Gyroscopic Investing

Marc Faber recently voiced almost PP-like portfolio recommendation:

“The best thing an individual investor can do right now is to hold 25% of his assets in equities, 25% in real estate, 25% in gold, and 25% in cash”?, said Faber last week. “If equities, real estate, or Gold drop another 10% to 20%, put more cash in.”?

He doesn't like Treasuries, which he replaced with real estate. But still it's obvious that his way of thinking is similar to HB: invest in assets that respond to different economy cycles. Even his choice of real estate is quite reasonable as RE, although not exactly a "different" asset type, does serve as a diversifier to some extent. I'm not saying his portfolio is a PP or a better PP, just thought Faber's opinion is another confirmation of the brilliance of HB's investment approach. OK, let's call his portfolio "a 75% PP". 

Marc Faber's portfolio would not have survived in Japan. There family homes fell 80% and central Tokyo commercial property by 99% or something crazy like that. Japanese LTT would have been one of the best asset classes available anywhere in the world for the 1989-2001 period. Yields fell from 7% to 0.7% or something like that.

Marc Faber has been advocating the purchase of land as a hedge against inflation for years.  His allocation is consistent with his outlook on the global economy.

stone wrote: Marc Faber's portfolio would not have survived in Japan. There family homes fell 80% and central Tokyo commercial property by 99% or something crazy like that. Japanese LTT would have been one of the best asset classes available anywhere in the world for the 1989-2001 period. Yields fell from 7% to 0.7% or something like that.

i suspect he's talking about farmland, etc...not homes & commercial real estate?

Farmland in UK (and I guess europe, USA, Japan too) has a lot of its value from agricultural subsidies. I don't know whether that acts to leverage the effects of increasing/decreasing demand for food or to dampen the effect? Perhaps food scarcity will cause subsidies to be jacked up to even giddier hights or perhaps the politicians will lose their appetite for giving farmers and land owners multimillion dollar hand outs? I suppose it just adds a political risk into the mix.

Clive, I'm really taken aback by how UK 50year gilts have increased in price from 91 to 122 during the course of this year despite the yield being below inflation all along. I realize it is all unsustainable but rebalancing out of unsustainable rallies in stocks, bonds and gold seems to be what the PP is all about. 30% price swings make -1% real interest rates seem less dire for bonds??
Before deciding on the PP I was toying with the idea of forestry as an asset alocation. I'm willing to believe that the PP might be improved on with more components such as forestry/farm land, emerging market local currency soverign debt, TIPS, Yen, stocks as individual holdings, private equity, corporate debt etc. The balance would have to be right though and for me, I think keeping a PP on track is a more realistic proposition.

Clive wrote: A good thing about the PP's asymmetry is the option of reducing one for a profit and another for a loss that can defer capital gains (and with yearly CGT allowances perhaps even totally eliminate CGT).

I've been trying to think how to use the (UK) CGT allowance to rebalance effectively, but I'm not getting close to identifying all the factors. Not a problem this year (gains in gilts), but might be in the future.

Anybody have any ideas on how to decide if the CGT allowance should factor into rebalance trigger ?     

The UK has the added weirdness that gilts don't get capital gains tax. I suppose soverigns don't either but I've just got gold etfs.

I thought I'd post in this thread even though it is old. I recently read that Marc Faber has 25% stocks, 25% corporate bonds - a change from his 25% in real estate. Considering his affinity for gold - he probably still has 25% in gold and 25% in cash as stated earlier. Very PPish!

http://www.businessinsider.com/marc-fab ... eak-2013-5