Gyroscopic Investing

TSHTF in European and international stocks on Labor Day holiday. Some indexes down 12% for the day. Gold breaks $1900 an ounce.

I have a feeling Tuesday will be interesting for the PP. By interesting, I mean it will be a good day to be in the PP and watch everyone else freak out 

Definitely is an interesting feeling watching the gyroscope work.

Haven't we learned by now the futility of prediction?


My PP is down right now for Tuesday, September 6 but overall, it is still up ~ $1,300.

Right now, it looks to be down about .15% for the day.

Not anymore...we are slightly up for the day at market close.

VTI: -.66%
GLD: -.18%
TLT: 1.04%
SHV: .03

buddtholomew wrote: Not anymore...we are slightly up for the day at market close.

VTI: -.66%
GLD: -.18%
TLT: 1.04%
SHV: .03

Of all people, I am sure you are pleased.

But I thought my bonds were going to get killed this year according to the pundits. 

MediumTex wrote:

buddtholomew wrote: Not anymore...we are slightly up for the day at market close.

VTI: -.66%
GLD: -.18%
TLT: 1.04%
SHV: .03

Of all people, I am sure you are pleased.

Yes, the portfolio has performed admirably. However; I am still searching for options to "lock in" profits without incurring capital gains. Rebalancing is prohibitive when investing in a taxable account.

I'll re-ask this question here. Is there a substantial difference in portfolio returns if one rebalances the portfolio with new contributions (lagging assets) and avoids selling winners to buy losers? Taxes are avoided, but assets with gains are never trimmed.

I'm amazed at how fast my TLT "poker night" prediction came to be.  I tend to believe the deflationist (Japan) scenario, and think what we're going through is going to be something along those lines.  Considering that 30-year interest rates were back to pre-crisis levels, I tended to think they were a very good deal... this was probably more luck than anything, but I when someone asked me, "so where do you think the best place to put your money is right now?" I said that I thought the stock market was overpriced compared to long-bonds and that I liked long-term treasuries.

I felt pretty stupid immediately after with the guys that had once valued my opinion now looking at me like I was crazy.  I did get made fun of, though most people just laughed to themselves and went back to playing... even after describing how "you don't just collect interest for 30 years... the price changes on long bonds and you can sell them for a tidy profit."

Since then, including interest paid, TLT is up 26%.  That's amazing for less than 5 months of time.

This story isn't to brag so much as remind us of all the presumptions out there that have been losing people money for a decade now.  

I've also recently had my uncle ask me about selling some gold... since it's well-under 10% of his portfolio I explained to him why he absolutely should keep it, whether he things it's in a bubble or not.  Thanks to many of the conversations had on here, I was able to articulate my (read: our) view of gold in a portfolio and convince him to hold it... for now at least.

A different uncle of mine actually took me to his car (after a conversation on investing/markets) to show me a prospectus on a fund his advisor's been talking about... none other than PRPFX.  It was realy something, and made me feel pretty warm inside.

Today was a POMO (Permanent Open Market Operations) day, and apparently there is a tradition of stocks surging on POMO days as the Fed pumps up the stock market. This explains why the market rallied after the large drop at the open.

http://www.newyorkfed.org/markets/pomo/ ... /index.cfm

http://www.newyorkfed.org/markets/tot_o ... edule.html

Here's what Goldman Sachs recently sent out to clients regarding front-running the Fed:

On the interplay between the FED and STOCKS: Since Sept 1 – when QE was becoming a mainstream focus – if you only owned S&P on days when the Fed conducted Open Market Operations (in US Treasuries), your cumulative return is over 11%.  in addition, 6 of the 7 times when S&P rallied 1% or more, OMO was conducted that day. this compares to a YTD return of 5.8%.  the point: you would have outperformed the market 2x by being long on just the 16 days when – this is the important part – you knew in advance that OMO was to be conducted. The market's performance on the 19 non-OMO days: +70bps

Source: Goldman Advises Clients To Front Run The Fed Via POMO

buddtholomew wrote: .I'll re-ask this question here. Is there a substantial difference in portfolio returns if one rebalances the portfolio with new contributions (lagging assets) and avoids selling winners to buy losers? Taxes are avoided, but assets with gains are never trimmed.

Money is fungible. It makes no difference if you rebalance with new money or existing money. It's preferable to rebalance with new money to avoid capital gains tax.

Here's an example:

You have a $10k portfolio that is now:

$1.4k Stocks
$3k Bonds
$3k Gold
$2.6k Cash

Time to rebalance. If you sell Bonds and Gold, you get hit with tax. What if you were making a new contribution of $2k? Put $1600 to stocks and $400 to cash. You get:

$3k stocks
$3k bonds
$3k gold
$3k cash

Alternatively, you could have rebalanced the original $10k down to:

$2500 each

And then with the new $2k, added $500 to each asset. However in this case you'd get hit with taxes. The answer is that it's preferable to rebalance with new money, provided that you have enough new money to perform a real rebalance. If you don't, then you're sitting on artificially high bonds/gold due to fear of taxes, and you will never "realize" the gain of your efforts.

TripleB-

Correct me if I am mistaken, but rebalancing with new contributions does not trim gains from assets that have appreciated in value. The approach merely restores the portfolio to its original risk profile of 4x25%.

Best-
Budd

buddtholomew wrote: TripleB-

Correct me if I am mistaken, but rebalancing with new contributions does not trim gains from assets that have appreciated in value. The approach merely restores the portfolio to its original risk profile of 4x25%.

It does "trim gains" on a holistic approach. What's the alternative? Rebalancing first, selling winners, buying losers, then contributing new money in equal 25% each parts? Either way you end up in the same exact place, except in one way you pay a lot of taxes.

Bogleheads has a post on this subject of rebalancing with new contributions today. They did a voting poll and it's nearly everyone voting to rebalance with new contributions.

It's one of those things that isn't really debatable. It's best practice and anything else is subpar.

http://www.bogleheads.org/forum/viewtopic.php?t=82095