Gyroscopic Investing

MediumTex wrote:

koekebakker wrote: Seems like Catacomb is back, after the 'crash and burn' of his PP:

http://www.bogleheads.org/forum/viewtop ... 1&t=120624

Could be another Israeli investor off course although him mentioning Early Retirement Extreme makes it unlikely.

Recency bias... go!

I'm certain that's him.  I hope he finds an allocation that works well for him.  Feeling adrift with your life savings is no fun at all.

I don't think he'll ever find an allocation that provides growth with no risk of fluctuation. If he does, he'd be the first one.

koekebakker wrote: Seems like Catacomb is back, after the 'crash and burn' of his PP:

Quite an understandable reaction to unfortunate timing, I'd have felt the same way.  Hopefully what ever he goes with will give him some early gains so he can ride out later losses. 

Ironically in what I perceive to be his situation, the asset that freaked him should have been the one to offer longer term peace of mind. 

Honestly, knowing Catacomb's risk profile better now, I would probably recommend a 100% fixed income portfolio. The return won't be great but it barely matters given his level of extreme frugality. And eventually once he tires of barely beating inflation (if he even does), he'd begin to develop the appetite for more risk that he clearly didn't have when he started his PP.

I forsee that he will quit bogle portfolio soon in the first DRAWDOWN

I'm sure frugal is correct.  At some point the stock market will come tumbling back down, and he'll sell at a loss and shift gears once again.  If "crash and burn" = -0.79% for the year (my portfolio as of Aug 1), then he won't have long to wait.  It's sad to watch, but that's probably how most people manage their investments.

There was a painful sentence in there about "blindly followed Harry Browne and his followers".  I agree with him that "blindly" following anyone when it comes to investments is a bad idea, and is in fact contrary to one of HB's basic rules!  I wish him well and hope that he will eventually settle on an approach that gives him peace of mind.

Incidentally there was a somewhat useful debate in that thread about how much to weight stocks of your home country if you live in a small country like Israel. 

sophie wrote: I'm sure frugal is correct.  At some point the stock market will come tumbling back down, and he'll sell at a loss and shift gears once again.  If "crash and burn" = -0.79% for the year (my portfolio as of Aug 1), then he won't have long to wait.  It's sad to watch, but that's probably how most people manage their investments.

There was a painful sentence in there about "blindly followed Harry Browne and his followers".  I agree with him that "blindly" following anyone when it comes to investments is a bad idea, and is in fact contrary to one of HB's basic rules!  I wish him well and hope that he will eventually settle on an approach that gives him peace of mind.

Incidentally there was a somewhat useful debate in that thread about how much to weight stocks of your home country if you live in a small country like Israel.

sophie
sophie
sophie



I'm 100%PP and I don't know how I would feel to watch a 20% loss in my portfolio.

I'm afraid of experiencing that before any profit...

Please advice.

Pointedstick wrote: Honestly, knowing Catacomb's risk profile better now, I would probably recommend a 100% fixed income portfolio. The return won't be great but it barely matters given his level of extreme frugality. And eventually once he tires of barely beating inflation (if he even does), he'd begin to develop the appetite for more risk that he clearly didn't have when he started his PP.

PS how are you?

for extreme frugality  the best option is CD's, isn't it?

Why Jacob followers prefer diversified and risky portfolios?

frugal wrote: I forsee that he will quit bogle portfolio soon in the first DRAWDOWN

I don't think it's just drawdown that gets people.  It's drawdown not meeting expectations.  Maybe this means that expectations were unrealistic - but his expectations for a bogleheads approach may be more accurate due to the extensive literature on the subject.

dragoncar wrote:

frugal wrote: I forsee that he will quit bogle portfolio soon in the first DRAWDOWN

I don't think it's just drawdown that gets people.  It's drawdown not meeting expectations.  Maybe this means that expectations were unrealistic - but his expectations for a bogleheads approach may be more accurate due to the extensive literature on the subject.

If portfolio is FLAT there is no problem, but when it turns DOWN it is very difficult to see it and remain calm.

My problems are DD's I can't imagine -20% ...

frugal wrote:

dragoncar wrote:

frugal wrote: I forsee that he will quit bogle portfolio soon in the first DRAWDOWN

I don't think it's just drawdown that gets people.  It's drawdown not meeting expectations.  Maybe this means that expectations were unrealistic - but his expectations for a bogleheads approach may be more accurate due to the extensive literature on the subject.

If portfolio is FLAT there is no problem, but when it turns DOWN it is very difficult to see it and remain calm.

My problems are DD's I can't imagine -20% ...

Right, but everyone who has been paying attention knows that the boglehead portfolio got creamed in 2008.  So expectation is the possibility of large loss in bad times.  Investor accepts this risk for expects outperformance.

With the pp, the new investor wasn't paying attention during 2008 and only looks at historic charts, sees max annual drawdown during the worst times to be-.7 for 2008.  Doesn't see max daily dd of 18% in 1980 which was arguably "good times". 

In other words the naive Pp investor expects small negative returns in the worst of times, and underperforming positive returns in the best of times.  but they do not expect the largest negative returns to occur during an equity bull, despite the fact that this is precisely when the pp historically has had the worst drawdowns.

With a boglehead portfolio, returns are at least "intuitive" so someone who jumped ship may have a steadier hand, and also has a much larger support network when sharing the pain with other diehards.

frugal wrote:

dragoncar wrote:

frugal wrote: I forsee that he will quit bogle portfolio soon in the first DRAWDOWN

I don't think it's just drawdown that gets people.  It's drawdown not meeting expectations.  Maybe this means that expectations were unrealistic - but his expectations for a bogleheads approach may be more accurate due to the extensive literature on the subject.

If portfolio is FLAT there is no problem, but when it turns DOWN it is very difficult to see it and remain calm.

My problems are DD's I can't imagine -20% ...

Well it depends a lot on your previous earnings. I mean, you probably will tolerate a 20% DD after earning 50% in the past years, but if you just started your portfolio that DD can be a shock. Of course it's the same with other portfolios, but with a stock heavy portfolio the chances for bigger and more frecuent DD are very high.

At it's core, the PP is still just a theory by some guy who ran for office on a fringe political ticket.  Whereas Bogleheads is a pretty mainstream investment approach.  And it's always safer and more comfortable to run with the heard.

brownehead wrote:

frugal wrote:

dragoncar wrote: I don't think it's just drawdown that gets people.  It's drawdown not meeting expectations.  Maybe this means that expectations were unrealistic - but his expectations for a bogleheads approach may be more accurate due to the extensive literature on the subject.

If portfolio is FLAT there is no problem, but when it turns DOWN it is very difficult to see it and remain calm.

My problems are DD's I can't imagine -20% ...

Well it depends a lot on your previous earnings. I mean, you probably will tolerate a 20% DD after earning 50% in the past years, but if you just started your portfolio that DD can be a shock. Of course it's the same with other portfolios, but with a stock heavy portfolio the chances for bigger and more frecuent DD are very high.

RIGHT!

It is very difficult to take risks to have better returns 

Saludos

Coffee wrote: ...it's always safer and more comfortable to run with the heard.

I would say that depends on the herd.  Running with a flock of performance chasing sheep jumping from high risk investment to high risk investment, not so safe.

I don't have anything against the BogleHeads investment strategies such as the 60/40 portfolio or "Your age in bonds."  I just feel that you get a better "real return" after inflation by keeping some gold in the portfolio as a hedge.