Permanent Portfolio Forum
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https://www.gyroscopicinvesting.com/forum/viewtopic.php?t=4743
In the report Faber links to a study showing that a portfolio with a 70% annual turnover (the expected amount for trend- following) will take a hit of 0.5% from taxes compared to a portfolio with 20% turnover which is typical of a B&H strategy with annual rebalancing. The reason for this is the B&H only generates capital gains (during accumulation), while the trend following produces plenty of capital gains and losses. For example I have a big fat capital loss from my sale of gold which I can then apply to the capital gains from the stocks, so my overall tax bill is not significantly different from if I had rebalanced my winners.iwealth wrote: Great read. I'll have to look back to see if MachineGhost tested this with the PP asset classes. Speaking of MG, haven't seen him in awhile. But anyway, my main concern is taxes if a large % of one's portfolio is in taxable accounts. Taxes are briefly discussed in the paper and I'd have to look more deeply into the ramifications.
Another concern is the performance of their own fund. It's ticker symbol GTAA. Not quite what I'd hope to see.
Indeed! This is why Tex and I are so big on not following the financial news and not tracking a portfolio constantly. I think a big issue with market timing strategies is they basically make the investor want to check on things constantly and tinker. Even if the numbers for the strategy look good, I think investors should be very careful about the non-number emotional aspect.Information overload - More information often decreases the accuracy of predictions, all the while increasing confidence in those predictions. Paul Andreassen, a psychologist formerly at Harvard University, conducted a series of laboratory experiments in the 1980s to see how investors respond to news. He found that because of excessive trading people who pay close attention to news updates actually earn lower returns than people who seldom follow the news.
I agree that the biggest risk to this strategy is the temptation to tinker or wait for a better time to sell or buy. However, there are rules for both buying and selling so there is no need for thinking or emotions. If a mechanical approach is applied then it is quite simple, but very few investors possess the ability to control their emotions when they have to actively accept a loss.craigr wrote: The big risks with this approach really is that it throws the behavior of the investor into the mix in a very active way. IMO.
My experience with moving average timing many years ago is that you get constantly whipsawed and you have to make decisions not only when to get out, but when to get back in. So you compound the investor angst. The other issue of course are taxes and expenses. Initially you may get some capital losses to use, but over time as asset prices tend to rise the capital gains I expect will be a much larger impact.
Also I think he makes some good points in this paper, especially in the end Appendix where he cites some behavioral finance issues:
Indeed! This is why Tex and I are so big on not following the financial news and not tracking a portfolio constantly. I think a big issue with market timing strategies is they basically make the investor want to check on things constantly and tinker. Even if the numbers for the strategy look good, I think investors should be very careful about the non-number emotional aspect.Information overload - More information often decreases the accuracy of predictions, all the while increasing confidence in those predictions. Paul Andreassen, a psychologist formerly at Harvard University, conducted a series of laboratory experiments in the 1980s to see how investors respond to news. He found that because of excessive trading people who pay close attention to news updates actually earn lower returns than people who seldom follow the news.
Speaking for myself and past attempts at market timing, I found that the more I tinkered with things the less money I made.
If you're talking about about tinkerers, then fine - but if not then I think Faber's approach is actually harder to follow because you're buying/selling 20% chunks of your portfolio in response to the 10 MMA signals - and you have to do this more often than PP rebalancing. With 15/35 bands, when you rebalance the typical amount of any one asset you're buying/selling is likely less than 10% of your overall portfolio. The chunks are smaller, and you deal with them less often. With a medium sized portfolio (under, say, $200K) this may not be a big deal, but as your portfolio grows the absolute amounts you're buying/selling in Faber's approach get quite large - increasing the difficulty of blindly following the signals.iwealth wrote: Mentally, Faber's timing system rules should be no more difficult to follow than the PP rules.
Yes I was referring to the urge to tinker with a portfolio in general, if one has those tendencies. From an implementation standpoint, Faber's system is definitely higher maintenance. But it seems like a solid choice for those that enjoy being active and have the ability to carry out Faber's required transactions without error.rickb wrote:If you're talking about about tinkerers, then fine - but if not then I think Faber's approach is actually harder to follow because you're buying/selling 20% chunks of your portfolio in response to the 10 MMA signals - and you have to do this more often than PP rebalancing. With 15/35 bands, when you rebalance the typical amount of any one asset you're buying/selling is likely less than 10% of your overall portfolio. The chunks are smaller, and you deal with them less often. With a medium sized portfolio (under, say, $200K) this may not be a big deal, but as your portfolio grows the absolute amounts you're buying/selling in Faber's approach get quite large - increasing the difficulty of blindly following the signals.iwealth wrote: Mentally, Faber's timing system rules should be no more difficult to follow than the PP rules.
We need him to return to post his collection of tidbits he finds on the net...I'm feeling deprived!Reub wrote: Speaking of MachineGhost, I contacted him a few weeks ago and he is fine. He is in relaxation mode and, yes, has found companionship in the opposite sex!
Mebane Faber has already looked at this. The SMA PP benefited from avoiding most of the 1980 gold collapse. Other than that it has performed about the same as the B&H PP, although probably with less volatility and lower drawdown.Reub wrote: Yes, I miss MG as well.
I wonder how would the PP work utilizing a 200 simple moving average plan similar to GTAA's? When one of the 4 asset classes fell below the 200 MA you would sell and go to cash, and vice versa, updated monthly in a non-taxable account.
Nothing like a girlfriend to ease the mind and pull you away from an internet forum.Reub wrote: Speaking of MachineGhost, I contacted him a few weeks ago and he is fine. He is in relaxation mode and, yes, has found companionship in the opposite sex!
Hah. My GF would probably appreciate if I spent less time here.MediumTex wrote:Nothing like a girlfriend to ease the mind and pull you away from an internet forum.Reub wrote: Speaking of MachineGhost, I contacted him a few weeks ago and he is fine. He is in relaxation mode and, yes, has found companionship in the opposite sex!
Nothing like a wife to trouble the mind and drive you to an internet forum.MediumTex wrote: Nothing like a girlfriend to ease the mind and pull you away from an internet forum.
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