Gyroscopic Investing

Don't check market... Gold is sinking... 2% down... I'm out of PP... not!

Call me crazy, but I welcome a gold crash. It'll be such an amazing opportunity to buy those beautiful coins!

I think it is my duty to comment on the portfolio performance over the last few weeks. If GLD and TLT continue their downward trend today, then my PP for 2013 will be in the red. It is extremely difficult for me to mentally absorb these losses when the US market (SP500) is either flat or slightly positive. I feel like a member of the investor pool that is left "holding the bag" while those "in-the-know" run for the hills. Not a warm and fuzzy feeling...

Gold is a volatile asset.  Its price moves around a lot.

I wouldn't want to own it outside of a strongly diversified portfolio.

buddtholomew wrote: I think it is my duty to comment on the portfolio performance over the last few weeks. If GLD and TLT continue their downward trend today, then my PP for 2013 will be in the red. It is extremely difficult for me to mentally absorb these losses when the US market (SP500) is either flat or slightly positive. I feel like a member of the investor pool that is left "holding the bag" while those "in-the-know" run for the hills. Not a warm and fuzzy feeling...

I understand the feeling. When stocks are hot, they're awesome. But this is just hindsight messing with you. Were you ever going to have a 100% stock portfolio? No? Then you were never going to be in a position to capture all those gains anyway.

Remember what your goal is. You're not trying to beat or even match the performance of the stock market. You're trying to achieve a real return of 3% or more. Most of the time, the PP has done that, but it's not a no-volatility portfolio and there have been down years. This may be another one of them.

"If you only lose 50% in the coming crash, consider yourself lucky." - Marc Faber a.k.a. Doctor Doom

If you start with that mindset, down 2% for 2013 doesn't look nearly so bad. 

I'm with pointedstick.

buddtholomew wrote:If GLD and TLT continue their downward trend today, then my PP for 2013 will be in the red.

Two of our three volatile assets have been cratering lately, resulting in being just about exactly even on the young year, and that's a bad thing?

Is this the tip of the iceberg? The rest of my portfolio is covering the recent PP losses. Ironically, the PP was selected for the money that I "cannot afford to lose."

IMO, you must fight the urge to go heavy into stocks.  The time to do that was early in 2009, but I doubt you would have wanted to buy then.  My gut tells me that these are the final days of a strong bull market that has went almost straight up since March of 09.  It's not uncommon for most other assets to go down or sideways, while stocks keep tempting people to jump in so they don't "miss out". 

That's usually near the end, before it gets very ugly in equities.  I think that may happen at some point this year, and it may happen sooner rather than later. 

We are due for at least a significant correction.  If the payroll tax expiration hits consumers hard, and the sequester happens, and there's more bad news out of Europe, it could end up being a lot worse than just a 15-20% correction, IMO.

buddtholomew wrote: Is this the tip of the iceberg? The rest of my portfolio is covering the recent PP losses. Ironically, the PP was selected for the money that I "cannot afford to lose."

If your timetable for what constitutes a loss is measured in days or weeks, you need to ditch the PP and go all into T-bills, CDs, or high-yield online savings accounts.

Of course, then you're losing to inflation most of the time and have basically no upside.

It seems like you want your portfolio to mirror stocks when they're doing well, but remain stable to continue to rise when stocks begin to tank. I don't believe any such passive portfolio exists. Maybe you could achieve that through active trading, but then you introduce the very real and very likely risk of mis-timing the market and losing big time.

You need to decide what you really want. Do you want to see your money grow quickly when the stock market rises? Or are you more interested in preventing portfolio losses during bad times? Can you tolerate any volatility, or is it too stressful to ever see your net worth fall, even from day to day? You can't have it all. Nobody has ever discovered a portfolio with a high upside and no downside.

Pointedstick wrote:

buddtholomew wrote: Is this the tip of the iceberg? The rest of my portfolio is covering the recent PP losses. Ironically, the PP was selected for the money that I "cannot afford to lose."

If your timetable for what constitutes a loss is measured in days or weeks, you need to ditch the PP and go all into T-bills, CDs, or high-yield online savings accounts.

I have a combination of CD's and IT-Treasuries to dampen the volatility of the PP even further.

It seems like you want your portfolio to mirror stocks when they're doing well, but remain stable to continue to rise when stocks begin to tank. I don't believe any such passive portfolio exists. Maybe you could achieve that through active trading, but then you introduce the very real and very likely risk of mis-timing the market and losing big time.

I am extremely loss averse, but do want to achieve a positive real return with the "money I cannot afford to lose."

Discussing the PP with others lately, I've come to appreciate just how much psychology affects investing satisfaction.  No matter what facts you can present to support the PP performance, if an individual has any inclination whatsoever that they have the ability or inside info to predict market bahavior, they will drive themselves crazy thinking they can do better than the market-agnostic PP (even while it's doing well). 

Of course, that's exactly the message that the entire professional investing world is built upon - "it's possible to beat the market" - and people get drunk on the fantasy of perpetual world-beating returns. So much so that even if their own home-grown actively managed portfolio underperforms in the long-run (which most do), simply the possibility that "the big score is within my ability to attain" will still make them happier investors.

In contrast, an investor that rationally accepts the future is unpredictable can find peace even while their investments underperform. That's a rare mindset, however, that rejects most maintream for-profit advice. Like sobriety, too many only come to that way of thinking after hitting a personal rock bottom.

buddtholomew wrote: I am extremely loss averse, but do want to achieve a positive real return with the "money I cannot afford to lose."

It seems like you want a guarantee that the PP will always achieve at least a >0% real return. I'd like that too. Unfortunately, it's just not possible. Even though the PP nearly always achieves that goal, it will have down years every once in a while. This may be one of them. But we don't really know that yet, and it's waaaaaay too early to panic. We're talking about half the portfolio losing about 7% over the past 3 months while a quarter of it has risen 14% and the remainder has been flat:



There's really nothing here that's all that terrible. The PP has been flat. You haven't actually experienced any losses, just failed to gain... which is exactly what a more conservative portfolio of CDs and medium-term treasuries would be doing.

buddtholomew wrote: I am extremely loss averse, but do want to achieve a positive real return with the "money I cannot afford to lose."

Correction: You want a positive real return every day. Harry Browne never said the PP could deliver that.

He did indeed say the PP was for "money you can't afford to lose," but he wasn't interpreting a daily dip as a loss. He was referring to losses that occur over an investor's time horizon, which for a PP should be at least a few years.

If you were in a stock-heavy or gold-bug portfolio and looked at it every 3 years, historically you would often see a loss. That's never happened with the PP, to my knowledge. That's the difference.

Alert!
Gold is on sale today....

annieB wrote: Alert!
Gold is on sale today....

Thanks for the heads up! I took advantage and bought some SGOL on sale just now. It's nice to take advantage of good deals while they last

buddtholomew wrote: I am extremely loss averse, but do want to achieve a positive real return with the "money I cannot afford to lose."

You will.  It is early days, yet, this year.  I track the PP from 6/1/2012 - which is when I first set mine up with about 15% of my available assets - just to test the waters.  Turns out 6/1 was pretty much the bottom of the stock market.  Never have had a red day in the portfolio, since.    I'm using 33/33/33 -  since I have GNMAs (minimally volatile) and 5% CDs outside of the portfolio coming due in fall of this year.  I don't have any cash earning 0%.  I just can't bring myself to leave a big chunk of change idle. 

The 3 assets alone have returned to date 4.6%, or 6.48% annually.  I am retired, but have no need of this money for 20 years or more.  So, I just watch it and wonder about rebalancing.  I set it up last year in one of the worst days of the market.  It has been green from day one. 

Yeah, gold had a big runup, far more than stocks.  Now it's fallen, but stocks are up nicely. 

This trader thinks when gold couldn't break 1700 in Jan, it was headed for a correction:

http://www.cnbc.com/id/100458259

I think gold may be a good buy, soon.  Wild guess.

Tortoise wrote: Thanks for the heads up! I took advantage and bought some SGOL on sale just now. It's nice to take advantage of good deals while they last

It's also a good time to buy PRPFX, if you're into that.

AdamA wrote:

Tortoise wrote: Thanks for the heads up! I took advantage and bought some SGOL on sale just now. It's nice to take advantage of good deals while they last

It's also a good time to buy PRPFX, if you're into that.

I wonder if PRPFX will ever get decisively past that $50 mark.

MediumTex wrote:

AdamA wrote:
It's also a good time to buy PRPFX, if you're into that.

I wonder if PRPFX will ever get decisively past that $50 mark.

Me too.  I suspect it will, but I can't figure why it's been sideways for such a long time.

A bit of silver and a few Swiss Francs shouldn't really cause this, and might even help sometimes.

I'm guessing it's just been held up for the past couple of years because there's of it's lack of true long term bonds...(???)

With gold below $1600, I'm tempted to buy...and then I look and see that it's still 24% of my pp.
I'm not really into buying the lagging asset ever since Sophie did that test. It's got a long way to fall before I start buying coins again.

dualstow wrote: With gold below $1600, I'm tempted to buy...and then I look and see that it's still 24% of my pp.
I'm not really into buying the lagging asset ever since Sophie did that test. It's got a long way to fall before I start buying coins again.

What did Sophie conclude about the best way to rebalance?  I forget.

MachineGhost wrote:

dualstow wrote: With gold below $1600, I'm tempted to buy...and then I look and see that it's still 24% of my pp.
I'm not really into buying the lagging asset ever since Sophie did that test. It's got a long way to fall before I start buying coins again.

What did Sophie conclude about the best way to rebalance?  I forget.

If I remember correctly, buying the lagging asset was nowhere near the top. In fact it was second to last or dead last, a surprise. What I don't remember is the details of the backtesting. Specific instruments bought, date range, etc. I'll edit it in if I find it.
Edit: See #12 and #18. http://gyroscopicinvesting.com/forum/ht ... ic.php?t=2
Of course, the devil is in the details and even Sophie remarks that it's not a *huge* difference, depending on how you look at it.

Meanwhile, I'm enjoying Craig's post over at bogleheads.
http://www.bogleheads.org/forum/viewtop ... 0&t=111314