Gyroscopic Investing

We all know we shouldn't time the market.
We all know we should keep the balanced 25% in the four sectors of bonds, cash, gold and the stock market

But don't you get the urge to lower your stock exposure after a long run in this bull market for stocks. It's a fact at some point it's going to turn down, probably hard, but you don't know when it will. When it does, gold will rally hard to new heights, probably but not for sure. The unknown is the basis of the the permanent portfolio.

But the urge to buy some bear funds is still eating at me.

portart wrote: We all know we shouldn't time the market.
We all know we should keep the balanced 25% in the four sectors of bonds, cash, gold and the stock market

But don't you get the urge to lower your stock exposure after a long run in this bull market for stocks. It's a fact at some point it's going to turn down, probably hard, but you don't know when it will. When it does, gold will rally hard to new heights, probably but not for sure. The unknown is the basis of the the permanent portfolio.

But the urge to buy some bear funds is still eating at me.

If you're close to a rebalance band due to stock appreciation, I don't think anyone would pillory you for doing it a bit early. I'm at 31% stocks right now so I'm not too close, but if I get to 33 or 34%, I think I will.

I recently rebalanced at like 34.5%.
In my vp, I happily gave in to temptation and trimmed stocks over the past week and a half.

I certainly don't have the urge to buy bear funds or to short stocks, though. It's strange: I don't mind owning big tobacco, big oil, arms manufacturers, chemical companies, etc. But I hate the idea of shorting, the whole principle.

I dont mind being stock heavy when equities are rising and not for the obvious reason. A small rise in stocks is enough to support the performance of the overall portfolio when the rest of the assets are negative or neutral on the day. On the other hand, if stocks fall, gold and treasuries rally to compensate for the decline - or thats the plan 

It's been a big run up in stocks but shorting anything in the face of the Bernanke put is really swimming against the tide. The only shorts that have made money look like the Apple shorts and gold miner shorts.

If you buy a bear market fund now keep a tight stop loss becuase the QE keeps coming.

I must admit that I've cheated a little myself. With a girl named Wellesley.

I suggest you follow the advice given in a post in the "Other Discussions" forum and tune in to the Weather Channel to discern the direction the stock market is going to take. As that post points out, rain can be a more reliable predictor than GDP growth.

I've got all my new money going into stocks right now by 401k necessity but it doesn't worry me. I'm not going to do anything about it until I hit the re-balancing bands. I figure that either the PP strategy works or it doesn't and I'm going with the former until it's proven wrong.

The trouble with manias is you don't know when its going to end.  The trouble with buying into a  mania is you'll lose at least 50% when it does end.  So in the end, which to choose?

I wouldn't buy any stocks right now without a hefty serving of bonds or some other kind of hedging.  The risk/reward is simply not favorable.  If we had some idea of when the mania would end (1-3 years) we could look back in history and see how well the PP came out ahead after the collapse depending on how close to the top you bought.

Reub wrote: I must admit that I've cheated a little myself. With a girl named Wellesley.

Not a bad choice though. She's cute!

Desert wrote:

Reub wrote: I must admit that I've cheated a little myself. With a girl named Wellesley.

Ah, yes, Wellesley is an alluring temptress.  But only ruin shalt ye find at her door.  (not really, it looks like a great fund)

I'm not proud of it. It just happened.

I am selling out, little by little, of my heavy holding of PRPFX. I am rebalancing into SCHB, SCHO, SGOL and TLO. The strategy here is too lessen my contribution into SCHB each time, lowering my exposure to the market. I running about 27% stocks and the goal is have it down to 20% by the next three months as this market continues to rise. I want as little exposure to stocks as possible by the next fallout and I don't need to make money as much as preserve it at this point in my life. My idea is that resource stocks are at the bottom so if gold makes a run, they will go with it, even if we have a stock dive as they are primed to move on a ballistic PM uptrend. The downside there is a far lower risk then before if you check the charts, ten year lows and selling a discount to their intrinsic value, if you believe in such things. It's interesting to me that as this market has made a terrific comeback, the price of gold did not retreat much which tells you something, that in the next stock fallout, they are going to rise in a major way far beyond the last uptrend. I want to be situated in way to participate with that using my variable portfolio. If I am wrong, I will still have some safety in a conservative portfolio but you have to think, the odds are moving in favor of a PM explosion at the next washout which will be currency sensitive, more so then the last recession which was based on bad loans. This time it will be from the paper printing competition that will reach a crescendo of devaluation of paper. How do you spell inflation?? You may call this an attempt at timing, and it is in a minor way but how long long can governments control economics using devices that would land an ordinary person in jail for a lifetime?

portart wrote: You may call this an attempt at timing, and it is in a minor way but how long long can governments control economics using devices that would land an ordinary person in jail for a lifetime?

Hundreds of years? That's why they're governments.

I would resist the temptation to predict and time the market. For all we know, the stock market is on the verge of another major boom. I don't think anyone would have a problem with decreasing exposure to all non-cash assets equally and substituting cash, but selectively buying fewer stocks based on the fear of a crash or an impending inflation bomb seems risky because you might be wrong, or you might be right... in 20 years, during which time you'll lose out on a lot of good returns. You just don't know.

Personally, all my new contributions go into the four assets evenly.

I like the idea of spreading new contributions evenly among the four assets. It takes away the urge to engage in timing. As HB said, you can never predict what's going to happen. Forsaking timing I believe is one of the most important aspects of the PP.

I personally always buy the lagging asset(s) just to keep things balanced and minimize fees.  But splitting the money evenly is also perfectly fine.  The most important thing, IMO, is to avoid substituting personal fear or exuberance for an automatic contribution/rebalancing system of your choice.  Your emotions will cause more financial problems in the long run than the markets ever will. 

Pointedstick wrote:

portart wrote: We all know we shouldn't time the market.
We all know we should keep the balanced 25% in the four sectors of bonds, cash, gold and the stock market

But don't you get the urge to lower your stock exposure after a long run in this bull market for stocks. It's a fact at some point it's going to turn down, probably hard, but you don't know when it will. When it does, gold will rally hard to new heights, probably but not for sure. The unknown is the basis of the the permanent portfolio.

But the urge to buy some bear funds is still eating at me.

If you're close to a rebalance band due to stock appreciation, I don't think anyone would pillory you for doing it a bit early. I'm at 31% stocks right now so I'm not too close, but if I get to 33 or 34%, I think I will.

Just remember the old adage: Nobody ever went broke taking a profit.

Well if you look at gold right now, it's dying to fall back to lower levels, 1200 to 1500 and I have no doubt it's within the realm of possibility. I guess stocks can also run much higher for no good reason other then people want to buy them so yes, it's the way of world right now. Personally, I am making nothing with the HB formula over the last year as there is not enough gas in stocks to make gains on the other other three all combined. However, the losses are also minimal and it feels better to miss a run up then to lose money. I am kind of spoiled making a 9% ave over the last ten years so it feels
"wrong" to be missing out of the stock party but thats what we are all about in world of the permanent portfolio, maximum protection from an end of the world scenario.

portart wrote: Personally, I am making nothing with the HB formula over the last year as there is not enough gas in stocks to make gains on the other other three all combined.

Not sure what you're referring to... Gold's down a tad but Treasuries have been doing just fine over the past year. The three of them together have still done okay:



I see choppy yet ultimately flat performance in two out of the three volatile assets, and solid positive performance from the third. Cash of course is fulfilling its anchor role and doing nothing much of note. Looks normal to me.

We're missing out on the big stock gains, but we'll also miss out on their crash when treasuries and gold go crazy in response.

Take a look at gold today?  Down 1.5%, to 1575!!  It'll probably bounce back up tomorrow though.  As whether it will continue to trend down, that depends on how long the party lasts in stocks.  Fundamentally I can't see it going that much lower because of all the Treasury buying and money printing, but hey, who knows.

For the timers among us:  good time to buy, I suspect!

Pointedstick wrote:

portart wrote: Personally, I am making nothing with the HB formula over the last year as there is not enough gas in stocks to make gains on the other other three all combined.

Not sure what you're referring to... Gold's down a tad but Treasuries have been doing just fine over the past year. The three of them together have still done okay:
...

portart has PRPFX, so he's probably not enjoying the treasury climb as much as pure HBPP holders have. (?)

Desert wrote: Ah, yes, Wellesley is an alluring temptress.  But only ruin shalt ye find at her door.  (not really, it looks like a great fund)

I read some debates about Wellesley vs the PP over on Bogleheads before ultimately deciding on the PP. Some of it was very heated so I don't want to start it here.

I recently decided to add tracking for VWINX to my Morningstar portfolio just to compare with the PP and that was probably a mistake, at least YTD. Yes, she is quite a temptress.

As I understand it, objections for the PP purist would be...

1.  Active management
2.  Corporate Bonds

portart wrote: Well if you look at gold right now, it's dying to fall back to lower levels, 1200 to 1500 and I have no doubt it's within the realm of possibility
....

sophie wrote:Take a look at gold today?  Down 1.5%, to 1575!!  It'll probably bounce back up tomorrow though.  As whether it will continue to trend down, that depends on how long the party lasts in stocks.  Fundamentally I can't see it going that much lower because of all the Treasury buying and money printing, but hey, who knows.

Hmm...very tempted to buy some eagles with the cash produced by recent weeks' vp stock trim.

dualstow wrote:

portart wrote: Well if you look at gold right now, it's dying to fall back to lower levels, 1200 to 1500 and I have no doubt it's within the realm of possibility
....

sophie wrote:Take a look at gold today?  Down 1.5%, to 1575!!  It'll probably bounce back up tomorrow though.  As whether it will continue to trend down, that depends on how long the party lasts in stocks.  Fundamentally I can't see it going that much lower because of all the Treasury buying and money printing, but hey, who knows.

Hmm...very tempted to buy some eagles with the cash produced by recent weeks' vp stock trim.

This is my fault!!  I just bought gold back when the price was at 1590.

If you're underweight in gold and have some cash left over from your remodel...I'd say go for it.  Then if the price drops further you can blame me all you want :-)

sophie wrote: This is my fault!!  I just bought gold back when the price was at 1590.

If you're underweight in gold and have some cash left over from your remodel...I'd say go for it.  Then if the price drops further you can blame me all you want :-)

The stock trim produced some cash beyond what I allotted for remodeling (including inevitable money pit surprises). But, I'll be traveling for a week and cannot take delivery. Sophie, if you could make gold drop at the end of next week, that would be great. 

Well, my gold share is almost exactly 25% and my gain has come down to about 0.0%. I can wait.

dualstow wrote: Sophie, if you could make gold drop at the end of next week, that would be great. 

Be careful what you wish for 

If gold ever takes a big plunge it would be tempting to try tax loss harvesting with physical gold.  Has anyone ever had occasion to do this?

sophie wrote:

dualstow wrote: Sophie, if you could make gold drop at the end of next week, that would be great. 

Be careful what you wish for 

If gold ever takes a big plunge it would be tempting to try tax loss harvesting with physical gold.  Has anyone ever had occasion to do this?

That raises a question I've had for a while.  How do you pay tax -- or tax loss harvest -- on physical gold?  Do you have to keep receipts of what you bought, when you bought it, and how much you paid for it?  One gold coin looks like another, so I can't imagine there's a need to keep track of which coins were bought for which amount. 

Let's say I bought 3 coins over time: one for $500, another for $1,000, and a 3rd for $1,500.  If I wanted to sell one today, I could just claim it was the $1,500 coin I was selling to minimize my tax bite, right?  Do you have to whip out your receipt each time you sell a coin? 

I haven't added any physical bullion to my PP yet, so help me out here!