Gyroscopic Investing

Posted: **Sat Oct 16, 2010 10:54 am**

Thanks Clive, more food for thought!
Is Mebane Faber's book "The Ivy Portfolio" a good read? Does it explain GTAA?

Also, trading costs could be minimized by picking a cheap broker (and hope they stick around). Lightspeed might be the cheapest (http://www.lightspeed.com/?page_id=5061&from=5091) in the US at 40cents/100 shares, not counting a place like Zecco with 10 free trades per month.

Posted: **Sat Oct 16, 2010 3:48 pm**

Clive, as always you're laying out a thorough analysis, thanks!

My 2 cents on the Mebane Faber's article: one can sign up for free portfolio updates on his website. He sends an update on the status of all 5 slices at the beginning of each month.

Posted: **Sun Oct 17, 2010 11:41 am**

Looks like the GTAA etf will be investing in a lot (50-100) of ETFs: http://www.mebanefaber.com/2010/09/29/c ... -nysegtaa/

Wondering about the complexity of this versus the relatively simple 5 ETF method described in his paper. Will bigger be better?

Posted: **Mon Oct 18, 2010 1:20 pm**

Clive wrote: The extra refinement of the GTAA ETF might add sufficient value to justify the management fee. In which case an equal three way split of GTAA, Decision Moose and P/FCF would make an interesting blend IMO. GTAA and DM are both low-down type styles (stop loss), whilst FCF is more of a Magic Formula type play that has some good years, some bad years but overall the good out-run the bad. Which is form of 66% 'power-cash' and 34% speculative type play i.e. something like Larry Swedroe's Minimise Fat Tails style.

Since 1996 such a blend provided around a 18% annualised, with only one down year (2008) of around -4% (total rewards/losses).

1996 18.39
1997 25.58
1998 30.47
1999 22.74
2000 16.60
2001 2.32
2002 44.56
2003 23.05
2004 20.38
2005 8.01
2006 25.00
2007 16.23
2008 -4.23
2009 11.86

I'd guess at around a 18.8% annualised since 1972 with equally low down years.

At times DM can hold gold, but only does so when gold is on the rise (as it can also longer dated bonds). So in very general terms its still a bit of a PP type play.

I'm looking to start running with such a three-way myself come mid December/January. If the GTAA ETF is up and running by then I'll probably opt for that, run the DM manually (in the absence of a ETF) which requires once per week reviews, often with no action being required, and also run a FCF myself (once yearly review, picking 5 to 10 to hold for the year selected from the Dow 30 having the lowest Price to Free Cash Flow).

DM (and GTAA) are forms of Growth type styles (relative strength based), FCF (or Magic Formula) is a Value type play. Generally Value and Growth tend to somewhat counterbalance the risk whilst potentially providing a smoother progression of gains over time.

JMHO.

Hi Clive,

I'm really interested in your approach of strategy/investment philosophy allocations rather than just purely specific asset allocations (though, of course, each strategy has it's own unique assets at any given time).

Along your line of thinking, what would you think of the following allocation?:

25% GTAA (the high ER notwithstanding)

25% DM

25% Combination of global Fama French 3 factor model/conventional global cap weighted equities (utilizing, for example, VTI and the not yet released Russell Global Value 2000 etf in a 50/50 split).

25% Safe assets: cash, I-bonds, TIPS, SHY etc....

or, leave out Decision Moose completely and go 33% each?

Thanks in advance for your thoughts

Maestro G

Whoops! I should have sited VT not VTI in the above example.

Thanks again!

Posted: **Tue Oct 19, 2010 9:59 am**

Clive wrote: I think you have to weigh-up/balance both asset and strategy Maestro G.

Taking your 'exclude the DM' example of 33.3% in each of a 3-factor, cash, GTAA type blend would leave you with no (or small) gold exposure during such times as the 1970's/80's high inflation periods.

DM and GTAA are already low-down (stop loss) styles, and might be considered as a form of power-cash. So expanding the cash exposure further just seems a bit of an unnecessary additional drag.

There's a thread over on TMF that I used to load up DM yearly returns http://boards.fool.com/validating-decis ... e#26798480

Best. Clive.

Right. Understood. Although, we don't yet know what exactly GTAA will consist of or in what proportions. It will be interesting to see how transparent the allocations eventually are over at AdvisorShares. Most likely, though, not a large percentage in gold relative to the overall portfolio. Faber seems to favor the commodities composite basket etf, but I just speculate....

Thanks much for the TMF link to DM returns! Looks like immediate action following the recent switch to EPP would not have paid off very well.

Regards,

Maestro G

Posted: **Tue Oct 19, 2010 10:09 pm**

Clive, Maestro G,

Like you both, I'm thinking about mixing these strategies. The goal would be minimizing the maximum drawdown, but keeping a good growth rate potential. The cornerstone strategies would be PP and GTAA. Added to those, DM and MF.
I'm quite attracted to the (so far) quite good "worst years" of the GTAA and PP. I want to avoid going down 30%+ like in 2008... I'm already for about 30% of my portfolio in the PP. I might start out doing the GTAA myself, keeping an eye on the upcoming ETF to see how it compares. The tax complications of commodity ETFs might keep me out of those when self managing though.

Overall allocation might be something like

PP30%
GTAA30%
DM15%
MF15%

And 10% cold hard cash on top of whatever's in cash in the PP/GTAA/DM...

Alternatively, I might not do the DM, extend the GTAA with a few more asset classes and go for

PP35%
GTAA35%
MF 20%
Cash10%

Not sure yet what the most prudent way forward would be. Thoughts, rants, etc. welcome!

Update 10/20: Guess taxes for commodities isn't different than Gold

http://seekingalpha.com/article/54697-t ... ities-etfs

Gyroscopic Investing

PP SCV, EM Maths

PP SCV, EM Maths

Re: PP SCV, EM Maths

Re: PP SCV, EM Maths

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Re: PP SCV, EM Maths