Gyroscopic Investing

Pointedstick wrote:

Tyler wrote: The grass is always greener until it catches fire.

Ooh, I really like that.

Me too!  In fact, I'm stealing it. 

MediumTex wrote:

Pointedstick wrote:

Tyler wrote: The grass is always greener until it catches fire.

Ooh, I really like that.

For some reason that reminds me of the great Jack Handey line:

Dad always thought laughter was the best medicine, which I guess is why several of us died of tuberculosis.

LOL!  I loved "Deep Thoughts".

Pointedstick wrote:

Tyler wrote: The grass is always greener until it catches fire.

Ooh, I really like that.

I have a friend who always says, "there is no green grass."

Lots of good advice for staying the course in this thread.

Thanks. I needed that.

AdamA wrote:

Pointedstick wrote:

Tyler wrote: The grass is always greener until it catches fire.

Ooh, I really like that.

I have a friend who always says, "there is no green grass."

I love that line in Poltergeist when Steve said: "You know, we have a saying around here--the grass is greener on every side." 

The truth, of course, was that they were standing on top of a cemetery with corpses underneath who were pissed off about having their headstones moved but houses built on top of their coffins.  In other words, Steve's comment was WAY off the mark, as he would soon discover.

Let's see if we can keep the streak alive...a full week of down days!

Great buy-in opportunity! 

Pointedstick wrote: Great buy-in opportunity! 

How's that recent purchase of GTU doing? Did you get out, or is this investment now below your purchase price? Now multiply that by 10. Are you buying more? Easier said than done.

buddtholomew wrote:

Pointedstick wrote: Great buy-in opportunity! 

How's that recent purchase of GTU doing? Did you get out, or is this investment now below your purchase price? Now multiply that by 10. Are you buying more? Easier said than done.

Well, it was more of a swap than a purchase (SGOL -> GTU), but yes, it's now below what it was before. And yes, I've purchased more. Why wouldn't I? Isn't buying low what we're supposed to be doing?

Pointedstick wrote:

buddtholomew wrote:

Pointedstick wrote: Great buy-in opportunity! 

How's that recent purchase of GTU doing? Did you get out, or is this investment now below your purchase price? Now multiply that by 10. Are you buying more? Easier said than done.

Well, it was more of a swap than a purchase (SGOL -> GTU), but yes, it's now below what it was before. And yes, I've purchased more. Why wouldn't I? Isn't buying low what we're supposed to be doing?

Why are you so confident that it is low? Its lower, but obviously could fall further. Be careful of over confidence.

I hate to see such angst over a strategy with inflation-adjusted returns that look like this over the long term (this is melveyr's great chart):



If you like the PP from a financial/economic/philosophical perspective, I would encourage you not to get too hung up on short term fluctuations in value or what is happening with any single asset within the portfolio.  Just let it do its thing.  Sometimes it will drift sideways for a while, but it virtually never asks you to accept large losses, unlike almost any other real return investment strategy composed of volatile asset classes.

I think wbern's article is quite timely:
http://www.efficientfrontier.com/ef/0adhoc/harry.htm

The PP is doing what it has always done. The real risk is not within the PP, but within yourself.

melveyr wrote: I think wbern's article is quite timely:
http://www.efficientfrontier.com/ef/0adhoc/harry.htm

The PP is doing what it has always done. The real risk is not within the PP, but within yourself.

"The very worst place an investor can find herself is, in the words of Mark Kritzman, "wrong and alone"; this is a near certainty at some point given the TPP?s huge tracking error relative to that of the overall market portfolio, approximated by a 60/40 mix of stocks and bonds. Thus, it will be nigh-impossible for even the most disciplined investors to adhere to the TPP in the long run." William Bernstein

I read this passage before investing in the PP, but it has a more significant meaning now that we are experiencing the emotions that Mark Kritzman was referring to..."wrong and alone".

You are far from alone, Budd. We're all in this together. And furthermore, what makes you so sure we're all wrong?

Let's be realistic here: we've seen a less than 2% YTD loss. That's nothing. It's a rounding error compared to the downside volatility of any virtually any other portfolio.

Yes, we're all getting creamed by more stock-heavy portfolios. And we will in turn cream them when the stock market panics again. Right now, you're looking enviously at the performance of your 60/40 portfolio; you'll be able to handle the large losses from the next crash, right? Right? If so, then you should switch to that for 100% of your assets. If not, then you should stop chasing performance. There's no free lunch. What goes up quickly will go down quickly too.

buddtholomew wrote: "wrong and alone"

In what ways are PP investors wrong or alone?

What has the PP done that was unanticipated?

Everyone knows that any individual asset within the PP will outperform the whole portfolio during some periods.  Right now, that asset class is stocks.  Next year it might be gold or bonds.  Who knows?

There are four different types of parties that the individual assets in the PP can have.  Some of these parties are more fun than others, and tend to create different levels of envy in those who aren't invited to participate fully in each type of party.

Here are the hosts of the four different types of parties:

The Gold Party:

Burt Gummer - This party is wild, but also kind of scary.



The Long Term Treasury Party:

Gary Shilling - This party is about as dull as a wet blanket in a "Carrot Top" movie.



The Cash Party:

Paul Volcker - Oooohhhhh, hurts so good.



The Stock Party:

Gatsby - Another round of caviar for everyone!!!



***

Now, which party would it be most disappointing to not get invited to?

MediumTex wrote:

buddtholomew wrote: "wrong and alone"

In what ways are PP investors wrong or alone?

What has the PP done that was unanticipated?

Everyone knows that any individual asset within the PP will outperform the whole portfolio during some periods.  Right now, that asset class is stocks.  Next year it might be gold or bonds.  Who knows?

Wrong and alone in the sense that a 60/40 portfolio is up over 7.5% and the PP is down approximately 2% for the year. Personally, I am comfortable with the PP under-performing a traditional BH portfolio, but in times of prosperity, I did not anticipate a negative return.

It appears as if the 25% allocation to stocks is insufficient to buoy the entire PP even with a 30% allocation to equities, 20% to Gold and 25% each to LTT and Cash (current allocation).

Are you sure you're down 2% for the year?

As of May 1st, my PP is down 0.34% since January 1.  There's no magic, just a drifting allocation, some nice returns from I Bonds, some cap gains from stock funds, and a long term Treasury bond coupon in February.

It's probably down a bit more since, but it's unlikely I've gone below -1%.  I'll check again June 1 to see if I need to rebalance.  Otherwise....everybody quit worrying about this and get back to work!!!!

buddtholomew wrote:

MediumTex wrote:

buddtholomew wrote: "wrong and alone"

In what ways are PP investors wrong or alone?

What has the PP done that was unanticipated?

Everyone knows that any individual asset within the PP will outperform the whole portfolio during some periods.  Right now, that asset class is stocks.  Next year it might be gold or bonds.  Who knows?

Wrong and alone in the sense that a 60/40 portfolio is up over 7.5% and the PP is down approximately 2% for the year. Personally, I am comfortable with the PP under-performing a traditional BH portfolio, but in times of prosperity, I did not anticipate a negative return.

But who ever said that wasn't going to happen, that's the thing? a 60/40 portfolio is heavily tilted toward prosperity due to its large allocations to stocks and stock-like corporate bonds. It actually makes perfect sense that such a portfolio is doing great when the stock market is booming and everybody's happy. Once the party ends, folks holding those portfolios are going to be really, really sad.





Also, MT, that was amazing.

I randomly saw Tremors for the first time a few weeks ago and immediately got a red hot man crush on Burt Gummer. I feel like I learned the secret handshake to a new clubhouse.

buddtholomew wrote: It appears as if the 25% allocation to stocks is insufficient to buoy the entire PP even with a 30% allocation to equities, 20% to Gold and 25% each to LTT and Cash (current allocation).

It's only May.  Give it time.  Even as tides come and go, bouys still bob with the waves.  The PP is still on much calmer seas than other options. 

And your pictorial is genius, MT. 

Pointedstick wrote:

buddtholomew wrote:

MediumTex wrote: In what ways are PP investors wrong or alone?

What has the PP done that was unanticipated?

Everyone knows that any individual asset within the PP will outperform the whole portfolio during some periods.  Right now, that asset class is stocks.  Next year it might be gold or bonds.  Who knows?

Wrong and alone in the sense that a 60/40 portfolio is up over 7.5% and the PP is down approximately 2% for the year. Personally, I am comfortable with the PP under-performing a traditional BH portfolio, but in times of prosperity, I did not anticipate a negative return.

But who ever said that wasn't going to happen, that's the thing? a 60/40 portfolio is heavily tilted toward prosperity due to its large allocations to stocks and stock-like corporate bonds. It actually makes perfect sense that such a portfolio is doing great when the stock market is booming and everybody's happy. Once the party ends, folks holding those portfolios are going to be really, really sad.





Also, MT, that was amazing.

I randomly saw Tremors for the first time a few weeks ago and immediately got a red hot man crush on Burt Gummer. I feel like I learned the secret handshake to a new clubhouse.

I said "I did not anticipate a decline" in the PP when equities were rising. Also, the 40% of my 60/40 allocation is in short-term treasuries.

MT once wisely counseled that greed would be people's biggest opponent to overcome when investing in the PP.  Don't let the allure of greater returns sway you from decisions you made in more "stable" times.  It's funny to read posts about people starting out; they just naturally assume they will easily stay the course for 40+ years.  I'd be interested to see a study showing how often people really make changes to their portfolio, even over at the Bogleheads.  It's always in light of new information we didn't have before, new asset classes, new studies being published.  I mean, how on earth did my grandfather manage to save for retirement without investing in emerging market bonds or small cap value international stocks?

MediumTex wrote:
Here are the hosts of the four different types of parties:

The Gold Party:

Burt Gummer - This party is wild, but also kind of scary.



The Long Term Treasury Party:

Gary Shilling - This party is about as dull as a wet blanket in a "Carrot Top" movie.



The Cash Party:

Paul Volcker - Oooohhhhh, hurts so good.



The Stock Party:

Gatsby - Another round of caviar for everyone!!!



***

Good stuff.

Now I kind of want to party with Burt.

AdamA wrote: Good stuff.