Mar 13, 2021 6:17 pm The authors who wrote the book on the PP used to contribute to this forum (one started it), so why will this new thread propel the discussion to new heights?

There are now some people here who were not here then?

Sure, but what do they have to offer that the authors didn’t in the pages that comprise this forum?

Who joins a community, assigns their own phrasing to the 4 asset classes and leads senior members along on a journey they’ve already taken. What’s the motive? Too lazy to read the threads?

buddtholomew wrote: ↑Sat Mar 13, 2021 6:33 pm

yankees60 wrote: ↑Sat Mar 13, 2021 6:20 pm

buddtholomew wrote: ↑Sat Mar 13, 2021 6:17 pm The authors who wrote the book on the PP used to contribute to this forum (one started it), so why will this new thread propel the discussion to new heights?

There are now some people here who were not here then?

Sure, but what do they have to offer that the authors didn’t in the pages that comprise this forum?

Who joins a community, assigns their own phrasing to the 4 asset classes and leads senior members along on a journey they’ve already taken. What’s the motive? Too lazy to read the threads?

I appreciate anytime anyone wants to invest the effort to subject this portfolio to scrutiny. The last thorough debate on this portfolio happened over a decade ago...I think it would be useful to reexamine things in light of all the unprecedented economic actions over the last ten years and I'm happy if people want to dedicate time to the task.

buddtholomew wrote: ↑Sat Mar 13, 2021 6:33 pm

yankees60 wrote: ↑Sat Mar 13, 2021 6:20 pm

buddtholomew wrote: ↑Sat Mar 13, 2021 6:17 pm
The authors who wrote the book on the PP used to contribute to this forum (one started it), so why will this new thread propel the discussion to new heights?

There are now some people here who were not here then?

Sure, but what do they have to offer that the authors didn’t in the pages that comprise this forum?

Who joins a community, assigns their own phrasing to the 4 asset classes and leads senior members along on a journey they’ve already taken. What’s the motive? Too lazy to read the threads?

I think I must hold the record for spending the most time delving in to the archives. My major questions revolve around implementation. All things are not black and white. I also think that anything believed strongly should always be open to challenge.

Vinny, my comment was not directed towards you.
I only think it’s fair to question the motives of a new member when they want to lead others down a certain path. If I need a refresher I can turn to HB or CR.

buddtholomew wrote: ↑Sat Mar 13, 2021 6:51 pm
Vinny, my comment was not directed towards you.
I only think it’s fair to question the motives of a new member when they want to lead others down a certain path. If I need a refresher I can turn to HB or CR.

Oh, I knew you were not directing it at me. I was trying to say that even though I'd spent so much time in the archives, I still have plenty of questions.

Finally, not being biased towards another Vincent....I think the other Vincent has been, on many levels, an excellent addition to this forum. His posts have been universally intelligent and substantive and they've engendered similar responses from others in this forum.

I've mainly been on the sidelines for them as a non-participant but I find reading them extremely illuminating.

Towards the beginning of the musical 1776, the representative from Rhode Island, when casting the deciding vote on whether or not to allow discussion on the question of independence, said "Hell yes, I'm for debatin' anything!"

Go for it, guys.