Gyroscopic Investing

I've been invested in the PP for some time now and am still not convinced that the portfolio will continue to perform as it has historically. I check the performance throughout the day and over the last week have not seen a single positive day (perhaps there has been one but the general trend is lower).  Gold is falling and treasuries and equities are unable to cover the losses to buoy the rest of the portfolio. Am I the only one that is concerned? I think I will sell before year's end as I don't think I can rebalance into a falling asset like gold or treasuries when the time comes.

buddtholomew wrote: I check the performance throughout the day and over the last week have not seen a single positive day (perhaps there has been one but the general trend is lower).

 

Correct me if I'm wrong, but hasn't most research shown an inverse correlation between how often you look at your investments and how well you do over the long run?

Gold is falling

Time to buy gold!!  I just re-balanced today and I'm feeling pretty happy about it.

The PP is not an appropriate investment vehicle for savings where the day-by-day performance matters. It sounds like you need the peace of mind offered by an investing strategy that's even less volatile than the PP. How about all T-bills?

Of course then you're not even beating inflation a lot of the time. But that's how it goes. There's no free lunch in the investing world.

For those of us holding EDV, this really is a really awful PP day, I grant you that. With EDV being down almost 5% (even though TLT is up?!), and with gold also being way down... yeah.

As I've said before, I started DCAing into the PP in September. It's been consistently down and more down and then yet more down ever since. I'm still hanging in there, and have been continuing to DCA each month, but bleargh. Wish the PP would throw me even a tiny bit of positive reinforcement. Ah, well. I will stick to the plan and have faith.

MomTo2Boys wrote: For those of us holding EDV, this really is a really awful PP day, I grant you that. With EDV being down almost 5% (even though TLT is up?!), and with gold also being way down... yeah.

As I've said before, I started DCAing into the PP in September. It's been consistently down and more down and then yet more down ever since. I'm still hanging in there, and have been continuing to DCA each month, but bleargh. Wish the PP would throw me even a tiny bit of positive reinforcement. Ah, well. I will stick to the plan and have faith.

I just checked EDV and it appears to be up .23%

Alanw wrote:

MomTo2Boys wrote: For those of us holding EDV, this really is a really awful PP day, I grant you that. With EDV being down almost 5% (even though TLT is up?!), and with gold also being way down... yeah.

As I've said before, I started DCAing into the PP in September. It's been consistently down and more down and then yet more down ever since. I'm still hanging in there, and have been continuing to DCA each month, but bleargh. Wish the PP would throw me even a tiny bit of positive reinforcement. Ah, well. I will stick to the plan and have faith.

I just checked EDV and it appears to be up .23%

Oh, wow! Okay... Marketwatch still says it's down almost 5%. How strange...

buddtholomew wrote: I think I will sell before year's end as I don't think I can rebalance into a falling asset like gold or treasuries when the time comes.

Bud---I reay think you'll regret that decision.  Why don't you try to go a month or so without checking your portfolio?  Maybe consider a VP of I or EE bonds to give you a bit less volatility.

MomTo2Boys wrote:

Alanw wrote:

MomTo2Boys wrote: For those of us holding EDV, this really is a really awful PP day, I grant you that. With EDV being down almost 5% (even though TLT is up?!), and with gold also being way down... yeah.

As I've said before, I started DCAing into the PP in September. It's been consistently down and more down and then yet more down ever since. I'm still hanging in there, and have been continuing to DCA each month, but bleargh. Wish the PP would throw me even a tiny bit of positive reinforcement. Ah, well. I will stick to the plan and have faith.

I just checked EDV and it appears to be up .23%

Oh, wow! Okay... Marketwatch still says it's down almost 5%. How strange...

Big $1.54/share dividend from EDV probably causing that discrepancy.

The PP is designed to produce moderate returns subject to low volatility.

I haven't been checking my balances, but judging from etfreplay.com, the portfolio has seen some low negative volatility since about October. Year-to-date it's up 6.5%. This is all consistent with the low-volatility/moderate-return objective, and the track record of sustained real returns in the 3-5% range.

I think if one is uncomfortable with the low volatility the PP sees sometimes, then they would probably be better served by a different portfolio with a zero-volatility/low-return goal. This isn't a dig or a value judgment. But if you build a portfolio that's advertised as low-but-not-zero volatility, you can't get too bent out of shape when it sees a patch of non-zero volatility.

One option would be to put 50% in a 4x25 PP and the other 50% in a VP of T-bills. That will have very low (but still nonzero!) volatility. In Fail Safe Investing, Harry Browne suggested 100% T-bills, for this circumstance, as PointedStick said. Clive used to speak highly of a short term treasury ladder. Zvi Bodie suggests putting about 90% in treasury bonds (specifically TIPS but let's set that aside for now) and the rest in stock index futures. Usually you can expect the futures to expire worthless, but during a strong rally you'll get a big payoff and won't feel left out.

jimbojones wrote:

MomTo2Boys wrote:

Alanw wrote: I just checked EDV and it appears to be up .23%

Oh, wow! Okay... Marketwatch still says it's down almost 5%. How strange...

Big $1.54/share dividend from EDV probably causing that discrepancy.

TD Ameritrade now shows EDV down .03%, TLT up .13%. Bonds must be falling today.  What you are seeing often occurs when dividends are being paid, usually towards the end of a quarter.  It will all be straightened out tomorrow.

This chart always has a one day lag. But I am happy with the PP performance YTD. It is doing exactly what I would expect it to do. It will probably end the year with a 4% real return. I am a happy camper.

Edit: Budd, this image will update everyday with the PP's YTD performance. You should check on it when your nervous because I think you are operating on an extremely short time horizon. Zooming out to even a year will be an improvement.

Melveyr:

Is there a link for your chart?
That is very educational...

It will keep updating here, or you can go to the source:
http://www.stableinvesting.com/p/recent ... mance.html

I have last year's as well. It updates automatically every day (but with a one day lag).

As I see it, we do not have Prosperity, Recession, traditional Inflation, or heavy Deflation. Therefore, PP short term balance fluxations makes sense! Having said that, until our economy finds a direction, up or down, what should the PP deliver in performance? What do you realistically expect "Bud"?

Melveyr:

Folks on this website are so pleasant.
Thanks!

JMoyle wrote: As I see it, we do not have Prosperity, Recession, traditional Inflation, or heavy Deflation. Therefore, PP short term balance fluxations makes sense! Having said that, until our economy finds a direction, up or down, what should the PP deliver in performance? What do you realistically expect "Bud"?

Interesting point. It certainly does feel like economic purgatory.

I always want to encourage budd and anyone else who is feeling PP angst, but I just don't see anything all that unusual happening right now.

Look at melveyr's chart and it looks about like you would expect a PP chart to look.

With that said, I've never felt like watching my investments throughout the day was a good use of my time or energy.  It always left me feeling drained and nervous.

If the PP is too volatile, I would say look for something that won't create so much stress.  Less stress in exchange for lower returns is almost always a good exchange over the long term.

Budd, good luck with whatever you decide to do.

I was under the impression that the HBPP is a "once a year" portfolio:  check it every January 1 (or whenever) and rebalance as necessary.  The portfolio's value between these annual check points is irrelevant because no one is supposed to be looking at it.

LifestyleFreedom wrote: I was under the impression that the HBPP is a "once a year" portfolio:  check it every January 1 (or whenever) and rebalance as necessary.  The portfolio's value between these annual check points is irrelevant because no one is supposed to be looking at it.

What if the PP dropped 50% in the middle of a year and happened to move back up to break even by Jan 1?

That 50% could have just as easily lined up with Jan 1. I wouldn't place too much emphasis on the Julian calendar. I think looking at intra year peformance is a great way to kick the tires. The PP is riskier than most people here think because they just look at the year end values. The gold bubble popping in the late 1980s was very frightening on an intra year time frame. More so than our recent crisis.

All of my work has led to me believe the PP is overweight gold, but the arbitrary symmetry of the 4 way split makes it easy to explain and look at. I am still doing more work but I will probably be departing from the vanilla PP soon. Seeking something that is more balanced on a risk basis (rather than arbitrary balance of dollar amounts). The PP isn't broken by any means, but I spend enough time thinking about finance and investing where I am comfortable coming up with my own plan that makes sense to me.

melveyr wrote:All of my work has led to me believe the PP is overweight gold, but the arbitrary symmetry of the 4 way split makes it easy to explain and look at.

I had the same suspicion, so I decided recently to analyze *every* permutation of dividing a portfolio into the 4 assets (from 1-100%).  Yes, all 176,851 of them. 

I backtested for CAGR, Max drawdown, annualized standard deviation, and sharpe ratio for 1972-2012 and every individual decade.

What I found was two things:

1)  The various percentages of assets could vary wildly and yet give very similar returns and sharpe ratios over any given period.  Gold, for example, might vary from 17-30% (with attendant changes in the other allocations) and yet the portfolio had nearly identical returns and volatility.

2)  The "optimum" mixes for the portfolio, not at all surprisingly, changed with each period I tested.

It's been a couple of weeks since I looked at the results, but I can dig back through and post more about the research if anyone is interested...

P2T

Peak2Trough wrote:

melveyr wrote:All of my work has led to me believe the PP is overweight gold, but the arbitrary symmetry of the 4 way split makes it easy to explain and look at.

I had the same suspicion, so I decided recently to analyze *every* permutation of dividing a portfolio into the 4 assets (from 1-100%).  Yes, all 176,851 of them. 

I backtested for CAGR, Max drawdown, annualized standard deviation, and sharpe ratio for 1972-2012 and every individual decade.

What I found was two things:

1)  The various percentages of assets could vary wildly and yet give very similar returns and sharpe ratios over any given period.  Gold, for example, might vary from 17-30% (with attendant changes in the other allocations) and yet the portfolio had nearly identical returns and volatility.

2)  The "optimum" mixes for the portfolio, not at all surprisingly, changed with each period I tested.

It's been a couple of weeks since I looked at the results, but I can dig back through and post more about the research if anyone is interested...

P2T

I would be interested if it isn't too much work... 

Me too

Yes, as a fellow said in another post DD can be up to 25%

I've only been following the PP for a few months now, so I certainly understand the negative feelings related to the recent performance.  For me, the problem comes down to comparing the performance of Gold to the performance of a standard 50/50 or 60/40 bogleheadish portfolio.  For instance, today, the PP lost about 0.10%.  That doesn't seem alarming until you compare it to a bogleheadish portfolio that gained 0.42%.  Especially when Gold lost 1.17%. 

So it's natural to think the PP is failing based on that comparison, but in reality it only lost 0.10%.  Hang in there.

Peak2Trough wrote:

melveyr wrote:All of my work has led to me believe the PP is overweight gold, but the arbitrary symmetry of the 4 way split makes it easy to explain and look at.

I had the same suspicion, so I decided recently to analyze *every* permutation of dividing a portfolio into the 4 assets (from 1-100%).  Yes, all 176,851 of them. 

I backtested for CAGR, Max drawdown, annualized standard deviation, and sharpe ratio for 1972-2012 and every individual decade.

What I found was two things:

1)  The various percentages of assets could vary wildly and yet give very similar returns and sharpe ratios over any given period.  Gold, for example, might vary from 17-30% (with attendant changes in the other allocations) and yet the portfolio had nearly identical returns and volatility.

2)  The "optimum" mixes for the portfolio, not at all surprisingly, changed with each period I tested.

It's been a couple of weeks since I looked at the results, but I can dig back through and post more about the research if anyone is interested...

P2T

Did your analysis also involve rebalancing assets?