Gyroscopic Investing

Just sharing a bit of joy - after many months of slicing-and-dicing, reading, asking questions, fighting doubts and BIG help of this forum (and BH PP thread) I've nailed down my PP!

Input from many of you on different nuances of PP helped immensely. Special thanks to Craigr and MediumTex for ideas on constructing bond allocation with limited options in my 401k: I offset FTBFX with a sizable chunk of EDV in my Roth IRA as a replacement for TLT.

I've also set up a smaller VP in a separate IRA account.

Actually, I do feel that now I have more free time and worry less about my retirement savings!

Congrats.

Congrats!

foglifter wrote:Special thanks to Craigr and MediumTex

+1!

Congratulations. I think you'll find that you'll worry a lot less about the markets now. 

Thanks Clive, this is a good writeup. I didn't face a dilemma of lump sum vs. gradual entrance into PP as I sort of "morphed" my old over-sliced BH-style allocation into PP.

AIM approach looks interesting, I think it's a flavor of value averaging, isn't it?

Congrats foglifter, I myself am new to the PP. I stumbled into it recently, I read through the whole big PP Boglehead thread, couldn't stop reading once I started . I must thank Cragr and MediumTex for the informative posts both here and on other thread. I use AmiBroker for my back testing and simulations and arrived to the same conclusions that everyone seems to be arriving that the slice and dice of stocks does not really stand of a properly devised test that takes into account different environments and variables- of course it depends what you're looking for, I personally try to avoid excessive drawdowns-. That however, becomes intuitive once you view stocks as a single asset. I jumped into the PP at once and am very happy with its performances thus far. It conforms to the expected behavior given the back testing. Here are the results of my testing, they confirm what every one is saying but perhaps presented differently. I used your instructions of using tinypic.com so here it is:

Great that worked  ;D

As you can see the biggest draw down is 13% and biggest loss is 7% both in 2008. The data is limited for GLD, VTI, TLT so hence the short time frame.
I did substitute these for VUSTX, SPY and CEF which goes back to early 90s, generally the behavior is similar. In the equity curve you can see cash is always 25%. This is for a theoretical initial value of $100k.

Now this is the classic PP no improvements and re-balancing at bands of 30. I can probably run the same test as Craigr suggested with rebalancing of 30 upper band and 15 lower band.

Great post Clive, It actually shows data back to 1972, can you show the PP backtest results with rebalancing? That can show us a better picture so that we can compare output from our two systems. If that is not convenient, is it possible to obtain the monthly data, then I can run the test using AmiBroker and post it for everybody.

For the lack of long term data, here is my approximation, which pretty much show the same results.
Bare in mind they are an approximation to the recommended asset classes so their performances may be a little worse than in real life, which is clearly illustrated in 2008 for example. The results show that HB was not smoking something but indeed a wise man. Again no tweaks or improvements to the PP, the up/down rebalancing bands are both set to 10%. Initial investment of $100k no further addition of funds.

Clive, I have changed my settings to test for yearly data so that we are comparing apples to apples. I am rebalancing at 10% bands, just to make sure to capture any movements. Again the results confirm the observation that every one has noted. These results confirm that rebalancing is a key factor in capturing gains combined with the dis-correlation of assets. So, I am not brining any thing new here to the table other than perhaps a new visual perspective.

One question for you though, your US LT shows a gain of 33.4% of 08. My data from yahoo and others sources indicate that TLT went up only 11.60%.
So are we looking at the same thing here?





Your point/observation about Japan flat-lining is a very interesting one. I guess it goes to the heart of the PP concept, which is built on the assumption that these four periods do not occur simultaneously and that in each at least one asset should be up while others might be down.

1) Prosperity
2) Inflation
3) Deflation
4) Recession

I have no answer to that one, maybe one of the senior commentators can throw in their two cents here. The data is showing us only what happened.

I don't however think the answer is using hindsight and chary picking the asset slices that might have worked in this specific situation. I actually think understanding the economic/political climate that led to that and devising an asset that takes account for it in the spirit of the HB is probably a better answer. So, if any one has a good answer to this please jump in.

Sorry my image postings suck, I'll blame that (not)on foglifter's  instructions