Gyroscopic Investing

Posted: **Wed Jan 02, 2013 12:09 pm**

I posted my annual recap of the year for the Permanent Portfolio. The basic sample portfolio made up of four ETFs was in the 6.7-6.8% range:

https://web.archive.org/web/20160324133 ... 2-results/

Once we get final CPI numbers, it seems the portfolio will be in the +3-4% real return range which is pretty much right on target. Stock heavy portfolios would have done better as the total stock market had around 16.4% returns, but there is nothing in the performance I'm unhappy about. Mid year 2012 stocks were near zero or negative for the year, so they had a very good rebound the latter half of the year. This year cash and LT bonds were the real losers. Gold beat them both to come in second place at around 7%.

Posted: **Wed Jan 02, 2013 12:17 pm**

Great post. I think I only looked at my portfolio numbers about 15 times or so this year, so it's nice to see an annual checkup.

Happy New Year to you craigr and thank you (and MT) again for all your efforts in continuing on HB's legacy! [clap, clap, clap]

Posted: **Wed Jan 02, 2013 12:22 pm**

I think that a PP investor probably would have been happier in 2012 if he had never looked at his portfolio at all.

After reading and responding to countless posts in 2012 about this or that concern about the PP, you would never guess that so much worry and angst went into a pretty stable ride that returned 6.7%.

Posted: **Wed Jan 02, 2013 12:41 pm**

When HB first introduced the PP, it was probably pretty easy to go weeks or months without checking your portfolio... The newspaper would arrive each morning, and if you spent a few minutes — before rushing out the door to work — you might be able to roughly calculate your net worth. But, by the time you calculated it, the information was already obsolete as it was yesterday's data. And later that evening you might hear a headline about what gold did or stocks did. But, that was about it for most people.

These days, everything is in real time and you have to find ways to avoid being tempted by all that information.

Posted: **Wed Jan 02, 2013 3:05 pm**

Hi all,

With Bonds+Gold in a secular bear-market do the Stocks will balance the portfolio to be positive+?

Thank you.

Best regards.

Posted: **Wed Jan 02, 2013 4:22 pm**

frugal wrote: Hi all,

With Bonds+Gold in a secular bear-market do the Stocks will balance the portfolio to be positive+?

Thank you.

Best regards.

You mean a secular bull market for gold and bonds, right?

In the seventies two of the PP assets were in secular bear markets (stocks and bonds) and the PP did fine with just gold in a secular bull market, so I wouldn't worry about the "two bear market assets" scenario you are describing.

Right now, though, only stocks are in a secular bear market and I don't see it ending sooner than a few years from now.

Posted: **Thu Jan 03, 2013 4:49 am**

MediumTex

craigr

can I use EUROPEAN CORPORATE BONDS fund or ETF instead of German Longterm Bonds +25 years ?

Thank you for your support.

Posted: **Thu Jan 03, 2013 11:01 am**

frugal wrote: MediumTex

craigr

can I use EUROPEAN CORPORATE BONDS fund or ETF instead of German Longterm Bonds +25 years ?

Thank you for your support.

No. Corporate bonds do not provide any where near the deflation protection that government bonds do.

Posted: **Fri Jan 04, 2013 9:46 am**

For certain timeframes in 2012, depending on your starting times, the PP performed horrendously. I started my wife's PP on 2/6/12, and currently she is only up 0.88% overall. You can see I had the misfortune to buy all of her positions on a short term high for the PP and it has just recovered to baseline recently, having gone through several periods of time this last year where she was negative.

This is unfortunate, but I suppose in the grand scheme of things it doesn't matter. If this was a larger portfolio I would have been wise to average in over a period of 12 months to make sure I wasn't buying assets at too high of a price.

Posted: **Fri Jan 04, 2013 10:38 am**

Storm wrote: For certain timeframes in 2012, depending on your starting times, the PP performed horrendously. I started my wife's PP on 2/6/12, and currently she is only up 0.88% overall. You can see I had the misfortune to buy all of her positions on a short term high for the PP and it has just recovered to baseline recently, having gone through several periods of time this last year where she was negative.

This can be the case with any portfolio. If you started with stock heavy allocation you did fine except if you bought in August for instance. In which case you'd have much worse returns.

The thing to remember is that the world does not run on a fiscal calendar. We use 12 month returns from start to end because it is easy to do as a benchmark that people expect. But honestly if I had to do it myself I would only compare every few years or so because that starts to smooth out the bumps.

As for DCA vs. lump sum. Honestly I prefer lump sum because statistically it's more likely you'll get better returns because you are putting the money to work earlier and giving the assets a longer chance to work. We simply don't know what is going to a better price going forward. If you had started investing in Mid-May for instance at the stock low point you'd probably be a lot higher. But if you started in August? You may be negative.

So I think your strategy was sound and you did not lose any money. But most importantly you diversified well to prevent the possibility of a large loss. Which now we know did not happen, but it always could at any moment. So it was still prudent what you did even if you happened to hit a less optimal time to go all in.

Posted: **Fri Jan 04, 2013 3:56 pm**

craigr wrote:
Storm wrote: For certain timeframes in 2012, depending on your starting times, the PP performed horrendously. I started my wife's PP on 2/6/12, and currently she is only up 0.88% overall. You can see I had the misfortune to buy all of her positions on a short term high for the PP and it has just recovered to baseline recently, having gone through several periods of time this last year where she was negative.
This can be the case with any portfolio. If you started with stock heavy allocation you did fine except if you bought in August for instance. In which case you'd have much worse returns.

The thing to remember is that the world does not run on a fiscal calendar. We use 12 month returns from start to end because it is easy to do as a benchmark that people expect. But honestly if I had to do it myself I would only compare every few years or so because that starts to smooth out the bumps.

As for DCA vs. lump sum. Honestly I prefer lump sum because statistically it's more likely you'll get better returns because you are putting the money to work earlier and giving the assets a longer chance to work. We simply don't know what is going to a better price going forward. If you had started investing in Mid-May for instance at the stock low point you'd probably be a lot higher. But if you started in August? You may be negative.

So I think your strategy was sound and you did not lose any money. But most importantly you diversified well to prevent the possibility of a large loss. Which now we know did not happen, but it always could at any moment. So it was still prudent what you did even if you happened to hit a less optimal time to go all in.

Yes I agree and I've listened it in your or HB podcasts

Imagine a Drawdown of 50%-60%;

There is any emergency plan if HBPP fails?

Regards.

Posted: **Fri Jan 04, 2013 4:35 pm**

frugal wrote:There is any emergency plan if HBPP fails?

I know it sounds odd, but I don't believe in endless emergency planning. I believe in having tools for a flexible response depending on the situation.

I learned this valuable lesson from working in start-ups. Worst case scenario planning never really works because the scenarios you come up with are never what really happens. Usually it's something you didn't expect and couldn't plan for. Or even if you guessed the problem correctly, you didn't guess how people would react (very common actually).

So I prefer to instead have this basket of tools to respond as the situation unfolds. So I want to own some cash in case I need it, I want to own some stocks in case they are needed, bonds are nice if you need to ride out a prolonged low interest rate environment and finally you have gold in some kind of physical as best you can if everything really goes off the rails.

There is no specific "emergency plan" then. If you need to gold for whatever reason you have it. Same for the other assets. The situation will dictate how you use the tools to respond. It is a better solution than trying to work out worst case scenarios and plans for them.

Posted: **Fri Jan 04, 2013 7:21 pm**

Are the dividends from the ETFs included in those returns or is it just price performance?

edit:

Just re-read the bolded note

NOTE ON THE CHARTS: The charting site I’m using (www.stockcharts.com) may not be showing all dividends yet which is why some of the final totals are lower. Just use the charts for general trend visualization.

Posted: **Fri Jan 04, 2013 8:10 pm**

frugal wrote: There is any emergency plan if HBPP fails?

Don't put all of your eggs in the HBPP basket. For the VP, consider rental real estate (whether actual real estate or REITs and real estate funds) that pay out rental income when they cashflow positive. Corporate bonds (funds or direct ownership) pay interest. Dividend-paying stocks are also worth considering, especially the ones that are Dividend Aristocrats (meaning they are S&P 500 companies that have been raising their dividends for a quarter of a century or more). Consider having "profitable hobbies" that pay at least some kind of net income that can be used to supplement other sources of income.

Posted: **Fri Jan 04, 2013 9:16 pm**

So the stock market did almost 3x as well as the PP... I hope someone is checking on Budd's well being.

My return was 8.2% but my PP was not in 4x25 balance. I have not hit 15% or 35% so it's just riding along somewhat out of balance.

Posted: **Fri Jan 04, 2013 9:26 pm**

craigr wrote:
frugal wrote:There is any emergency plan if HBPP fails?
I know it sounds odd, but I don't believe in endless emergency planning. I believe in having tools for a flexible response depending on the situation.

I learned this valuable lesson from working in start-ups. Worst case scenario planning never really works because the scenarios you come up with are never what really happens. Usually it's something you didn't expect and couldn't plan for. Or even if you guessed the problem correctly, you didn't guess how people would react (very common actually).

So I prefer to instead have this basket of tools to respond as the situation unfolds. So I want to own some cash in case I need it, I want to own some stocks in case they are needed, bonds are nice if you need to ride out a prolonged low interest rate environment and finally you have gold in some kind of physical as best you can if everything really goes off the rails.

There is no specific "emergency plan" then. If you need to gold for whatever reason you have it. Same for the other assets. The situation will dictate how you use the tools to respond. It is a better solution than trying to work out worst case scenarios and plans for them.

This response is right on target.

In real life there is no way to plan with precision for events that involve the number of variables (economic, psychological, political, environmental, etc.) we see reflected in the investment markets. It is infinitely better to have a simple and flexible investment strategy that is profitable under normal circumstances, yet robust enough to survive most extreme "black swan" events intact.

To the extent that you want bet on particular outcomes, use your gambling money. Maybe you win, maybe you lose.

Posted: **Fri Jan 04, 2013 10:27 pm**

I track a "theoretical" PP consisting of VTI, GLD, TLT, and SHY, with monthly rebalancing and including all published dividends. For the past 12 months my data says this has returned 6.34%., with individual returns of

VTI: 16.45%
GLD: 6.6%
TLT: 2.41%
SHY: 0.25%

Morningstar (according to Craig) has the following

VTI: 16.4% (close enough)
GLD: 7.0% (??)
TLT: 3.3% (??)
SHY: 0.3% (close enough)

Does anyone else independently track these? Are my numbers off or are Morningstar's?

Posted: **Fri Jan 04, 2013 11:44 pm**

craigr

HB Reader

I like to know your way of thinking.
In fact maybe this is a Bullet proof portfolio as HB called it.

LifestyleFreedom

Which items compose your VP?

Thank you all.

Posted: **Fri Jan 04, 2013 11:48 pm**

rickb wrote: I track a "theoretical" PP consisting of VTI, GLD, TLT, and SHY, with monthly rebalancing and including all published dividends. For the past 12 months my data says this has returned 6.34%., with individual returns of

VTI: 16.45%
GLD: 6.6%
TLT: 2.41%
SHY: 0.25%

Morningstar (according to Craig) has the following

VTI: 16.4% (close enough)
GLD: 7.0% (??)
TLT: 3.3% (??)
SHY: 0.3% (close enough)

Does anyone else independently track these? Are my numbers off or are Morningstar's?

The gold ETFs were reporting strange numbers when I made my post (both GLD and IAU were way off from each other). I decided to use the gold price for 2012 as reported by www.goldprice.org

TLT I'll look into. I generally use Morningstar because they seem to be the most on top of total returns. I made the post on 12/31 and 1/1 so end of year these funds are all in various states of flux.

Posted: **Sat Jan 05, 2013 12:31 pm**

rickb wrote: I track a "theoretical" PP consisting of VTI, GLD, TLT, and SHY, with monthly rebalancing and including all published dividends. For the past 12 months my data says this has returned 6.34%., with individual returns of

VTI: 16.45%
GLD: 6.6%
TLT: 2.41%
SHY: 0.25%

Morningstar (according to Craig) has the following

VTI: 16.4% (close enough)
GLD: 7.0% (??)
TLT: 3.3% (??)
SHY: 0.3% (close enough)

Does anyone else independently track these? Are my numbers off or are Morningstar's?

My numbers tie out with yours.

Posted: **Sat Jan 05, 2013 1:17 pm**

melveyr wrote:
rickb wrote: I track a "theoretical" PP consisting of VTI, GLD, TLT, and SHY, with monthly rebalancing and including all published dividends. For the past 12 months my data says this has returned 6.34%., with individual returns of

VTI: 16.45%
GLD: 6.6%
TLT: 2.41%
SHY: 0.25%

Morningstar (according to Craig) has the following

VTI: 16.4% (close enough)
GLD: 7.0% (??)
TLT: 3.3% (??)
SHY: 0.3% (close enough)

Does anyone else independently track these? Are my numbers off or are Morningstar's?
My numbers tie out with yours.

Thanks. Looking into this some more I thought the TLT difference might be a reinvest/not issue, although my theoretical portfolio reinvests and this doesn't seem to make much difference. From http://finance.yahoo.com/q/hp?s=TLT+Historical+Prices

12/30/2011 price: $121.25
12/31/2012 price: $121.18
total dividends for the year: $2.98

The total return without reinvesting is 2.40%.

Reinvesting the dividends monthly, with a starting value of $1000 I get an ending value of $1024.08.

Posted: **Sat Jan 05, 2013 2:11 pm**

rickb wrote:
melveyr wrote:
rickb wrote: I track a "theoretical" PP consisting of VTI, GLD, TLT, and SHY, with monthly rebalancing and including all published dividends. For the past 12 months my data says this has returned 6.34%., with individual returns of

VTI: 16.45%
GLD: 6.6%
TLT: 2.41%
SHY: 0.25%

Morningstar (according to Craig) has the following

VTI: 16.4% (close enough)
GLD: 7.0% (??)
TLT: 3.3% (??)
SHY: 0.3% (close enough)

Does anyone else independently track these? Are my numbers off or are Morningstar's?
My numbers tie out with yours.
Thanks. Looking into this some more I thought the TLT difference might be a reinvest/not issue, although my theoretical portfolio reinvests and this doesn't seem to make much difference. From http://finance.yahoo.com/q/hp?s=TLT+Historical+Prices

12/30/2011 price: $121.25
12/31/2012 price: $121.18
total dividends for the year: $2.98

The total return without reinvesting is 2.40%.

Reinvesting the dividends monthly, with a starting value of $1000 I get an ending value of $1024.08.

Using yahoo historical I got 6.5% for PP 2012 performance.
Using ETF replay I got 6.5%.
TLT 2.63%
GLD 6.60%
VTI 16.45%
SHY .28%

Posted: **Sat Jan 05, 2013 5:25 pm**

I'm waiting until close of markets Monday to adjust what I posted. There is the readership that wants returns posted early, and my own experience that Morningstar, etc. move the final numbers around as funds report final results for the year. That's why I put this in the early post now:

"They are rounded to the nearest tenth and may not reflect all dividends yet (I’ll adjust them as they are reported):"

I wish I had taken a screen shot of what Morningstar was showing for IAU and GLD ETFs on 12/31/12 and 1/2/13. One of them was showing well under 5% for the year, the other was showing near 10%. It was so crazy I decided to just use goldprice.org as it seemed to match reality a lot better. Now the numbers have reverted to something more reasonable though.

Posted: **Mon Jan 07, 2013 6:20 am**

European Portfolio (Marc de Mesel)
Portfolio: 8 %
Stocks (MSCI EMU Index (net): 19 %
Bonds (iBoxx € Germ. 10+ (Tot Ret): 8 %
Gold (National Bank Belgium (kg): 4%
Cash ( iBoxx EONIA Index (Tot Ret): 0 %

Dutch Design (own portfolio)
Portfolio: 12,7 %
Stocks (50 % allocations; global): 16,4 %
Bonds 20% allocation, (iShares € Government Bond 15-30): 15,7 % (thx Draghi)
Gold (20 % allocation, GLD ($)): 5,5 %
Cash (10 %, CD's): 2,6 %

Posted: **Mon Jan 07, 2013 7:40 am**

UK PP

Stock
13.8%

Bonds
-1.3%

Gold
2.2%

Cash
0.5%

-------

Total
3.8%

Inflation
2.6%

Real return
1.2%

Gyroscopic Investing

Permanent Portfolio Performance for 2012

Permanent Portfolio Performance for 2012

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