Gyroscopic Investing

Hi,

I've been lurking on the forums for a bit over a week now and am steadily making my way through Fail-Safe Investing.  I'll be hitting up the new book next.  I'm definitely a skeptic ever since I started noticing how much manipulation of the market the government does and the PP seems to be my best bet to make up for my disappointing lack of precognition.

My question is this.  In a normal (or more normal) market there have been obvious assets that were "down" and others that were "up" such that starting a new PP would continue the balancing act over time.  Right now it seems like everything is expensive relative to my perception of the economic health of the U.S.  Despite having positive economic growth (barely) and reduced unemployment (job market drop outs), things do not look good in Q4 2012 and Q1 2013.  My company, one of the larger Fortune 500 companies, and is already enacting temporary and indefinite layoffs.  Given my companies size and exposure to energy and commodities, I don't think this bodes well for the next 4 to 6 months.

My question is this, is there any upside to moving my funds from cash to a PP now as opposed to waiting until later this year?  I'd at least like to wait until after the election since if things don't go our way some of the TLO's will likely turn permanent.  My funds are in cash because I'm consolidating some old 401k's into a Rollover IRA and just started a Roth with some inheritance money.

Feedback is appreciated.

The budd-o-meter suggests that now would be a great time to start a new PP.

Do your own research, though.  Make sure it's right for you.

There is no discernable rhythm to the PP.

Additionally, even if you could predict a certain macroeconomic environment it is hard to predict how the PP would respond to it. That is an interesting quirk of being neutral; there is nothing that you are "rooting" for.

The only thing I can think of that is clearly bad for the PP is when a Fed chairmen aggressively tightens into an already weak economy. In this environment, no asset class does well (except T-Bills). These episodes don't last too long though. They are Fed induced, but the Fed usually relieves the pain after they realize what they have done.

Welcome to the forum. With the caveat that you have enough cash reserves to tide you over in case you hit one of life's speed bumps I would set up a PP.

I felt similarly late last year, jumped in anyway, and the water's been fine.  The PP is an anti-market timing strategy, so why try to time it?

That said, I would encourage you to spend more time around the forums, and finish reading Fail Safe Investing and the new PP book.  There's no rush, and it's important to fully understand what you're getting into.

Welcome! I would recommend apportioning a small percentage of your assets to the PP if you feel uncomfortable diving in. It doesn't have to be all-or-none.

What if your prediction of the future is wrong?

I recommend to start now.

Assuming your amounts are large enough that commissions are reasonable, I'd start with 10% to 20% chunks and repeat every 4 to 12 weeks.  In other words, put in at least 10% (up to 20%) of your total into a PP now (divided equally into all four categories).  Repeat in a month (or two or three).

It's not clear if you're concerned that YOU may be laid off. If there is such a chance, how much savings do you have to tide you over?

Otherwise, while I'm not a believer in market timing, there is no harm in waiting until you've finished more reading on the PP, and if it makes you feel better to set a goal of investing in the PP in January, 2013, or some other arbitrary date, no problem.

The PP is a weird strategy. I think it is smart to read as much as you can before investing in it.

However, there are some things you can learn only by doing. Dipping your toe in with a little bit of money can help accelerate the learning process, and is the only way to learn about some of the emotional nuances that come from a PP. (Not financial advice of course because I am not an advisor, just hypothetically speaking  ;) )

Figuring It Out wrote: Otherwise, while I'm not a believer in market timing, there is no harm in waiting until you've finished more reading on the PP, and if it makes you feel better to set a goal of investing in the PP in January, 2013, or some other arbitrary date, no problem.

I always think of easing into the PP over time as less of an attempt at market timing, and more like the way you might ease into a swimming pool if the water is a little chilly.  For some, jumping into such a pool is the right approach, and for others moving in slowly is more comfortable.

Think of it as "emotional cost averaging."

MediumTex wrote: The budd-o-meter suggests that now would be a great time to start a new PP.

Do your own research, though.  Make sure it's right for you.

Don't dismiss investors emotions...it's overconfident Texans that I am weary of.

RuralEngineer wrote: My question is this, is there any upside to moving my funds from cash to a PP now as opposed to waiting until later this year? 

I don't think so.  Obviously, you can't predict what will happen after you put your money into the PP, but in my opinion now is as good a time as any.

If you're antsy about it, one idea would be to modify it such that's it's cash-heavy and watch it for a while.  i.e., 70% cash and 10% everything else (or something like that).  Being able to watch it work for like this might help you get more comfortable with the system.

Having said that, I think the best way is to just put your money in and forget about it for 6 months or so. 

Now is probably the perfect time to get in...  Everything is down - Gold, stocks, and even LT bonds haven't caught up yet to the recent downtrend in equities.  Now is a great time to buy, in my opinion.

It seems that the fiscal cliff has got all investors thinking doom and gloom.  As some wise investor once said, "Be greedy when others are fearful and fearful when others are greedy..." or something like that....

buddtholomew wrote:

MediumTex wrote: The budd-o-meter suggests that now would be a great time to start a new PP.

Do your own research, though.  Make sure it's right for you.

Don't dismiss investors emotions...it's overconfident Texans that I am weary of.

I don't dismiss them at all.  I actually watch the fluctuations in your fear levels very closely.

I hope that you will continue posting your perceptions of how the PP is performing, because I think it is tremendously valuable real-time information about how the PP's movements are being perceived.

I think that you simply post what a lot of people are probably feeling to some extent.  I like to think that those feelings will fade through positive experiences with the strategy, but it's different for every person.

The first few months are definitely the hardest.  I also bought in just before a down trend, and tortured myself unnecessarily by watching the markets every day.

It's a normal human reaction to want to stay out of an investment when it's doing poorly, and buy in when it's going up.  This leads you into a "buy high, sell low" strategy, which you only realize when you look back at your returns.

I second the suggestion to test the waters by putting something like 10-20% of your investments into the PP now, then wait a few months or a year until you get comfortable with the strategy.  I waited about a year, then jumped in with everything else and haven't regretted it.

Welcome to the forum.

My first recommendation is to do enough research that you are comfortable with the PP strategy.  Because at the end of the day it is your money and there are very real consequences to investment decisions.

Also, keep in mind that there are many implementation details that exist within the PP that are not immediately obvious from reading.  This would favor a phased in approach to "accelerate your learning" as Melveyr suggested.

You can always go 50% in, that way you will have made the right decision for half of your money.  That was the approach that I took.  And sure enough, I was half wrong.

Go figure.

Thanks for the feedback all.  I've decided to start transitioning into a HBPP due to a lack of comfort with PRPFX's deviation from the traditional model.  I did hit a bit of a road bump when I realized that all of the funds I was interested in at Fidelity (FSTMX for example) had $10,000 minimum investment limits.  That's pretty rough when you're 28.  It's also hard to understand when Vanguard index funds only have $3000 minimums.  I was getting set to take the account closing fee and transition to Vanguard, but it looks like I'll be able to replicate my choices with ETF's (ITOT, etc.).  A little less comfortable due to lower total assets and the ishares ETF's being somewhat new, but I still think it will be better than PRPFX.

I think the only major decision I have left is whether to try and find an ETF to handle my LTT and T-bill / STT needs or set up bond ladders myself.

In other good news, I just found out that starting in January my company is offering a Roth 401k.  I still get the fully company match and it's still diversified between tax deferred and post tax funds because my company match can't be taxed, it has to go into a traditional 401k.  In addition, I have the option for a SDBA (self directed brokerage account) instead of the "select-a-portfolio" funds currently offered.  The downside is there's a $100 annual account fee and trades are $12.  That's going to get expensive quick since I'll probably have to rebalance quarterly.

I'd actually found ITOT on the ishares website but can't find it at Fidelity, so the point is moot.  However, I had settled on IVV as being the best alternative.  It's not as inclusive as IWV, but the ER is only 0.07% as opposed to 0.2% for IWV.

Both trade for free at Fidelity.  Does the broader market exposure justify the increased ER (2.85x) in a PP?

RuralEngineer wrote: Both trade for free at Fidelity.  Does the broader market exposure justify the increased ER (2.85x) in a PP?

Absolutely not. If S&P 500 was ok for HB, it should be for you too.

Hi. I'm "new". I bought the book after participating in all the discussions of it on Bogleheads. and followed the advice in the book to go all in right away and don't procrastinate. Don't try to get cute and market time. It won't work. I'm glad I plunged "all in". My PP started last Wednesday and I caught the big move in TLT on Friday of around 1.5%. Doesn't mean much in the long run, but it did make me feel good on Friday!

hpowders wrote: Hi. I'm "new". I bought the book after participating in all the discussions of it on Bogleheads. and followed the advice in the book to go all in right away and don't procrastinate. Don't try to get cute and market time. It won't work. I'm glad I plunged "all in". My PP started last Wednesday and I caught the big move in TLT on Friday of around 1.5%. Doesn't mean much in the long run, but it did make me feel good on Friday!

Congrats and welcome to the forum! I know it's hard but try not to watch your portfolio. Just leave it alone and let it do its thing in the dark.

Ad Orientem wrote:Congrats and welcome to the forum! I know it's hard but try not to watch your portfolio. Just leave it alone and let it do its thing in the dark.

Actually that's quite easy for a few days!  :-)

Welcome hpowders!

I'm glad you found your way over here.

Good luck with your PP.  I hope it meets all of your expectations.

Ad Orientem wrote:

hpowders wrote: Hi. I'm "new". I bought the book after participating in all the discussions of it on Bogleheads. and followed the advice in the book to go all in right away and don't procrastinate. Don't try to get cute and market time. It won't work. I'm glad I plunged "all in". My PP started last Wednesday and I caught the big move in TLT on Friday of around 1.5%. Doesn't mean much in the long run, but it did make me feel good on Friday!

Congrats and welcome to the forum! I know it's hard but try not to watch your portfolio. Just leave it alone and let it do its thing in the dark.

Thank you Ad Orientem! Yeah. That's easier said than done!

MediumTex wrote: Welcome hpowders!

I'm glad you found your way over here.

Good luck with your PP.  I hope it meets all of your expectations.

Thank you, MediumTex! I finished reading the book and initiated a "Level 1-Basic-All Funds" 4 ETF PP as described on pages 179-182 in your book, last week. It was the easiest way for me to set it up. Glad I found this forum.