Gyroscopic Investing

Skip the worst case scenarios for a minute, and let's deal with probably the more likely "bad case scenarios".  Today, what are the most likely bad scenarios for the PP?  I'm thinking maybe gold gets bubbly and crashes, which by bad timing is followed by stagflation, which takes down stocks and bonds.  Isn't this about what happened in 1981?  Which BTW resulted in a "whopping" loss of 3.9%. Gold went down 33%!!!  Stocks went down 4% and bonds eked out a 2% gain.  Poor puny little cash carried the rest on its scrawny shoulders, earning 19%.  Of course, the real loss after inflation was considerably worse than 3.9%.

It seems like the bad case scenarios would be those occasions when only cash does well.  Since stocks, bonds, and gold are all richly valued, might this be the most likely bad scenario going forward, or in general for that matter?  And on the other side of the coin, is the current environment not one of the best for existing PP holders?

Anyway, if we get 15% inflation and lose 5% in the PP, that's gonna sting. 

BTW for the fence-sitters and tire-kickers, I am fully into the PP, with a VP on the side, and I was once like you.  But I still like to think about the what-ifs.  OTOH I sleep very well with the PP.

Hard to say what will happen. A 1981 scenario is totally possible if we get a spike in interest rates due to inflation. But you know eventually things will right themselves. You can't win all the time.

Snowman9000 wrote: It seems like the bad case scenarios would be those occasions when only cash does well.  Since stocks, bonds, and gold are all richly valued, might this be the most likely bad scenario going forward, or in general for that matter? 

Yes.  Stocks, bonds, and cash are inherently leveraged, but cash is not.  Since cash is the weakest link, I expect the PP to be most susceptible during a recession that is not accompanied by a strong deflation or inflation.

In the radio show HB said he looked high and low for an asset that reliably appreciates during a recession, but never found one.  FWIW I went through that exercise myself and came up dry.

Snowman9000 wrote: And on the other side of the coin, is the current environment not one of the best for existing PP holders?

IMO nothing's out of the ordinary as far as the PP is concerned.  The PP is prepared to handle the conditions we've seen over the last couple years and it worked as advertised.  What's exceptional is that conventional portfolios are not so prepared so the PP's performance has been comparatively excellent.  The next time we have a stock bull market the PP will lag conventional portfolios and it will seem comparatively poor.  That's just how it goes.