Gyroscopic Investing

I recently re-read the books on the PP. And I have a general question about the stock portion. If stocks are in the portfolio for times of prosperity and economic growth, why would you want to own stocks that do not fit that description? Why would you want to own Utilities or Consumer Staples? Would it not be better to focus on stocks with greater growth potential? Tech, biotech, disruptive technologies etc. Would those not fit in better to complete the 4 parts of the PP? They may have greater volatility but that may bring better rebalancing opportunities.

Harry did originally say to use "growth stocks", but he changed to S&P 500 in later years, I believe simply because of the low cost funds. We do now have plenty of low cost growth index funds, and I personally see no reason why one couldn't use a growth tilt index fund instead. Growth has out-performed blend and value consistently going back to 2003. Surprisingly, growth is even performing way better than value and blend in this current selloff. The only thing I question is that bear markets like this are times of change. There is usually a sector rotation that happens going into the next bull market. Could value's time to perform finally be near? I don't personally know, but I'm watching closely. I wouldn't be surprised to at least see some mean reversion. If value continues to stink up the room coming out of this crisis, and growth continues to lead the bear market and the next bull market for what would be the start of the 3rd consecutive cycle of out performance, I personally would be willing to officially call the death of the value factor. 10 years from now are people going to start talking about the "growth premium"?

jalanlong wrote: ↑Wed Apr 01, 2020 7:58 am I recently re-read the books on the PP. And I have a general question about the stock portion. If stocks are in the portfolio for times of prosperity and economic growth, why would you want to own stocks that do not fit that description? Why would you want to own Utilities or Consumer Staples? Would it not be better to focus on stocks with greater growth potential? Tech, biotech, disruptive technologies etc. Would those not fit in better to complete the 4 parts of the PP? They may have greater volatility but that may bring better rebalancing opportunities.

Check out my PP here viewtopic.php?f=1&t=11009. I agree, if only having 25% allocated to stocks for prosperity go with growth! I think MGK, VUG, or SCHG would be super smart

HB recommended Growth Funds in his Newsletter and ALL his books from 1978 on. He only said S&P 500 Funds on his Radio Show, which is on YouTube.
Maybe he was just simplifying for his radio audience. To bad we can't ask Terry Coxen. He wanted max volatility combined with min dividend distribution from the Equity Portion of the PP
I am getting ready to start my PP so I would really like to get some feedback here. I've even thought to maybe add like 5% VBR.

What do you guys think?

No one can truly speak for Harry, but my readings of his material have convinced me that his definition of "growth" was not the same as the academic definition.

To the academics, growth is the opposite of value. If you sort stocks into deciles and rank them by price to book, the cheapest 3 or so deciles will be value. The most expensive 3 or so deciles would be growth.

When Harry wrote about "growth" stocks I am quite certain he meant something entirely different. His reference to growth stocks was to small, highly volatile stocks that moved more than the market did during its ever present gyrations.

Harry's definition of growth is much closer to the modern definition of small cap value than anything else. But yes, if you are a Harry Browne purist it is a moot point. He did simplify to the S&P 500 later on.

I personally am still partial to having factor tilts.

SP500 vs TSM is probably noise in the long run of a PP.
IMO. By market cap, I think TSM is predominantly big growth stocks anyway.
In the past, during TLH, I have traded one for the other.

Is that enough acronyms?

I Shrugged wrote: ↑Tue Sep 08, 2020 7:44 pm SP500 vs TSM is probably noise in the long run of a PP.
IMO. By market cap, I think TSM is predominantly big growth stocks anyway.
In the past, during TLH, I have traded one for the other.

Is that enough acronyms?

Yeah, I dont want companies handing me back my own money in a dividend. I'm giving them my money to grow it.

boglerdude wrote: ↑Wed Sep 09, 2020 2:35 am Yeah, I dont want companies handing me back my own money in a dividend. I'm giving them my money to grow it.

Yeah, and if you look, this is the case. It might be a substantial amount, but it is there. Additionally, I have to believe that HB knew what Growth was. The fact that all his book recommends for MF's were for Growth Mutual Funds and only a few weren't tells me that with only 25% of one's money in equities you need the most volatility in your stock position.
I think I will go with a large Growth ETF with a low ER like VUG & just to keep, it interesting give a nod to the GB Portfolio and add 5% VBR.

In the long run though, it probably doesn't really matter as much as something like the Start Date Risk, which is concerning right now for me. I think all the asset classes including Gold are now in a bubble.
I think that I will average in over the next ten months, even though I don't think HB would approve.
What do you Guys (and Sophie) think? Maybe I need to get 'punched in the face' here MMM style for such sacrilege.

Sounds reasonable. There's no perfect plan. Gold may be in a bubble because people are scared. My take on value is its a basket of weak companies that people arent excited about, so they get underpriced. But you never know, people underestimated Facebook despite it being a hot tech stock.

boglerdude wrote: ↑Wed Sep 09, 2020 2:35 am Yeah, I dont want companies handing me back my own money in a dividend. I'm giving them my money to grow it.

You aren't really giving them your money though, are you? You're buying an ownership stake in the corporation because you think they can make a profit. If they give you your share of the profit, you can just buy more ownership, or find something else. Corporate bonds seem closer to the idea of "giving companies money," and probably help companies grow more than ownership churn, but not many people seem to like corporate bonds.

At any rate, the idea of more volatile stocks is worth more pondering.

There is absolutely no way Harry meant small-crap value. Harry meant the stocks that benefit the most in prosperity... ie bubble stocks. Only after he looked at market regime did he look for the most volatile asset in that regime. I also agree that "growth" as is defined in growth index funds isn't really "growth" it's just the most expensive stocks. It's a very poor wording choice. Price has some correlation to "growth" but it's not direct. Either way, QQQ or MTUM is much closer to what Harry was looking at, imo. Small caps could be used, but it would not be small-crap value, it would be highly leveraged small cap companies that are in a hyper revenue growth phase. Small-crap value is the last thing I would invest in as a prosperity hedge. "We have so much prosperity, let's go invest in the worst most miserable, low quality, low growth, close to bankrupt small cap companies we can find!" Yeah that is not what he meant at all. In times of prosperity and excess you want to be in the TSLA's of the world, especially since you have 75% of your portfolio hedging this allocation. After 20 years of SCV non-existence (and 0 out-performance since SCV as a concept was made public), can't we just finally have the SCV funeral and be done with it? I've heard the SCV arguments for 20 years now, and never seen any evidence of its mythical existence in real life. Are people still going to be arguing for SCV another 20 years from now when it is still underperforming? SCV has proven to not be consistent enough, powerful enough, reliable enough, nor dependable enough to be seriously considered as a core long term holding.

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