Gyroscopic Investing

Several years back, I learned a variant of chess called "suicide chess," wherein the object is not to win, but rather to "lose." I was hooked on it for quite a while and considered it much more fun than regular chess. Also, something about the idea of becoming adept at "losing" amused me to no end.

So I figured why not apply the same principle to one of the safest, most risk-averse, consistently rewarding investment approaches in existence, the Permanent Portfolio, to convert it into the PP's exact opposite: one of the most dangerous, reckless, and consistently punishing money pits ever devised by the mind of man? I call this financial abomination the Suicide Portfolio.

My goal here wasn't necessarily to dream up just any awful portfolio, but rather the exact polar opposite of the PP. The PP's archnemesis, if you will. Here's my first stab at it:

Permanent Portfolio
25% Cash: Short-term lending
25% LT Treasuries: Long-term lending
25% Stocks: Capital appreciation and regular dividend payments
25% Gold: Broken-promise insurance

...VS...

Suicide Portfolio
25% Credit Card Debt: Short-term borrowing
25% 30-Year Mortgage: Long-term borrowing
25% Cars, RVs, Boats, etc.: Capital depreciation and regular maintenance costs
25% Leveraged Financial Sector Stock Fund: Broken promises assured

Whereas the Permanent Portfolio provides positive long-term returns, low volatility, and protection against negative "black swan" events, the Suicide Portfolio provides long-term losses, high volatility (due to leveraged financials fund and high correlation of ST debt and vehicles), and an amplified probability of negative "black swan" events (for example, if you lose your job you're hosed).

Any suggestions on how to construct a Suicide Portfolio that is an even more perfect archnemesis of the Permanent Portfolio?

Wow, you somehow recreated the average boomer's retirement plan!!! 

Tortoise,

Wow... just excellent.  So obvious, yet it hits you like a 2x4 when you finally read it and compare the two.

25% split between a boat, RV and timeshare condo in Florida

25% in a curio and upscale bedding shop in the most expensive retail district you can find

25% mailed to Donald Trump with the following note: "Invest prudently."

25% in colorful beads, for possible trading opportunities with native Americans

Love it.    If you could only figure out some kind of way to concoct a 30-year mortgage that you can't refinance (the equivalent of losing the "call privileges" associated with a mortgage), you'd really be on your way to losing all your money.

Anyhow, I want to compliment you on doing such a good job in constructing this piss-poor portfolio.  Anyone who puts this portfolio into practice is sure to finally find the financial ruin they've been trying to avoid.  Perhaps it could even be accompanied by a Harry Browne-style list of the "17 Fecal-Encrusted Rules of Investing".  (Further elaborations can be found in your coming book "Fail Investing".)

You know, a "suicide portfolio" contest of some kind might be fun.  Pick a start date and an end date and people choose an asset allocation.  Then we see who can lose their shirt most quickly. 

Have you guys ever sat through a time-share presentation??  They talk about "ownership" and "legacy to your children of travelling."  It's pretty disgusting.

Anyone do a cash flow analysis?  It's pretty simple math, really:  They want you to put a certain amount down (to purchase your "share"), and pay a certain annual maintenance cost (fixed... I think).  Therefore, it's pretty easy to put a "opportunity-cost" or "time-value" rate on the amount you put down, add that annual cost to the maintenance cost, and that's your annual "hotel charge."

That number was drastically higher than what we were paying to "rent" the room.  Now, there are time-shares on the "used" market that are a steal, and definitely worth checking out, but it amazes me how many otherwise smart people will buy them retail.

The term "ownership" is also funny, as you have little to no control over anything, and have basically been given some "points" with associated rights.

LW,

The term "fecal-encrusted" will now be added to my library of possible quips.  Good one.

moda0306 wrote: LW,

The term "fecal-encrusted" will now be added to my library of possible quips.  Good one.

Moda,

As a contrast to "fecal encrusted", you might consider "laced with game" when describing something that is stylishly effective ( as opposed to something that is poopishly ineffective).

"Laced with game" is also a good way of describing a tasty batch of venison stew.

25% in debt for private jet purchase, and up keep
25% debt on unoccupied fixer upper in depressed area that someone told you had "potential" for urban renewal
25% invested in the career of unknown gangsta rapper with a drug problems and gang affiliation
25% in a "winning at blackjack system" that doesn't involve counting cards

25% in independent film production company (similar move as in "The Producers")

25% in Illinois state bonds

25% in startup focusing on long term care facilities for geriatric pets

25% in Lance Armstrong cycling memorabilia

25% - MLM.
25% - Hot stock tip I heard about at a cocktail party
25% - Your brother-in-law's new startup
25% - Cash invested in a big pile of cocaine that you told your wife was going into an IRA.

Coffee wrote: 25% - MLM.
25% - Hot stock tip I heard about at a cocktail party
25% - Your brother-in-law's new startup
25% - Cash invested in a big pile of cocaine that you told your wife was going into an IRA.

The brother-in-law is the best one.  Those never work out.

Best - Tortoise

Funniest - Coffee

Gold, both of ya'.

Lone Wolf wrote: You know, a "suicide portfolio" contest of some kind might be fun.  Pick a start date and an end date and people choose an asset allocation.  Then we see who can lose their shirt most quickly. 

Is that the sound of a gauntlet being thrown down, or did my suicide portfolio just backfire again?

I think a suicide portfolio contest is a great idea. It stands to reason that if we profess to know what good investing is, we must by definition know what bad investing is. This is our chance to prove it... winner lose all.

Let's give folks a week to absorb this and formulate a self-destructing portfolio, so the contest will start first thing next Thursday morning, June 9th. By that time, all contest entries (i.e., specific suicide portfolio descriptions) must be submitted on this thread. You can give your portfolio a catchy name, otherwise it will simply be named after you.

Any strong opinions on what the contest's duration should be? Keep in mind that too short of a duration is likely to produce results that are dominated by chance; a longer duration will give true financial ineptitude more of a chance to shine through.

Along the way, I'm thinking we can periodically track our progress by at least two different metrics: (1) overall loss to date and (2) max drawdown.

We'll need to agree on a few ground rules. Here's what comes to my mind initially:

• All portfolios must contain only assets that are reasonably liquid, i.e., traded with some regularity in major financial markets. This will allow us to use common web-based tools to quickly compare the values of our portfolios.
• Derivatives are off-limits (that would be too easy...)
• Leveraged ETFs, etc. can be used, but not "direct" leverage such as borrowing or derivatives contracts

Bad luck, everyone!

Tortoise wrote: You can give your portfolio a catchy name, otherwise it will simply be named after you.

I want to go ahead and reserve "Arsenic House Portfolio" for mine.

The Lone Wolf "Never Ever Retire" portfolio will consist of:

40% ZSL (ProShares UltraShort Silver)
30% GLL (ProShares UltraShort Gold)
30% XPP (ProShares Ultra FTSE/Xinhua China 25)

What do you think for contest duration?  Six months?  It doesn't matter much to me.  My portfolio is designed to suck without requiring a lot of tinkering.  I believe that a man should be able to go live his life and let his investments take care of destroying themselves.

I'm expecting a good contest from all of you.  But in the end I believe that I'll be proven the world's most awful investor.  May the worst man win!

I want to reserve the FAD (Forecast And Destroy) Portfolio.

I would suggest a year duration.  In addition to giving true financial ineptitude a chance to shine through, a full year would neutralize any "seasonal" biases and allow us to call it an "all weather" portfolio.  It would also challenge my attention span. 

Here is the FAD (Forecast And Destroy) Portfolio:


25% - GLL  (3x Inverse of daily gold price)
25% - TMV  (2x Inverse of 20 yr+ Treasury index)
25% - TZA  (3x Inverse of Russell 2000 index)
25% - UDN  (Short USD against a world currency basket)

The rebalancing bands are 0/100.

I would have thrown in an ETF that shorts BitCoins, but I couldn't find one.  I guess we just have to go with what's out there.

LW -- You may ultimately be proven to be the world's most awful investor, but I'll bet I end up with the "most confused" award --just ask me to explain my picks.  This portfolio shouldn't be confused with the FAD (Forever A Dud) Fund.  That is a good fund and is run in a similar fashion but it has different percentages (and a few more bad choices).  I much prefer the chancy and complex construction of my portfolio.  It should keep me awake at night trying to figure it out.     

HB Reader wrote: Here is the FAD (Forecast And Destroy) Portfolio:

25% - GLL   (3x Inverse of daily gold price)
25% - TMV  (2x Inverse of 20 yr+ Treasury index)
25% - TZA   (3x Inverse of Russell 2000 index)
25% - UDN  (Short USD against a world currency basket)

Ha!  The anti-PP!  (The "Temporary Portfolio"?  The "Fickle Portfolio"?)  I like it.

HB Reader wrote: The rebalancing bands are 0/100.

Oh yeah, kind of forgot about rebalance bands!  Are we doing that?  I hasten to add that my portfolio's awfulness is eternal and pure and thus needs no rebalancing bands.  I of course merely ask for the sake of all the other contestants who (without the crutch of rebalancing bands) won't be able to stop themselves from making money hand over fist.

The Bubba Portfolio
25% Consumption-Budweisers, Marlboros and Food
25% Transportation-trucks, boats, motorcycles and boats
25% Essentials-mobile home payments, purchase guns, lottery tickets
25% Survival-alimony and child support payments and payback loan on old 401k

Lone Wolf wrote:

HB Reader wrote: The rebalancing bands are 0/100.

Oh yeah, kind of forgot about rebalance bands!  Are we doing that?  I hasten to add that my portfolio's awfulness is eternal and pure and thus needs no rebalancing bands.  I of course merely ask for the sake of all the other contestants who (without the crutch of rebalancing bands) won't be able to stop themselves from making money hand over fist.

I just threw in the rebalance bands for the heck of it.  I don't think you can trigger the 0/100 bands without one or more of the picks quite literally going to 0 (unless I'm more confused than I think).  Just to make sure, I'll add a rule that you can only rebalance on the 31st of April, June, September or November.

HB Reader wrote: I just threw in the rebalance bands for the heck of it.  I don't think you can trigger the 0/100 bands without one or more of the picks quite literally going to 0 (unless I'm more confused than I think).  Just to make sure, I'll add a rule that you can only rebalance on the 31st of April, June, September or November.

I haven't decided on my portfolio yet, but for "rebalancing" I'm considering a gambler's ruin/chasing performance/buy-high-sell-low approach: At the end of each week (or maybe month), determine the best- and worst-performing assets. Sell half of the worst-performing asset and add it to the best-performing asset.

If a portfolio is visualized as a see-saw, and rebalancing is adding weight to whichever side happens to be moving upward, then the buy-high-sell-low approach is like adding the weight to side that's already dropping toward the ground--accelerating the drop. Kind of like enforced imbalance.

Whether that approach will produce larger overall losses, I'm not sure, but it's sure to be a helluva volatile ride!

The Alpo at Eighty Portfolio

25% Amway Business (stock)
25% Argentine Govt bonds (bonds)
25% BitCoins (cash)
25% Detroit real estate (hard asset)

Rebalancing is done with margin loans or cash advance off credit cards.

I call my contest entry the "Brown and Hairy Putrefied Portfolio (BH PP)".

100% GPOR (Gulfport Energy Corporation).

GPOR was recently ranked one of the most volatile stocks in the S&P 1500. Truly vomit-inducing swings in price, even on a daily basis. Also, over the past 9 months or so its price has rocketed upward over 200% and now appears to have changed direction. Look out below!

I was tempted to diversify into other reckless investments, but decided any kind of diversification would likely reduce my volatility and downside risk. I simply can't have that.

The contestants thus far are:

MediumTex: Arsenic House Portfolio (not yet specified)
Lone Wolf: Never Ever Retire Portfolio
HB Reader: Forecast and Destroy (FAD) Portfolio
Tortoise: Brown and Hairy Putrefied Portfolio (BH PP)

Come on, folks, there's only one day left to submit a suicide portfolio for the contest! Let's try to get at least a few more contestants to spice things up.

As for contest duration, I suggest six months since this is our first go. If the contest generates enough excitement, new folks will be able to join the fray for Round 2 in six months instead of having to wait an entire year. But if everyone wants the contest to be a full year in order to guarantee the worst portfolio is an "all weather" loser, I'm fine with that too.

the bankrupt bankroll portfolio

25% GACFQ  
25%  QSGIQ
25% LEXPQ
25% TXEGQ



edit to add --  following MT's lead below....  $100,000.00 tracking it at yahoo finance (add .pk to ticker symbol)

i have never even looked at this kind of stock before today, so if anyone sees a problem that makes this portfolio impossible let me know...