Gyroscopic Investing

Hi all,

as i said before in another post, i am starting conversations with a brokerage to obtain information about how to start. I would like to jump in asap.

But there is something i still don't understand about all of this. We are talking about a investing system that provides almost a 10% of returns (crawling road permanent portfolio), 5% of risk (deviation or risk), has been beating the market almost always since 1973, low cost in terms of comissions thanks to ETFs, and is very easy to understand and to invest.

How do you analyze that something that provides such an amazing return is not more commonly used by investors and particulars? why is not more famous? why there are not more brokerages advertising their services for PP investing? why even banks or investing services are not using this system to provide a service (providing just a 7% of return to your clients gives you an entire 2% for profits)?

Doesnt it look like a little bit suspicious? Doesn't look like that kind of miracle tv ads products?

Lets imagine i want to convince my wife :-),

regards

Arturo wrote: Hi all,

as i said before in another post, i am starting conversations with a brokerage to obtain information about how to start. I would like to jump in asap.

But there is something i still don't understand about all of this. We are talking about a investing system that provides almost a 10% of returns (crawling road permanent portfolio), 5% of risk (deviation or risk), has been beating the market almost always since 1973, low cost in terms of comissions thanks to ETFs, and is very easy to understand and to invest.

To be clear, it is not beating the market. It is trying to simply match market returns in each asset class. By keeping costs low and minimizing transactions from activity like market timing it can beat the average investor.

How do you analyze that something that provides such an amazing return is not more commonly used by investors and particulars? why is not more famous? why there are not more brokerages advertising their services for PP investing? why even banks or investing services are not using this system to provide a service (providing just a 7% of return to your clients gives you an entire 2% for profits)?

There is no money in it. Brokers make money when you buy/sell. Investment advisors make money when they get you to buy an expensive fund. Mutual fund companies want you in an active fund so they can charge you higher annual fees as well.

Then you have the human ego aspect. Everyone thinks they are above average and can beat the market. They have not realized that their efforts are a complete waste of time in the vast number of cases. They just won't admit though that a simple index strategy can beat all their education, research, and time they spend looking at this stuff. It's humbling to accept these simple truths and most people in the industry are just not going to accept it.

The Permanent portfolio uses dirt cheap index funds and has very few transactions by comparison. There is almost no margin in it for the industry so they aren't going to push it. Most passive index portfolios get the same treatment so it's not unique to the Permanent Portfolio.

Doesnt it look like a little bit suspicious? Doesn't look like that kind of miracle tv ads products?

Index funds have been denounced for years by the industry for similar reasons. But the data is conclusive that they beat the professionals consistently over time. The industry though makes so much by keeping people out of passive index strategies that they can spend millions on marketing convincing people it's a bad idea.

So there is no magic. The portfolio is *not* beating the market. It simply is capturing maximum market returns and using diversification to protect against loss. By keeping costs very low the performance seems miraculous, but it simply is what any investor would get if they stopped doing what Wall Street is telling them to do.

You could click on the ad above and buy our brand new book that explains it all in great detail. 

As someone who is just coming to the portfolio (as opposed to someone who has been hanging around here a while), I would be interested to see if we succeeded in writing a book that would be a useful how-to guide for someone just learning about the strategy.

Reading Harry Browne's books is also a good idea.

Arturo, Wall street also wants (needs) all the average Joes such as us to be dumb money. They need us to buy high and sell low so they can be on the other side of those trades. The HBPP is a way that enables any one to end up buying low and selling high. It is Wall street's worst nightmare.

I'm also baffled by why people don't see this. I guess people want to trust experts. My better half definitely had a big problem with trusting "something you got off the internet" which is what the HBPP was to her.

stone wrote: My better half definitely had a big problem with trusting "something you got off the internet" which is what the HBPP was to her.

Does she feel differently now?

Clive wrote: This Callan table shows US yearly gains for each asset 1926 to 2005 (inf = inflation, silver instead of gold as the price of gold was fixed prior to the 1970's). Not sure how reliable the data is...

The trick is to either stay with one or the other alone as otherwise you'll more likely performance chase and sell out of the one that has recently lost to swap into the other apparently better option at the time and end up cycling through buy high, sell low, or maybe attempt to reverse that tendency and look to buy low, sell high (buy into the one that has relatively lagged until it relatively leads again). Timing however is very tricky to do as you'll potentially jump ship either too early or too late.

Great table!

Re. timing...

Perhaps instead of sticking with one and jumping to the other, take advantage of their relative differing performance by keeping part of your portfolio in one, and part in the other.  Fix the ratio, and rebalance between them if they depart from your fixed ratio.

Clive wrote:

MediumTex wrote: You could click on the ad above and buy our brand new book that explains it all in great detail. 

Hi MT.

In my experience, a lot of people have ad's and scripts blocked. Either via the browser or via a background service. In short, I don't see no ad unless I disable my ad block service.

I rarely disable that service, and its quite shocking just how much screen real estate is taken over by some sites when ad blocking is disabled.

I typically use ad-blocking myself, and the new ad for the Permanent Portfolio book is showing up perfectly fine.  I believe it's because the ad is being hosted by the site directly, rather than by a third-party ad network.  Those are the kinds of ads that I like best and am happy to see.  And I pre-ordered the hardcover today!

There's always an asset or two that scares people. When I was talking up the PP at the last family gathering, I got a lot of skepticism over gold. Some people thought it was a bubble, others just had a negative emotional reaction to their imagined picture of people who own gold (crazy mountain man, paranoid anarchist, Ron Paul, etc) and couldn't picture themselves that way.

Long bonds caught some heat too from the more small government types, and that was the one that I struggled with the most too. Try telling your average libertarian that half his portfolio should be federal government debt and see how well that goes over!

Some people are just paranoid about having any stocks at all, and may be shell-shocked after the big stock market crashes of the past decade and a half. For example my dad foolishly sold all his stocks right at the trough in 2008 and refuses to have any stock exposure at all! He's mostly in money market funds and funds full of CDs and short-term debt now; you know, the assets that have been least performant over the last four years! Just try telling one of these people to get back in the stock market. They'll get very agitated at the mere mention of it and may try to run away.

Finally, cash will give you a lot of funny looks. A lot of people don't consider cash as an actual asset in a portfolio. To these people, you might as well have told them that you keep a quarter of your portfolio in a jar under your mattress.

3 out of 4 of the PP assets pack a lot of punch on their own and are therefore scary to certain mindsets. Getting over all your emotional biases against whichever of these assets you fear or distrust is something not a lot of people are willing or able to do.

Pointedstick wrote: 3 out of 4 of the PP assets pack a lot of punch on their own and are therefore scary to certain mindsets. Getting over all your emotional biases against whichever of these assets you fear or distrust is something not a lot of people are willing or able to do.

+1

I also think many people struggle with the idea that price volatility can actually generate portfolio gains if your portfolio contains assets that move in different directions and you rebalance. People cling to the idea that if gold falls whilst stocks rise etc then the net effect will be nothing. They somehow ignore the fact that a steady long term price means that prices must double as often as they halve and doubling $1000 means a $1000 gain whilst halving $1000 means a $500 loss. That "rebalancing bonus" seems harder to grasp than notions such as "stocks do best in the long run" or "gold is real wealth" etc etc. It is kind of miraculous how willingly people put aside arithmetic and empirical evidence.

Pointedstick wrote:
3 out of 4 of the PP assets pack a lot of punch on their own and are therefore scary to certain mindsets. Getting over all your emotional biases against whichever of these assets you fear or distrust is something not a lot of people are willing or able to do.

This is a very importat detail. As human beings, our naturall behaviour is always looking to the short run, and not at the long run. If you are seeing that your PP is not performing properly, and the assets will take some years to rebalanced again automatically (the time the market needs to realize where to reinvest) ... where are talking about YEARS to see that your money and investment is in safe again. Its scary :-). It really needs some kind of budha patient technique incorporated into the system.

By the way again, to me, it really looks suspicious that a 10% return way of investment, easy to use and secure, is not more commonly used or adviced.

There are theorical studies out there (and some empirical i have read on newspapers) that only 5% of the investors really beat the market, and obtain profits for their clients in the medium-large run after inflation.

So, 95% of the brokers, companies and professional investors in the world are wrong after years of work dedication, studies and money investment, but an easy and "simple" system like PP can make that, a very small community of home investors, beat the market by 10%? Why Warren Buffet needs to constantly reinvest, study the market, or get the best MBA students, to find where is going to evolve the international investment, when he just need to stick to a passive technique that will return a 10%? He just need to invest 5 billion dolar .. and in 5 years he will get a compound return of 3 billion dolars ! Just clicking on 4 ETFs ...

by the way, i am just trying to be the evil lawyer before starting PP :-),

regards!

Arturo wrote:So, 95% of the brokers, companies and professional investors in the world are wrong after years of work dedication, studies and money investment, but an easy and "simple" system like PP can make that, a very small community of home investors, beat the market by 10%?

The studies are true for passive investing strategies in general. They will, on average, beat most investors. It's not unique to the Permanent Portfolio. It's just that the Permanent Portfolio can do it in a smoother and (I'll argue) safer way with much less volatility.

Active money management, market timing, technical analysis, etc. don't work. They never work. I have said many times that easiest money I make is from market timers, and it's true. I love it when guys churn their portfolio or follow active managers around. I will sit back and collect their money they leave behind and move on. Bond timing doesn't work either as I point out here:

https://web.archive.org/web/20160324133 ... et-timers/

Arturo wrote: So, 95% of the brokers, companies and professional investors in the world are wrong after years of work dedication, studies and money investment, but an easy and "simple" system like PP can make that, a very small community of home investors, beat the market by 10%? Why Warren Buffet needs to constantly reinvest, study the market, or get the best MBA students, to find where is going to evolve the international investment, when he just need to stick to a passive technique that will return a 10%? He just need to invest 5 billion dolar .. and in 5 years he will get a compound return of 3 billion dolars ! Just clicking on 4 ETFs ...

Arturo, keep in mind that the PP is not designed to beat the market's returns, it is designed to beat the market's volatility. There have been many periods of time when a PP investor would be underperforming a bull market by double digits. That's not the point; the point is that nobody knows when one of these amazing bull markets is about to form. If we all knew that, we'd put 100% of our money into the exact right market sector right before the rally takes off and retire early in four or five years after our investments have had a CAGR of 35% during that time. So you need to forget about beating the market. Sometimes you will, sometimes you won't. The point is that you're never losing so badly that you make regrettable decisions, and your money is nearly always growing, even if it's a little slower than the market. It's stable and boring.

Arturo wrote: By the way again, to me, it really looks suspicious that a 10% return way of investment, easy to use and secure, is not more commonly used or adviced.

Your suspicion is understandable. Let me give you  few more reasons why people don't use the PP:

1. They don't know much about investing in general
2. They know a bit about investing, but they've never heard of the PP (this was all of us at one point)
3. It's too boring

I already touched on people being scared or some of the assets, but I think #1, #2, and #3 are even bigger. Most people with investments have no idea what they're doing and may have their money in really bad actively managed funds or in the hands of financial managers who are generating lots of costs for them. The PP is DIY-friendly, but you need the confidence to do it, and without confidence around money, you're not going to even be in the right frame of reference to even comprehend the PP. It's also too boring! How many people do you know who are fond of things that are stable, predictable, and boring? A lot of people like things that are new, flashy, and exhilarating.

Keep in mind that if it wasn't for Vanguard, we probably wouldn't have indexing be anywhere near as big as it is today. Indexing is bad for the industry since it minimizes expense ratios, transaction costs, and the input of high-priced money managers. Vanguard allowed even novice investors to get into indexing, even when their confidence and skill was low.

The PP is very similar in that it does well and is bad for Wall st., but there's no big company pushing it the way Vanguard really pushed indexing. I think if such a company really took off, you'd see a similar thing happen and more people would have their money in a PP.

As an aside, I'm still an indexing skeptic
http://gyroscopicinvesting.com/forum/ht ... ic.php?t=7

Arturo wrote: So, 95% of the brokers, companies and professional investors in the world are wrong after years of work dedication, studies and money investment, but an easy and "simple" system like PP can make that, a very small community of home investors, beat the market by 10%? Why Warren Buffet needs to constantly reinvest, study the market, or get the best MBA students, to find where is going to evolve the international investment, when he just need to stick to a passive technique that will return a 10%? He just need to invest 5 billion dolar .. and in 5 years he will get a compound return of 3 billion dolars ! Just clicking on 4 ETFs ...

If you look at the growth in PRPFX in the last 10 years, it has gone from a little over $100 million in assets to over $17 billion in assets today.  This obviously means that a lot of the investment world is catching on to what the PP is about and the security it can provide (though I'm sure a lot of the PRPFX inflow is just dumb money chasing returns).

The real test with the PP is not whether it works in the abstract, or whether it works for other people; the real test is whether it works for you, and only you can find this out by doing your own research and if you think it's right for you committing some of your assets to the strategy and seeing how it goes.

My own experience with the PP is that it has been a great fit and I love using it.  After you get the hang of it, you may experience for the first time in your life real peace of mind about your investments.

I don't expect you to take my word or anyone else's word for such a bold claim, but I would challenge you to take what we are talking about seriously, because it may be that rare thing in life that actually works and is cheap, easy and simple.

Don't give the investment world too much credit.  It's mostly a bunch of salesmen scheming to separate you from your money, as opposed to a group of economic and financial wise men trying to divine investment truths (which is how many of them present themselves).

stone wrote: As an aside, I'm still an indexing skeptic
http://gyroscopicinvesting.com/forum/ht ... ic.php?t=7

But cap-weighted is momentum....  or at least growth momentum.

There are a lot of things in life where the best choice is not the one recommended by "professionals" in the industry:

If the best medicine is eating healthy food, rather than chemical pharmaceutical drugs, do you think someone who stands to make a profit selling pharmaceutical drugs is going to tell you this?

If the safest recreational drug grows easily in the ground, do you think someone who makes a profit brewing beer is going to tell you this?

Just like in many other examples, if the safest way to invest your money can be done easily by someone with no professional experience, do you think someone who makes a profit by steering you towards high expense ratio actively traded funds is going to tell you this?