Gyroscopic Investing

Bill Gross put out an interesting letter today arguing that (surprise, surprise) stocks may not be the best investment going forward:

http://www.pimco.com/EN/insights/pages/ ... gures.aspx

Of course, Bill Gross gets things wrong all the time...

Bill Gross is reminding me more and more of the Wizard from the Wizard of Oz.

Just a hardworking fortune teller who has hit an extended patch of unanticipated reality.

That was a good read.  Thanks for posting.

One nice feature of the Permanent Portfolio is that you can read well-written fortune-telling pieces like this and just think, "Hey, could be.  Guess we'll stay tuned."  If I were still in my stock-heavy portfolio I'd be squirming with agony through that whole piece.

Actually, part of me still squirms at the thought of the stock market doing poorly for a long period going forward.  This would cause a lot of headaches in the years ahead (many of which Gross touches on in the article.)

Lone Wolf wrote: That was a good read.  Thanks for posting.

One nice feature of the Permanent Portfolio is that you can read well-written fortune-telling pieces like this and just think, "Hey, could be.  Guess we'll stay tuned."  If I were still in my stock-heavy portfolio I'd be squirming with agony through that whole piece.

Actually, part of me still squirms at the thought of the stock market doing poorly for a long period going forward.  This would cause a lot of headaches in the years ahead (many of which Gross touches on in the article.)

That's just it.  Intelligent people from all stripes can make very compelling arguments for both bull & bear cases with any asset class.  That's why investing is so difficult. Regardless of how sure you are in your opinion, you have a roughly 50/50 chance of being right over the short to medium time frame.  Add in human emotions and so forth, and now you're looking at a probability of making the wrong moves at the wrong times.

Look at that Paulson character.  He looked like a prince after he timed the credit crisis perfectly.  His short of the sub-prime mortgage market was called "the greatest trade ever".  

Since then he's been torn to shreds.  

Gross had a book out a while back saying, you guessed it, that bonds were the place to be.

Everything You've Heard About Investing Is Wrong! : How to Profit in the Coming Post-Bull Markets

Written in ... 1997.

100% Bonds (total bond market) beat 100% stocks (total stock market) 1997-2011.  And 50:50 beat both.

HBPP better still...

My read of the article wasn't as dismissive.  It's a lot easier to make a macro economic call on how debt is typically resolved by governments vs making an investing/market call.  To my read, these are different issues: the probability of a future event is less important than the consequence...Pascal's wager as I understand it.  In other words, the PP perspective is more about the consequence than the probability, ie. the goal is to not lose your shirt, retire broke, etc.

Bill Gross is speaking beyond his expertise and is getting attention beyond his due.

I can't figure out if he is getting senile like Buffett or simply freaked about the future for bonds.  Either way makes no difference to me (I'm out of all Pimco funds and have no interest in bond funds beyond treasuries).

So I just ignore him.

One day at a time wrote: the probability of a future event is less important than the consequence...Pascal's wager as I understand it.

Not quite.  If that were true then you should buy powerball and megamillions tickets -- ignore the odds, the consequences are terrific and that is the most important consideration!

In reality the risk of a future event is a combination of probability and consequence.  In other words, even though the odds of your house catching fire and burning down are low, a mortgage holder will force you to carry fire insurance because the consequence of a fire is so damaging to them.  (And the cost of the insurance is not paid by them...)  Net:  The risk is high, so you must have the insurance.

It also applies to individual decision making.  The odds of me needing my umbrella liability insurance are low.  However the consequences to me should I not have that coverage could be catastrophic, so I pay for the policy.  To my insurance company, the amount of coverage I carry is hardly a drop in the bucket, so to them the odds and the consequence and thus the risk is low (which explains the low cost of the policy).

What are the odds that the horses you stable will be injured?  Extremely low because you don't stable horses?  Then you don't need insurance. I found out my insurance will not cover 3rd party horses on my property.  While the odds are low of a problem, the consequences are high enough that they insist I buy a rider for my policy to cover those horses.  And that policy is not so cheap...  Horses get very expensive vet bills.

One day at a time wrote: To my read, these are different issues: the probability of a future event is less important than the consequence...Pascal's wager as I understand it. 

I understand the PP strategy of avoiding going broke, and it makes sense to me.
However, Pascal's Wager has been thoroughly ripped apart.