Gyroscopic Investing

In a couple of months I am going to start my own PP, as I have some CD's coming due.  I have read a lot of the posts here and would welcome feedback on my PP thoughts.

General - I will use the 4 X 25% PP weighting and 15% - 40% rebalance bands.  I am planning on starting with $ 144K (36K for each section)

Gold - Unlike a lot of people, I don't have any problems with 25% of the PP in gold.  However, there is no way I will have gold coins or actual bullion.  I plan to put 12K each in IAU, GLD and GTU.

Long treasuries - I plan to buy a $ 10k, 30-year treasury  and put $ 24K in TLT (probably the Vanguard equivalent).  At each of the next 2 1-year anniversary dates, I plan to sell $ 10K of TLT and buy a new 30-year Treasury.  From  then on I will sell the oldest 30-year treasury each year and buy a new one.

Short treasuries - This is the part of PP that I like the least.  It made a lot more sense when you could at least get about 2% -3% a year in treasury money markets like VMFXX. I am going to be lucky to make .2 % going forward, but I am going to stick to the program anyway. The difference is still only ay 2.8% and overall for the entire PP would be only about .7%.  I plan to buy 3 treasuries of $ 10K each.  A 1-year, 2-year and a 3-year.  As each one comes due, I will buy an new 3-year.  The remaining initial $ 6K I will put in SHY (or the Vanguard equivalent).

Stock - This area is where I plan to deviate the most.  I plan to buy 12 different stocks at $ 3k each.  I haven't selected all of them yet, but that is what I am working on now.  I know a lot of you might ridicule me for this, but I feel I could pick 12 stocks that would do  much better than VTI.  I have been successful in the past and feel I could continue to beat the index.  In my opinion the overall market index has performed very poorly for quite some time, and I would expect it to continue that way.  If anyone is interested, I will even post the names of the chosen stocks when I get there.
Comments welcome.
Norm

Norm "Stock - This area is where I plan to deviate the most.  I plan to buy 12 different stocks at $ 3k each.  I haven't selected all of them yet, but that is what I am working on now.  I know a lot of you might ridicule me for this, but I feel I could pick 12 stocks that would do  much better than VTI.  I have been successful in the past and feel I could continue to beat the index."

I'm also a skeptic about index funds. Do you plan to individually rebalance each stock? I guess that doing so would allow you to harvest the volatility of the individual stocks as a rebalance benefit.

Stone - <<< Do you plan to individually rebalance each stock? I guess that doing so would allow you to harvest the volatility of the individual stocks as a rebalance benefit.>>>

I assume you mean when the total of all the stock is outside the bands (or one of the other 3 categories is outside).  I have thought about this a lot, but haven't decided yet on any hard and fast rules.  I do plan on NOT selling and replacing individual stocks unless something extreme happens to one.  My gut feel is not to strictly rebalance the individual stocks, but when rebalancing across the 4 categories is required I will try to accomplish what is necessary in the stocks by selling some of the higher ones and/or buying more of the lower ones as required.  I do plan to move more into my PP as time goes on and could see me increasing the number of stocks rather than buying more of each.  In situations where a different asset triggers the rebalancing, and I need to increase the total $ in stock, I could see that as a good opportunity to buy a new stock.  I guess what I am saying is I will play it by ear (probably not the best strategy).  I might come up with a better (stricter) plan by the time I actually start it.  I have written a lot of software and have keyed in a lot of historical data to help with my analysis of the PP and  various scenarios.  From my analysis and reading here, it seems rebalancing is only required about once every 3-4 years, so I have plenty of time to develop a strategy  One thing I am sure of - if an individual stock falls outside the bands, it wouldn't trigger a rebalance of anything for me.
Norm

Norm, what I was meaning was to have say ten stocks  from different sectors (eg utility, mining, computor, pharma, banking etc) each with a 2.5% weighting of the entire PP and keep each between 1.5% and 3.5% of the total PP. A mini-partial rebalance could be done for each against whatever asset was most over/under weight (ie could be say gold, cash, LTT or another stock). Every five years or so you could decide what were the best 10 companies to hold and if neccessary swap over many of the 10 currently held. The reasoning was that much of the potential returns of holding a stock come from harvesting price volatility. If you sell some of it when the price increases and buy when the price decreases then you harvest gains that would slip past index funds.
To my mind, such a PP would be no more "speculative" than one with an index fund for the stocks.

I find it interesting how few stocks make up the bulk of the holdings in Warren Buffet's Berkshire Hathaway. Doesn't he have the phrase "diworsification" to describe how he says it is better to just hold the few best stocks rather than trying to hold a bit of everything.
With your expertise at computor analysis back testing you'll probably show that I've been spouting nonesense .

This wouldn't be a big deal if you bought and held and hardly made any trades. It would be nearly the same as an index, and in fact it was what most people did before index funds were available. But if you get aggressive and start making a bunch of trades, you are going to run into trouble. Personally I prefer an index because it is simpler to pay into and easier to track.

I'm with Indices on this one.  Far more simple to just hold the index.  While ten stocks may get you the diversification you need and be representative of the market, unless you are trying to beat the market (like Buffet) just buy the index and be done with it.

You may want to set up 80% for PP (Permanent Portfolio) and 20% for VP (Variable Portfolio).


For my VP, I invest mostly in increasing-dividend stocks. Please see below.