The GOLD scream room

Discussion of the Gold portion of the Permanent Portfolio

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Re: The GOLD scream room

Post by pmward » Wed Apr 17, 2019 1:58 pm

buddtholomew wrote:
Wed Apr 17, 2019 12:57 pm

I would read your posts if you didn’t write a book every time. Keep it short man.
Blah, blah, blah...the PP doesn’t work as advertised.
Sounds good on the surface and perhaps backtests well but that’s it! I don’t want to rehash every discussion over the last decade. You’re not the first person here you know.

All you have to do is look at how many have abandoned the approach for something that actually works. Stay a bit
Longer and you’ll realize only 1 or 2 people are actually 4x25. The rest CLAIM to be invested in the PP but are not.
The problem is that if you "keep it short" you leave out all detail. And that is precisely your problem. It's all subjective BS. I don't care who here is using the PP or who has abandoned it, or who has modified it. These tell me nothing about the actual approach, just a few of the people that were invested in it that happened to post on this forum. There's a big difference between data points that matter, and data points that don't. And none of your claims are backed up in the data. The only claim you have is that you choose a very poor start date for the PP. But even still, the PP has a much better start date sensitivity than a stock heavy portfolio, so someone full on stocks is making a bigger gamble in their start date.

For some data to prove this, let's look at Tylers site, as he has a widget specifically for start date sensitivity.

PP - 5.5% start date sensitivity, 2.6% worst shortfall: https://portfoliocharts.com/portfolio/p ... portfolio/
Golden butterfly - 6.3% start date sensitivity, 2.7% worst shortfall: https://portfoliocharts.com/portfolio/golden-butterfly/
60/40 - 23.6% start date sensitivity, 11.1% worst shortfall: https://portfoliocharts.com/portfolio/classic-60-40/
Total stock market - 33.0% start date sensitivity, 18.1% worst shortfall: https://portfoliocharts.com/portfolio/t ... ck-market/

So while you picked a bad year to start the PP, even picking a bad year to start is still pretty good. Things are much worse for a 60/40 or total stock market, where all the luck (or lack thereof) in returns are simply tied to what year you started in.

Now please, bring some actual data to the table and form a real objective argument, or else please do us all a favor and just stop. Your subjective opinion has 0 value. Your specific timeframe in the PP is only 1 datapoint in a massive sea of data, it's just not that important in the grand scheme. I would love to hear a real argument based on more than just opinion. I'm down to talk shop anytime, but the discussion has got to be grounded in hard evidence and data not subjective opinion.
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Re: The GOLD scream room

Post by Cortopassi » Tue Apr 23, 2019 3:37 pm

There's no denying that.

But how do you think stock heavy portfolio holders were feeling on Christmas Eve (Orange S&P, blue is my PP variant):

Image

And this year has been an amazing turnaround.

Image

PP is doing just fine. A bit over 6% YTD for me. Would I like the 15%? Sure. But I would have been really stressed out late last year, and I am sure more of those stressful moments are to come.
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Re: The GOLD scream room

Post by mathjak107 » Tue Apr 23, 2019 3:47 pm

it all boils down to what makes you comfortable .. but what usually makes us feel good rarely is what makes the most financial sense ....

realistically for a long term investor , mitigating temporary short term dips with assets that will permanently lower long term returns has little financial logic to it ...but if it keeps them from bad investor behavior then great . all these other assets are what we use when we have time constraints on the money and it is all not committed to the long term .

my earlier years grew a lot of money being 100% equities for decades , but in retirement i run 40-50% equities .... i have lots of short term and intermediate term needs for the money so i do need to mitigate the shorter term dips . inflation adjusted it took 13 years to recover from 2000 so it can be nerve wracking when you reach the later years and fuel tanks are full .

a 7% dip today represents over 9 years of maxing out my 401k at catch up ... in the earlier days 7% may represent a few months of contributions .
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Re: The GOLD scream room

Post by Cortopassi » Tue Apr 23, 2019 10:42 pm

mathjak107 wrote:
Tue Apr 23, 2019 3:47 pm
but if it keeps them from bad investor behavior then great
That is my 99.9% my original reason in getting into the PP and continues to be and it works great for me. I am 100% sure with the way my wife and I save that I could be retired now if I had started the PP 25 years ago.
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Re: The GOLD scream room

Post by mathjak107 » Wed Apr 24, 2019 4:07 am

people retire and live on whatever they have regardless of the number ... we all back in to what we have and it works..it is just the more you have the more options you have. there is no such thing as some magic number..heck , if we could double our income it still would not cover everything we want to do or buy.

Although we call most expenses needs they really are choices .. choices where we live , our lifestyle and all that goes with it are all our choice ...there is always a cheaper way even if it means living golden girls style .....retiring is like waiting until the perfect moment to have a baby .. it really does not exist.

Money may not buy happiness but it certainly can buy us choices at times
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Re: The GOLD scream room

Post by Don » Wed Apr 24, 2019 8:56 am

buddtholomew wrote:
Wed Apr 17, 2019 12:57 pm
pmward wrote:
Wed Apr 17, 2019 11:39 am
I just wish that if Budd were going to try to refute the PP that he would do it objectively. It bothers me that all he does is come here every day gold is down and say "gold sucks, PP sucks, stocks are good". There's no objective argument there, it's purely subjective, and for a forum that is based around the PP I feel it provides an inaccurate and bad view to someone who ventures here to learn more about the PP. I think it's important to honestly and openly discuss the strengths and weaknesses of the PP so people can make a valid educated decision. No portfolio is perfect and choosing a portfolio is nothing but a balancing act of trading off strengths and weaknesses. Markets are also cyclical, so just looking at the last 10 years and stating that a 70/30 out performed a PP over that small time frame is meaningless in the grand scheme. It's a weak argument that has no value for investors considering the PP today.

The main weakness of the PP (whenever I say PP I'm also referring to all variations like golden butterfly, desert portfolio, all seasons, etc) is that it will underperform stocks in a strong cyclical bull market. This is not a novel idea, the data going back in time clearly shows this, and it's something that every investor knows going in. I've never seen anyone anywhere state that PP would out perform a stock heavy portfolio in prosperity. However, the PP tends to out perform and catch up whenever stocks are in a cyclical bear market. Someone should not go into the PP expecting to out perform in a bull market. If they want to chase performance in a bull market, absolute nominal returns are the only thing they care about, and seeing any tracking error in their portfolio is something that causes them undue stress and pain... then the PP is clearly not a good fit for them as an individual.

The next big weakness of the PP isn't really anything with the PP itself, it's human psychology. People tend to grow interested in defensive portfolios like the PP when times are bad; and historically when times are bad are the *worst* time to swap to a PP. Historically, the best times to swap to a PP are times like now when we are 10 years into a cyclical bull market and everyone is complacent, taking extraordinary amounts of risk, and thinks that stocks will go up forever. Those that bought into the PP between the years of 2008-2011 when there was fear in the air had a bad ride up until now. Those that buy in today when there is an absence of fear in the air are likely to have a much better ride in the next decade (and those that invested back in 2008-2011 will finally get their reversion to the mean if they stuck to their guns and didn't capitulate, those that capitulated will likely compound their losses by selling a past loser to buy a future loser).

Yet another weakness is that at any period of time one or two assets will always be in a bear market. Really, this is a feature, not a bug, but human psychology can sometimes have a hard time buying low and selling high. We all want to buy high and sell low. And, if someone buys into the PP at a time when one of the assets are in a bubble (like gold was in the early 2010's), then that single asset is highly likely to underperform for many years. It's not easy to keep buying something that you keep losing on, but that's precisely the magic behind how the PP works. Someone buying into the PP today are likely to have stocks be that asset that underperforms over the next decade. At least once people get through the first big macro cycle they will be at a point where on the whole they are profitable on all the assets, but that can take many years of rebalancing to get through that full cycle, and if someone has a false expectation of all the assets performing all the time they can wind up jaded and resentful against the PP as a whole (and the people that follow it) simply because they focus on the underperforming assets at the exclusion of the portfolio as a whole.

I don't need to spend as much time discussing the merits of the PP, as those are well documented here, but the most attractive feature of the PP is it's consistent returns over time. The PP and all it's variations tend to perform in a very tight range over any long period of time, they have very low drawdowns, very quick time to recover, and a high safe withdrawal rate. This style of investing is like the proverbial tortoise in the race vs the hare. It may not get those crazy 20-30% gain years that stocks alone do, but every time stocks go into a cyclical bear market the PP always tends to catch up. So while stocks race ahead in a bull market, they both tend to wind up in the same place when stocks go into their cyclical bear market. There is value in steady and consistent returns over a long period of time, with very low drawdowns. Whether there is prosperity, inflation, deflation, recession, etc the PP always slowly keeps chugging along. These strengths are are a very attractive quality to some people (me being one of them) and those people tend to value those strengths enough to find them as a whole worth accepting the tradeoffs in the weaknesses category. But the PP is *not* for everyone. If someone wants the drug like rush of chasing returns and trying to out perform year after year then they are better suited to a portfolio that will give them that fix. If someone loves buying high and hates buying low, then the PP is not going to be a portfolio that brings them joy.

I think it's valuable to honestly discuss the strengths and weaknesses of the PP (and variants) in an objective manner. I find no value however in subjective complaining and making meaningless blanket statements like "x is good and y is bad" with no real evidence, reasoning, or discussion provided. I think it's harmful to the community as a whole and is doing a disservice to those that come here for honest answers. The biggest mistake investors make is infinitely projecting the present into the future. This is something that needs to be avoided, both when times are good and when times are bad, because the truth is that it's inevitable that the pendulum will keep swinging and it is a 100% fact that at any moment in time the coming 10 years will look very different from the previous 10 years. I would love to hear Budd provide some objective arguments backed by evidence and numbers beyond just simply the fact that his 70/30 out performed the PP over the last few years (which in a period of strong prosperity it is kind of like "well duh, of course it did, it *should have*").
I would read your posts if you didn’t write a book every time. Keep it short man.
Blah, blah, blah...the PP doesn’t work as advertised.
Sounds good on the surface and perhaps backtests well but that’s it! I don’t want to rehash every discussion over the last decade. You’re not the first person here you know.

All you have to do is look at how many have abandoned the approach for something that actually works. Stay a bit
Longer and you’ll realize only 1 or 2 people are actually 4x25. The rest CLAIM to be invested in the PP but are not.
Budd is laughing all the way to the bank, with his mostly stock portfolio.

Also, why was my last post removed? More censorship in the name of the greater good?
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Re: The GOLD scream room

Post by pmward » Wed Apr 24, 2019 9:08 am

mathjak107 wrote:
Tue Apr 23, 2019 3:47 pm

realistically for a long term investor , mitigating temporary short term dips with assets that will permanently lower long term returns has little financial logic to it ...but if it keeps them from bad investor behavior then great . all these other assets are what we use when we have time constraints on the money and it is all not committed to the long term .
It depends. Stocks don't always have to go up. I do think that most people, especially younger investors, would benefit from using a VP though. I think that's why the GB has become popular in recent years, since it has a built in VP in it with an increased stock allocation. Let's also not forget that HB also had many other variations of a PP than just 4x25; it's the general principles that matter more than the actual percentages (part of why he also recommended wide rebalancing bands, because the actual percentage breakdowns are not magic). He simplified down to promoting the 4x25 in his later years, but I suspect that was because, as he admitted, he had lost his desire to speculate in his later years, and that when promoting a portfolio to the masses (a lot of which were people that did not really understand investing) it was easier for him to simplify to one 4x25 allocation vs entertaining n number of variations.

The PP is a great framework that is very flexible and can be modified. I think what one needs to be careful of though is modifying it based on the emotions of what the current winners/losers are. If someone emotionally sells the current losing asset to buy the current winning asset, and keeps doing that over time, then they just essentially keep buying high and selling low... which is not a winning strategy. I think its better to set your safety PP percentage, then have a separate VP that they can chase alpha with, instead of trying to keep emotionally varying the PP over time. You can do whatever you want with that VP: set it as a passive stock allocation, run a quant strategy, trade using technical analysis, buy individual stocks, overweight other assets based on the current macro trends, buy crypto, run options strategies, whatever you believe will produce alpha and satisfy that craving to chase returns.

Also, Ray Dalio thinks on a very similar wavelength, and that's why Bridgewater has both the all-weather and the pure alpha funds. They are meant to be used together, where you allocate the "money you can't afford to lose" to the safety of the all-weather, then chase alpha with the rest. I think this makes a lot of sense, and plays to humans innate desires for both safety and chasing returns.

There is nothing wrong with weighting stocks a bit heavier if someone truly believes they will out perform. However, one should be careful about blanket labeling entire asset classes with tags like "good" or "bad" as no asset is good or bad, they all are varying shades of grey with different strengths and weaknesses. There is value in balancing strengths in one asset vs the weaknesses in another. Also, while gold severely underperfomed the last few years while stocks outperformed, one must keep in mind that this is not a permanent state of things. That at any moment in time the coming 10 years will look very different from the last 10 years. Reversion to the mean is also a real thing. Gold was in a bubble in 2011 and had to revert down at some point. Eventually, it will also have to revert up. Stocks are in a bubble now. The bubble indeed can continue on for awhile, but eventually they will revert as well. How quick and easy it is to forget just how much pain and agony stocks can cause.
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Re: The GOLD scream room

Post by Cortopassi » Wed Apr 24, 2019 11:30 am

Don wrote:
Wed Apr 24, 2019 8:56 am

Budd is laughing all the way to the bank, with his mostly stock portfolio.
Don, the thing is, I am guessing Budd is NOT laughing all the way to the bank. He agonizes over any loss, or any loss of added gain.

I have moved past that. Money used to rule my day to day existence before the PP. Now it doesn't. I don't care that it doesn't return as much as a stock heavy portfolio. It lets me sleep and not worry about it.

I used to trade options for God's sake. Minute by minute stress. Wake up to a company putting out bad news, options drop and stay underwater. Not for me anymore. No options, no timing, no earning reports, no stress.
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Re: The GOLD scream room

Post by boglerdude » Thu Apr 25, 2019 3:07 am

Im pouring one out for BUD and going 0% gold. Need cash for a new car, mine got wrecked :/

I'm overweight real estate, and have a mortgage, thats enough inflation protection. And I dont rebalance anyway.

But will proly get back in after 60 days using https://aaauetf.com/ currently have PHYS
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Re: The GOLD scream room

Post by mathjak107 » Thu Apr 25, 2019 4:21 am

pmward wrote:
Wed Apr 24, 2019 9:08 am
mathjak107 wrote:
Tue Apr 23, 2019 3:47 pm

realistically for a long term investor , mitigating temporary short term dips with assets that will permanently lower long term returns has little financial logic to it ...but if it keeps them from bad investor behavior then great . all these other assets are what we use when we have time constraints on the money and it is all not committed to the long term .
It depends. Stocks don't always have to go up. I do think that most people, especially younger investors, would benefit from using a VP though. I think that's why the GB has become popular in recent years, since it has a built in VP in it with an increased stock allocation. Let's also not forget that HB also had many other variations of a PP than just 4x25; it's the general principles that matter more than the actual percentages (part of why he also recommended wide rebalancing bands, because the actual percentage breakdowns are not magic). He simplified down to promoting the 4x25 in his later years, but I suspect that was because, as he admitted, he had lost his desire to speculate in his later years, and that when promoting a portfolio to the masses (a lot of which were people that did not really understand investing) it was easier for him to simplify to one 4x25 allocation vs entertaining n number of variations.

The PP is a great framework that is very flexible and can be modified. I think what one needs to be careful of though is modifying it based on the emotions of what the current winners/losers are. If someone emotionally sells the current losing asset to buy the current winning asset, and keeps doing that over time, then they just essentially keep buying high and selling low... which is not a winning strategy. I think its better to set your safety PP percentage, then have a separate VP that they can chase alpha with, instead of trying to keep emotionally varying the PP over time. You can do whatever you want with that VP: set it as a passive stock allocation, run a quant strategy, trade using technical analysis, buy individual stocks, overweight other assets based on the current macro trends, buy crypto, run options strategies, whatever you believe will produce alpha and satisfy that craving to chase returns.

Also, Ray Dalio thinks on a very similar wavelength, and that's why Bridgewater has both the all-weather and the pure alpha funds. They are meant to be used together, where you allocate the "money you can't afford to lose" to the safety of the all-weather, then chase alpha with the rest. I think this makes a lot of sense, and plays to humans innate desires for both safety and chasing returns.

There is nothing wrong with weighting stocks a bit heavier if someone truly believes they will out perform. However, one should be careful about blanket labeling entire asset classes with tags like "good" or "bad" as no asset is good or bad, they all are varying shades of grey with different strengths and weaknesses. There is value in balancing strengths in one asset vs the weaknesses in another. Also, while gold severely underperfomed the last few years while stocks outperformed, one must keep in mind that this is not a permanent state of things. That at any moment in time the coming 10 years will look very different from the last 10 years. Reversion to the mean is also a real thing. Gold was in a bubble in 2011 and had to revert down at some point. Eventually, it will also have to revert up. Stocks are in a bubble now. The bubble indeed can continue on for awhile, but eventually they will revert as well. How quick and easy it is to forget just how much pain and agony stocks can cause.
when you take typical accumulation periods which span decades you would be betting against that house that the winner won't be equities so a long term investor who is mitigating temporary dips would likely have no financial logic to it .. typical periods run 25-40 years ... so mentally , sure it may help but financially it would permanently hurt those long term gains. in fact just rebalancing has been found to hurt returns in conventional portfolio's where what you rebalance in to lacks the ooomph of equities ...that would not apply to the pp because the other asset classesexcept cash do have quite a lot of lift . .

rebalancing away from equities may improve the risk vs reward ratio but .. a 2010 study from Vanguard by Jaconetti, Kinniry, and Zilbering found that rebalancing stock/bond portfolios reduced returns,.

Portfolio volatility was reduced as well, but simply because rebalancing reduced the average equity exposure (which otherwise compounded to 80%+ equity portfolios over multi-decade time horizons!).

the pp has asset classes that can be very powerful when it is there day in the sun so i think the pp benefits from rebalancing , especially because assets like gold tend not to have their gains stick around .. they tend to spike and fall back in to the shadows waiting for the next strike like a predator ... as i mentioned in another thread i made a lot of money in gld just riding the wave when it spiked , waiting for the roll back which seems to be like night follows day and repeating .

gold left sitting static with no rebalancing tends to do awful over time but when those spikes can be harvested it can be a different animal .
boglerdude wrote:
Thu Apr 25, 2019 3:07 am
Im pouring one out for BUD and going 0% gold. Need cash for a new car, mine got wrecked :/

I'm overweight real estate, and have a mortgage, thats enough inflation protection. And I dont rebalance anyway.

But will proly get back in after 60 days using https://aaauetf.com/ currently have PHYS



keep in mind a mortgage is not an inflation hedge ...a mortgage is neutral ..it is what you buy with the mortgage that may be an inflation hedge , or it may not ... real estate with or without the mortgage is the same investment .

but as harry points out real estate is not consistent enough to be used as an inflation hedge ...it is highly localized and depending on other factors it may or may not be an inflation hedge ...in the 1980's high mortgage rates hurt real estate so it was no inflation hedge ... it only did well once inflation came down .
Last edited by mathjak107 on Thu Apr 25, 2019 7:46 am, edited 2 times in total.
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Re: The GOLD scream room

Post by dualstow » Thu Apr 25, 2019 5:33 am

boglerdude wrote:
Thu Apr 25, 2019 3:07 am
Im pouring one out for BUD and going 0% gold. Need cash for a new car, mine got wrecked :/

I'm overweight real estate, and have a mortgage, thats enough inflation protection. And I dont rebalance anyway.

But will proly get back in after 60 days using https://aaauetf.com/ currently have PHYS
Getting out at a profit or a loss?
Sorry to hear about your car.
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Re: The GOLD scream room

Post by pmward » Thu Apr 25, 2019 8:39 am

mathjak107 wrote:
Thu Apr 25, 2019 4:21 am
when you take typical accumulation periods which span decades you would be betting against that house that the winner won't be equities so a long term investor who is mitigating temporary dips would likely have no financial logic to it .. typical periods run 25-40 years ... so mentally , sure it may help but financially it would permanently hurt those long term gains. in fact just rebalancing has been found to hurt returns in conventional portfolio's where what you rebalance in to lacks the ooomph of equities ...that would not apply to the pp because the other asset classesexcept cash do have quite a lot of lift . .

rebalancing away from equities may improve the risk vs reward ratio but .. a 2010 study from Vanguard by Jaconetti, Kinniry, and Zilbering found that rebalancing stock/bond portfolios reduced returns,.

Portfolio volatility was reduced as well, but simply because rebalancing reduced the average equity exposure (which otherwise compounded to 80%+ equity portfolios over multi-decade time horizons!).

the pp has asset classes that can be very powerful when it is there day in the sun so i think the pp benefits from rebalancing , especially because assets like gold tend not to have their gains stick around .. they tend to spike and fall back in to the shadows waiting for the next strike like a predator ... as i mentioned in another thread i made a lot of money in gld just riding the wave when it spiked , waiting for the roll back which seems to be like night follows day and repeating .

gold left sitting static with no rebalancing tends to do awful over time but when those spikes can be harvested it can be a different animal .
Yes, when one introduces gold into the fold things are a lot different than just stocks and bonds. Both stocks and bonds pay a return. Gold does not. The volatility in gold over the long term, combined with rebalancing, is what generates golds "yield" for you and pays its rent in your portfolio as a long term holding. Holding gold long term without rebalancing makes absolutely 0 sense to me.

I think the odds are in favor of stocks out performing over any period 25 years and up. But... there is no guarantee it will happen. Look at Japan. Like I said, I think that overweighting stocks for an accumulator can help. But too many people fall victim to their own behavior, and savings rate is by far the most important factor in accumulations. So I still think that it's fine for an accumulator to be more defensive. Returns are not the only factor that one needs to consider. There is a price to pay to chase returns. A stock heavy portfolio has a much larger spread of returns, it may perform well on the long term average, but the difference between the best start years and the worst start years is HUGE. Stock heavy portfolios as such are not very dependable nor are they very consistent. For some people it's worth sacrificing that dependability and consistency to chase returns, for other people it's not. I don't think blanket statements should be made either way. Asset allocation is deeply personal, and there is more than one way to build a good portfolio. I think the PP, and the variations thereof, are a great way to invest, but it's not for everyone.

Also, for a hyper-accumulator like me, that is investing over 50% of their income every year, it can be very stressful investing that amount of money in a highly volatile portfolio. It's not as painful for someone that's only contributing the standard 15% with many years left before retirement. But when you're contributing .50 of every dollar you make, the thought of going through another decade like the 2000's, 1970s, 1930s, etc in the middle of what is supposed to be the last of my accumulation years is frightening. For behavioral purposes it is better for me personally to keep my stock exposure at it's current 40%. It's not worth the extra *potential* ~1% CAGR to go all stocks and potentially suffer a "lost decade" during my last few years of accumulations before I hit FI. Dependability, consistency, low drawdowns, and low time to recover as a whole are much more valuable to me than chasing a little extra potential return. Especially when you look at stock valuations currently. The odds of the next decade being the same as the last are virtually 0. I mean, does anyone here actually believe we will be attempting S&P 10,000 in 2029? That's what it would have to do in order to have the next 10 years in stocks to be equally as productive as the last. I would be willing to bet that my 80% PP / 20% VP will out perform 100% total stock market in the coming decade. And even if I get proven wrong on that, I will still get a good enough return to reach my FI goal either way, and that is the most important thing. Any money I make in my career from then on is all fun money.
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