Gyroscopic Investing

MediumTex wrote: Why wouldn't someone want to stay the course?

I guess I don't follow the fundamental premise of all of these PP angst threads.

Are we really that rattled over a 2% or so fluctuation in value when the only way to have avoided it would have been to have magical powers that none of us has?

The basic appeal of the PP should be that, from a historical perspective, it allows investors to avoid large losses while also enjoying nice inflation-adjusted gains as well.  Few strategies can offer this mix of benefits, but that's not to say that the strategy doesn't occasionally have down years or extended periods of essentially flat performance.

It's critical that any investor understand exactly what he his getting into before he invests in the strategy.  It is a long-term strategy and these minute-to-minute analyses are IMHO completely pointless for someone who has accepted the PP's premises and used them as a basis for investing in the strategy.

You don't plant a seed for an oak tree and then dig it up every three days to see how it's doing.

Honestly, in some of these discussions I feel like I am listening to the life story of a fruit fly.

I hate to be indelicate about what are sincerely held concerns, but it's painful for me to watch such discomfort when it is totally self-inflicted and unnecessary.

My suggestion for anyone who finds the PP stressful over an extended period would be to find another strategy that provides more peace of mind.  Life is too short to spend that much time worrying about your investments.

buddtholomew wrote: I believe we should face the fact that the portfolio is performing sub-par.

MediumTex wrote:

buddtholomew wrote: I believe we should face the fact that the portfolio is performing sub-par.

But it's NOT performing sub-par.

It's just that the stock market is currently performing better, just like gold and bonds have sometimes performed better than the overall PP in recent years.

If the PP went up every single day and every single year everyone would use it.

buddtholomew wrote:

MediumTex wrote:

buddtholomew wrote: I believe we should face the fact that the portfolio is performing sub-par.

But it's NOT performing sub-par.

It's just that the stock market is currently performing better, just like gold and bonds have sometimes performed better than the overall PP in recent years.

If the PP went up every single day and every single year everyone would use it.

Perhaps we have a different perspective, but a negative YTD return when a 60/40 allocation is up 8%+ over the same time frame is "sub-par" in my book.

I too am tired of complaining about the performance of the PP, but I am still not comfortable turning a blind eye. How much can I expect to lose in a bull market? WOW, never thought that would come out of my mouth...

buddtholomew wrote: Perhaps we have a different perspective, but a negative YTD return when a 60/40 allocation is up 8%+ over the same time frame is "sub-par" in my book.

MediumTex wrote: budd,

Why does it matter what any other portfolio is doing?

Shouldn't the PP be judged based upon its own objectives (i.e., low drawdowns and positive inflation-adjusted long term returns)?

There is a difference between turning a blind eye and not looking at your portfolio dozens of times a day.  For example, you could look at your portfolio once a week--it's hard to imagine anyone considering weekly reviews to be turning a blind eye to portfolio performance.

With most long term investments, sometimes you just have to give them time.  That has certainly been true of stocks over the last 15 years or so. 

I still don't understand such stress over a 1-2% decline in value for a portfolio that has had double digit returns more often than not in recent years.  A mean reversion to historical performance levels for the PP would probably involve a year or two of flat returns, but such a situation would hardly mean that the strategy was no longer working as expected.  Honestly, I would say that if the strategy never had a mean reverting year of small or no gains, I would say that THAT would be evidence that it was no longer working properly. 

With the PP, I just want that average 4%+ inflation adjusted return.  It's okay with me if it happens in the form of one year of 8% inflation adjusted returns and another year of 0% inflation adjusted returns.  What's NOT okay with me is having one year of 40% gains and the next year 35% losses in my portfolio.  That's what I can't cope with.

buddtholomew wrote: If I am becoming a broken record on this forum and other do not feel that I add any value, please let me know. I will keep my emotions to myself.

buddtholomew wrote: Something about the PP and its unpredictable behavior has me question whether this strategy can perform as well as it has historically. When equity markets are on the rise, the PP is either up, down or treading water (flip a coin...). With a 60/40, you know where you stand.

MediumTex wrote:

buddtholomew wrote: If I am becoming a broken record on this forum and other do not feel that I add any value, please let me know. I will keep my emotions to myself.

It's not that you are becoming a broken record so much as I don't understand why you don't just move to a 60/40 allocation if you think it would allow you to sleep better at night.

At the risk of me sounding like a broken record I will say again that the PP shouldn't give you heartburn, and it sounds like that's what it's doing to you.

In your post above you talk about the PP and its "unpredictable behavior."  Can you tell me what has been unpredictable about the PP's recent behavior?  If you look at the last 40 years of data you will almost always see a flat year after several double digit return years.  The portfolio has been where it's at now several times.

buddtholomew wrote:

MediumTex wrote:

buddtholomew wrote: If I am becoming a broken record on this forum and other do not feel that I add any value, please let me know. I will keep my emotions to myself.

It's not that you are becoming a broken record so much as I don't understand why you don't just move to a 60/40 allocation if you think it would allow you to sleep better at night.

At the risk of me sounding like a broken record I will say again that the PP shouldn't give you heartburn, and it sounds like that's what it's doing to you.

In your post above you talk about the PP and its "unpredictable behavior."  Can you tell me what has been unpredictable about the PP's recent behavior?  If you look at the last 40 years of data you will almost always see a flat year after several double digit return years.  The portfolio has been where it's at now several times.

60/40 is attractive, but so is the PP. I want to ensure that recency bias is not persuading me to make any hasty changes. I will admit however, that under-performing when equities are on the rise is difficult to digest. The PP is "unpredictable" in that when the S&P 500 is up 200 points, the portfolio is either up, down or flat. A 60/40 allocation is generally in the positive by a healthy margin.

Khisanth wrote: There will always be angst. But we aim to be supportive, thus we will advise staying the course. Psychologically the worse time to change investments is when you are in a heightened emotional state.

If you are considering jumping out of the PP, consider why. Because of its sub-par performance compared to other stock-weighted portfolios?

Bernstein also warned us years ago ( http://www.efficientfrontier.com/ef/0adhoc/harry.htm ) of this potential underperformance and the mentality that brought some of us here in the first place.

MediumTex wrote:

buddtholomew wrote:

MediumTex wrote: It's not that you are becoming a broken record so much as I don't understand why you don't just move to a 60/40 allocation if you think it would allow you to sleep better at night.

At the risk of me sounding like a broken record I will say again that the PP shouldn't give you heartburn, and it sounds like that's what it's doing to you.

In your post above you talk about the PP and its "unpredictable behavior."  Can you tell me what has been unpredictable about the PP's recent behavior?  If you look at the last 40 years of data you will almost always see a flat year after several double digit return years.  The portfolio has been where it's at now several times.

60/40 is attractive, but so is the PP. I want to ensure that recency bias is not persuading me to make any hasty changes. I will admit however, that under-performing when equities are on the rise is difficult to digest. The PP is "unpredictable" in that when the S&P 500 is up 200 points, the portfolio is either up, down or flat. A 60/40 allocation is generally in the positive by a healthy margin.

Why do you think it wasn't as hard for you when the portfolio was under-performing relative to gold and bonds at various points in recent years?

What is it about under-performance relative to stocks that is especially unsettling?

Note that at least one of the PP assets will always be outperforming the portfolio as a whole.  That's part of what makes it work.

buddtholomew wrote: I understand that the PP could have negative days, months or even years, but the under-performance of the portfolio when equities are on the rise is unsettling. It is awkward not to participate in global market strengthening and only earn positive returns when the economy is struggling or on unsure footing.

buddtholomew wrote:

MediumTex wrote:
Why do you think it wasn't as hard for you when the portfolio was under-performing relative to gold and bonds at various points in recent years?

What is it about under-performance relative to stocks that is especially unsettling?

Note that at least one of the PP assets will always be outperforming the portfolio as a whole.  That's part of what makes it work.

I understand that the PP could have negative days, months or even years, but the under-performance of the portfolio when equities are on the rise is unsettling. It is awkward not to participate in global market strengthening and only earn positive returns when the economy is struggling or on unsure footing.

iwealth wrote:

buddtholomew wrote:

MediumTex wrote:
Why do you think it wasn't as hard for you when the portfolio was under-performing relative to gold and bonds at various points in recent years?

What is it about under-performance relative to stocks that is especially unsettling?

Note that at least one of the PP assets will always be outperforming the portfolio as a whole.  That's part of what makes it work.

I understand that the PP could have negative days, months or even years, but the under-performance of the portfolio when equities are on the rise is unsettling. It is awkward not to participate in global market strengthening and only earn positive returns when the economy is struggling or on unsure footing.

This recent extreme divergence has really only been prominent since November 2012.

Reub wrote: I think that what some  people need is a reiteration of the basic strength and soundness of the PP strategy. Almost like a rehashing of the original Boglehead thread where we can illucidate the benefits and help overcome doubts using facts, charts, and graphs.