Gyroscopic Investing

I set up a PP in Smart Money portfolio tracker on March 24 and have been looking in on it occasionally since then.  There has been some market choppiness during this period, including a stock market decline, gold decline, rise in treasury yields and lots of unexpected market noise (including more Greece drama).

Looking at the PP's 3.84% return during these last three months, you wouldn't know how much uncertainty there was in the markets and the world.

If you buy the PP package, you're buying peace of mind.  Don't outsmart yourself--keep your eye on what works.

Didn't we have the uprisings in the middle-east during that time, too?

moda0306 wrote: Didn't we have the uprisings in the middle-east during that time, too?

You mean that revolution in Libya where U.S. forces are assisting the rebels in overthrowing the government of a major oil producer?

There was also that incident where U.S. Special Forces invaded a country with nuclear weapons and assassinated a popular regional political figure that had sponsored acts of terrorism against the U.S. in the past. 

And wasn't there that incident in Japan that will likely go down in history as the worst nuclear power disaster in history?

Yeah, the PP weathered all that.

It's just the gold skewing the portfolio.  As soon as "rates" rise, (which rates?  I'm not telling, because rates are rates, just accept it), which they're bound to, gold will come crashing back to $500 and the PP will flounder.

Gold has risen way more than inflation, showing that it's a speculative play... likewise from 81-99 gold fell in price, showing it's a horrible store of wealth.

Kidding of course.

I recently heard a Sunday financial radio talk-show host say that "Gold can go up like a staircase but down like a cliff" so you should find another form of inflation hedge.  I couldn't even believe my ears at the complete BS this guy had just spewed.  Otherwise he sounded relatively smart.

Look at gold's performance in the past, and tell me which way are cliffs and which way are staircases.

The PP is like a set of those Bose noise cancelling headphones, except the PP cancels market noise.

"Noise-cancelling Headphones"

I love the visualization of that.  I think that's what allows us to talk about this stuff without all the emotional baggage and economic "know-it-all" that most conversations involve.  We can "listen to our Mozart" while the plane is shaking, the babies are crying, etc, and everyone else is just pissed off for having to put up with it, all the while unable to notice that a couple people on the plane are, for some reason, sleeping like a baby or reading a book.

We are at peace in our personal lives, because we've learned to protect the things that we'd otherwise love to complain about or think are real threats to our well-being or property.  Therefore, we can talk about these issues (and learn more) without having so much emotional investment to things being a certain way.  We've "cancelled the noise" that so many people let aggrevate them and either skew their judgement or paralyze them in indecision or numb them into complacency.

For instance, I may insist that a gold standard could never work today, but I love gold in my portfolio and wouldn't hold any other commodity, with the exception of some small VP guesses.

The thing that frustrates me is when I see a fellow passenger who is obviously bothered by all the disturbances and distractions around him, but who won't even entertain the idea that these headphones could ever work for him.

For all its simplicity, the PP can be incredibly complex when it comes to the mental barriers it must overcome in the minds of many people.

The assumptions and beliefs embedded in the PP are difficult for many people to assimilate.  For many, it proves to be impossible.

I imagine what it must be like coming to this forum and the PP concept for the first time and seeing these people making these bold and seemingly ridiculous claims about safe and stable inflation adjusted returns that don't require you to watch TV or accurately predict the future.  It sounds so simple, and we all know that few things in this world are really that simple.

To such a person I would say don't trust me (or anyone else).  Try it for yourself and see how it goes.  Test the theory against reality and see how it actually works.  If it works, think about continuing to do it.

I would say NOT to listen to people who say it shouldn't work, though.  The world is full of things that shouldn't work, but still somehow do. 

It really is frustrating with people.

I have a friend who insists that using rental properties to provide himself with income in the future is the best idea... I try to tell him that it's awful diversification on a few levels, how extremely illiquid it could be, and to try to put a value on his time, as well as compare his financials with that of a REIT or a dividend stock and see if the difference in cash-flows is worth the risk.

I try to tell him about the PP, but he looks at me like I've been swindled.  I more often have to impress my friends with my knowledge of tax-planning before they'll even listen to my investing babblery.

My dad was the only person I've really been able to talk to in-depth about it, and to be honest I think he was just being polite at first until I actually broke down for him the different economic environments and how the PP performed and showed graphs and described how diversification makes 2 things perform better than the sum of their parts (that part of modern portfolio theory, however flawed, is important for people to grasp to really "get" the PP).

He's now into the PP partially, and has been buying I-bonds.  I've also been doing IRA/SS income planning with him and it's so nice to see the look on him and my moms face when they see that I have a real understanding of all the ins and outs of tax planning, Social Security, AND investing and they'll be able to enjoy retirement more than they otherwise thought.

I am having much more fun watching their wealth than mine right now, as theirs is a much more important part of their life at this point, and they were thinking they'd be on a shoe-string budget through retirement until I laid it out for them.

I still try to preach the gospel, though, to the unwilling.  Is this what the mormon door-knockers feel like? (no offense to anyone).

I've tried introducing the PP concept and Harry Browne's Fail-Safe Investing to a couple of people with zero success.

They are both extremely bright guys, and very financially conservative, but they simply didn't want to bother investing a few hours to read HB's short 100-page book.

One of the guys thought the PP ideas I was conveying to him sounded just too laughable to entertain seriously. After he heard 25% gold and 25% LTTs, his brain simply shut off and he didn't listen to anything that came after that.

The other guy seemed a bit more open-minded, but is much older and wiser and has gradually reached a point where he only trusts in information presented to him by people of similar age and wisdom that he has known and respected for years. I'm simply too young to have anything of true relevance to convey to him, apparently. He listens to his personal financial advisors and no one else.

I've pretty much given up on "evangelizing" for the PP. Most people believe only what they want to believe and go through life shoving square pegs into the round hole of their mental model. If it doesn't fit, they toss it. So I just sit back, enjoy the financial stability and peace of mind that the PP gives me, and go about my life doing the things that make me happy. Life is good!

I'm one of those older guys (63).  In March I went into pp full in when my 401 eliminated the stable value fund that i was almost fully invested in.  It was safe but only averaged 3.5% over the last 3 years or so.  I couldn't be happier with my pp and am glad I just went full in instead of trying to time it.  I feel as secure as you can with anything these days and appreciate the knowledge and advice posted on here. I'm already up more since March than a full year in the stable value fund and feel comfortable with the security of the investment.

Considering that most people don't know how long-duration bonds work and really don't understand gold all that well, the typical stock, savings account & short-duration mixed bond fund will continue to be the bread and butter of peoples' portfolios.

I see a lot of people in what I like to call "Tweener Trash" where instead of actually diversifying, they use short-to-mid duration high-yield corporate or muni bonds and some overseas bonds.

This creates kind of a muddled "deversification" where they don't have long-enough terms to get trashed by raising rates, have some foreign exposure for inflation, are somewhat risky for prosperity, but are bonds, so are likely to pay out in recessions without mass default or losing tons of value.

Some could argue that some of these funds actually achieve some of the "mixup" that the PP achieves, but they're often very expensive, and considering many of us have a mix of taxable and tax-deferred accounts that we want to use both of, they're very tax-inefficient, as you can't move the different pillers to different accounts based on their taxability (LT bonds into your IRA, Stocks into your roth (during low ST rates), gold, low-interest cash, and maybe some growth stocks in your taxable accounts, etc).

The PP isn't only tax-efficient as a whole in a taxable account (it is wonderfully so), it's even more tax-efficient in the sense that the average person with both taxable and non-taxable funds can properly place the assets based on their attributes, or even REALLY play around with their allocations during and after accumulation to defer, "prefer," or eliminate tax penalties.

rhmetz wrote: I'm one of those older guys (63).  In March I went into pp full in when my 401 eliminated the stable value fund that i was almost fully invested in.  It was safe but only averaged 3.5% over the last 3 years or so.  I couldn't be happier with my pp and am glad I just went full in instead of trying to time it.  I feel as secure as you can with anything these days and appreciate the knowledge and advice posted on here. I'm already up more since March than a full year in the stable value fund and feel comfortable with the security of the investment.

Congratulations on your PP experience thus far.

I love hearing stories like that. 

Tortoise wrote:
One of the guys thought the PP ideas I was conveying to him sounded just too laughable to entertain seriously. After he heard 25% gold and 25% LTTs, his brain simply shut off and he didn't listen to anything that came after that.....

I've pretty much given up on "evangelizing" for the PP. Most people believe only what they want to believe and go through life shoving square pegs into the round hole of their mental model. If it doesn't fit, they toss it. So I just sit back, enjoy the financial stability and peace of mind that the PP gives me, and go about my life doing the things that make me happy. Life is good!

Well said. The first time I read about the PP, I disregarded it as nutbaggery, and I like to think of myself as reasonably open-minded. I was just not ready to dig deeper. My suspicion is that there are very few people willing to investigate it further based on a conversation, and that ultimately accepting the principles of the strategy requires an active pursuit of understanding. So, I tend to not talk about it with others. I also like to keep gold investing on a need to know basis (my wife).

I'm 20 and have been using the PP for just over a year now.

I am lucky enough to be blessed with a very open minded father. He always listens to new ideas that I have, about any subject. After many casual presentations I am proud to say that he has made the switch. All of his IRA money is in the PP and he is loving it. He has never had a good experience with any investment except for local real estate.

Hopefully I have helped change that.

malveyr,

You'll be retired by 40 the way you're headed.

Congrats.

moda: And then die at age 110 broke as a joke haha!

Back to MT's post. I know we aren't supposed to, but I love peeking at the PP almost daily. I guess it is kind of crazy, but I'm like a curious kid watching all these parts of an engine move around. Maybe it will bore me as time goes on, but geez its been a year!

melveyr,

I looked at your website and the series of articles documenting how the PP works and how you came to it are outstanding.

Great work!

Thanks!

The bogleheads thread and this forum have been invaluable! I love the vibe of this forum so much. At this point the bogleheads forum looks like a bunch chickens running around with their heads cut off.

Making the website was a lot of work, but it is totally worth it. It helped me clarify and synthesize all of my thoughts. Even if if you don't publish it online, I think there is serious value in laying out your investment philosophy no matter what it is. I highly recommend it to anyone.

Plus, if a peer asks you "how do you invest?" You don't have to give them a 30 second elevator pitch. The PP deserves more than that.

melveyr,

I'm very impressed that you are 20 and have figured out the things you have apparently figured out.

It usually takes a LOT longer to get some of this stuff straight.

Good work.

I literallty can't get over how interesting amd diverse this crowd is.  I love it.  I couldn't ask for better banter and debate.

Melveyr--

What's your web address?  I'd love to look at your site.

moda0306 wrote:
My dad was the only person I've really been able to talk to in-depth about it, and to be honest I think he was just being polite at first until I actually broke down for him the different economic environments and how the PP performed and showed graphs and described how diversification makes 2 things perform better than the sum of their parts (that part of modern portfolio theory, however flawed, is important for people to grasp to really "get" the PP).

My father is the only person I've been able to convince, and he was really only comfortable using PRPFX.

Melveyer's website can be accessed by clicking the "Earth" icon on the left side of his posts.

I checked it out & was very impressed.  Stunned really, as it is written by a 20 year old. 

Well done Melveyer!

bigamish wrote: Melveyer's website can be accessed by clicking the "Earth" icon on the left side of his posts.

It's in his sig line as well.