Gyroscopic Investing

Posted: **Fri Aug 16, 2013 9:28 pm**

Today I sold all my gold (GTU) and my treasuries (actual 30-yr treasury bonds and TLT). I didn't have any cash in my PP, but I had individual stocks which I have discussed in previous posts. I kept 12 of my stocks (AMZN, AZO, BCPC, CHD, FLO, JBHT, ROL, ROST, RYN, SKT, SRCL & SXL) and sold 2 (CAT & EW). In slightly less than 1 year, I gained a total of 9.5%. Then the second year I lost 7.5%, but since I added more to the total at the end of year one, I about broke even for the 2-year experiment. I feel really bummed about this because each year my stocks increased about 20%, but gold and treasuries hurt me. I don't see things going well for the PP, especially in the near term. Because of the government's tampering with interest rates and artificially propping them up (especially in the past) , long term rates have increased even though inflation hasn't! I don't think Mr. Browne saw this as a possibility. Generally when interest rates increase, it is because inflation is on the rise, and gold bails the PP out. I see long term rates rising some more and not going down for quite awhile, and gold not doing well either. Stocks are starting to take a hit now as well. This doesn't bode well for almost anything, but to me it looks especially bad for the PP. I am going to sit on cash for a while and when I think the rates have leveled off, I will buy some more REIT's both commons and preferreds. Already some pretty good quality REIT preferreds are selling below par and paying 7%. I will also be buying some more REIT commons such as AVB, SPG & PSA. They are quite low now and still pay at least 3%. Good luck everyone!
Norm

Posted: **Fri Aug 16, 2013 10:32 pm**

I've been taking the contrarian approach - I'm buying in!

Since the PP is down 6-7% this year and this has only happened a handful of times in the last 40 years it looks like a golden opportunity to buy! The odds seem pretty small that the PP will finish the year with a bigger loss than it did in 1981 (when the Fed tightened drastically). I think the bond and gold markets have already priced in QE tapering, and if stocks adjust from their stratospheric rise in the near term, likely one of the other assets will benefit.

While the stock market looks sexy this year, I'm old enough to have lost substantial money in crashes in 1987, 2000 and 2008. I lost a lot more than 7.5%. The amazing record stock market highs we're hitting now are records that were set in 2008 - so the Dow finally passed the level it was at 5 years ago. The PP has done a lot better than that over the last 5 years.

Honestly I don't know what's going to happen in the future (the global central banks have put us in uncharted territory, and my crystal ball just broke) but that's why the PP looks like a good buy to me.

Doc

Posted: **Sat Aug 17, 2013 12:35 am**

Good luck!
You will need it with your high flying expensive stocks

.
I reduced cash to 0 and started a VP with a levered 3xPP. I modified my allocation for the long term to 25% EU Stocks, 25% Gold, 25% Longterm Bonds and 25% US/GB Stocks. I can sleep better with this kind of allocation and have not sold any asset since starting with the PP at the start of the year. (And i don`t plan to do so for the next 10 years, just simply add to the lagging asset).

Posted: **Sat Aug 17, 2013 12:42 am**

I didn't change anything.

Just same old boring PP.

$:-\$

Posted: **Sat Aug 17, 2013 12:59 am**

MediumTex wrote: I didn't change anything.

Just same old boring PP.

$:-\$

+1 And I'm very satisfied not fretting about investments so much. To the extent I think about changing anything, it's mostly looking into how I might start buying some physical gold.

Posted: **Sat Aug 17, 2013 2:10 am**

You will come back again

to the best strategy

Posted: **Sat Aug 17, 2013 2:35 am**

The PP must be the most annoying strategy possible for market-timers...

Posted: **Sat Aug 17, 2013 7:49 am**

koekebakker wrote: The PP must be the most annoying strategy possible for market-timers...

This kind of thread always seems to boil down to someone saying "I know what's going to happen next". And maybe sometimes they're right, but personally I appreciate the fact that the PP assumes we don't know because that is certainly the case for most of us, whether we accept it or not.

Posted: **Sat Aug 17, 2013 8:28 am**

Sorry to hear that, Norm.

I guess you've already done the deed, but please consider whether you're engaging in classic "sell low, buy high" behavior. Losses aren't losses until you sell and lock them in.

The PP is definitely not a great portfolio for tinkerers. In addition to what the others have said about stability, it provides a money management structure that I (for one) was in dire need of. Even if I could get better returns by tinkering, it's not worth it for me - I'm better off focusing on my career where I have established expertise. Of course, stock markets are more your expertise, so what you did may make perfect sense for you. I wish you the best of luck.

Posted: **Sat Aug 17, 2013 9:28 am**

I've noticed that when I start to feel sick looking at my portfolio, it's generally turned out to be a good time to buy. Obviously this is an individual thing, but it's been pretty consistent for me.

Note: I haven't actually acted on those feelings any time recently, but they have still been a pretty good indicator.

Posted: **Sat Aug 17, 2013 10:38 am**

I don't know where the minus 6-7% YTD figure came from. I'm looking at only -1.39 as of yesterday.

I definitely know what it feels like when you make a major change in strategy and then see it go south. A few years back I consolidated all of my retirement accounts plus a pension rollover into one place and invested it all in a T. Rowe price target-date retirement fund (2020 - the year I have to start MRD's). I chose T. Row price because of their philosophy of being more stock-heavy than most target funds, stocks having done pretty well for me in the past. I think it was about 80-20. That was in 2007 so you can imagine how painful it was to observe the immediate results of my new strategy. This year's losses pale in comparison.

But there was no way I was going to sell when I was down over 50% so I resolved to wait it out until it recovered which it actually did faster than I anticipated. It was only after the recovery that I started looking for something more "fail-safe" and found the PP. Obviously, I'm not happy with current performance but I'm trusting that the PP will prevent such a drastic drawdown in the future. I would have to say that this year was a pretty good test with one of the classes (gold) seeing a major meltdown.

Posted: **Sat Aug 17, 2013 11:27 am**

Norm,
Based on your investment style, it does not sound like the PP is for you.
Folks who adopt the PP are usually more than happy to adopt the S&P500 for their stock portion, not spend their time trying to pick individual winners. This extrapolates to evenly adopting all the major "risk" asset classes (stocks, LT bonds, gold), and again not trying to pick the winning asset class. Your penchant for picking individual stocks tells me that there is no way you will be happy buying the PP and then just sitting there.
I understand where you are coming from. I am also a timer. Some people cannot shake it out of their system, no matter what.

Posted: **Sat Aug 17, 2013 12:57 pm**

In the end we all need to do what makes us most comfortable. It doesn't sound like you were really in the PP and you think you can beat the market. People who believe that almost never stay with the Permanent Portfolio. It is just too counter intuitive. And most can't handle the near term volatility, though they usually end up taking bigger losses following other strategies.

But I understand the pain of seeing negative returns when stocks are smoking hot. I have long argued that the PP has an anti-prosperity bias built into it. The best way to counter it without abandoning the concept and exposing yourself to steep losses the next time the stock market tanks, is to just keep a small VP oriented towards stocks. I use VT but if you want to try your hand at stock picking and market timing that's a good place to do it. But if you have 90% in an HBPP (indexing your stocks) and then the other 10% in a VP consisting of another stock index fund you are probably going to get slightly better returns during the good times without increasing your risk level too much. And those returns are guaranteed to be even better over time if you reinvest the dividends in that index fund.

On a side note, if I were a trader or market timer, I'd be a tad nervous about stocks right now. The time to buy was late 08 and early 09 when everyone hated them. What I'm seeing on Wall Street these days is a classic case of dumb money chasing hot money. We have had near five years of stunning gains. You would have to go back to the 1920's to find a stock market that was this hot for this long.

But hey, we are just players in the biggest casino in the world. You put your money down and take your chances like everyone else. I'm just trying to shift the odds in my favor.

Posted: **Sat Aug 17, 2013 1:53 pm**

Ad Orientem wrote: In the end we all need to do what makes us most comfortable. It doesn't sound like you were really in the PP and you think you can beat the market. People who believe that almost never stay with the Permanent Portfolio. It is just too counter intuitive. And most can't handle the near term volatility, though they usually end up taking bigger losses following other strategies.

But I understand the pain of seeing negative returns when stocks are smoking hot. I have long argued that the PP has an anti-prosperity bias built into it. The best way to counter it without abandoning the concept and exposing yourself to steep losses the next time the stock market tanks, is to just keep a small VP oriented towards stocks. I use VT but if you want to try your hand at stock picking and market timing that's a good place to do it. But if you have 90% in an HBPP (indexing your stocks) and then the other 10% in a VP consisting of another stock index fund you are probably going to get slightly better returns during the good times without increasing your risk level too much. And those returns are guaranteed to be even better over time if you reinvest the dividends in that index fund.

On a side note, if I were a trader or market timer, I'd be a tad nervous about stocks right now. The time to buy was late 08 and early 09 when everyone hated them. What I'm seeing on Wall Street these days is a classic case of dumb money chasing hot money. We have had near five years of stunning gains. You would have to go back to the 1920's to find a stock market that was this hot for this long.

But hey, we are just players in the biggest casino in the world. You put your money down and take your chances like everyone else. I'm just trying to shift the odds in my favor.

So where's the hot money going?

Posted: **Sat Aug 17, 2013 2:08 pm**

dragoncar wrote:
Ad Orientem wrote: In the end we all need to do what makes us most comfortable. It doesn't sound like you were really in the PP and you think you can beat the market. People who believe that almost never stay with the Permanent Portfolio. It is just too counter intuitive. And most can't handle the near term volatility, though they usually end up taking bigger losses following other strategies.

But I understand the pain of seeing negative returns when stocks are smoking hot. I have long argued that the PP has an anti-prosperity bias built into it. The best way to counter it without abandoning the concept and exposing yourself to steep losses the next time the stock market tanks, is to just keep a small VP oriented towards stocks. I use VT but if you want to try your hand at stock picking and market timing that's a good place to do it. But if you have 90% in an HBPP (indexing your stocks) and then the other 10% in a VP consisting of another stock index fund you are probably going to get slightly better returns during the good times without increasing your risk level too much. And those returns are guaranteed to be even better over time if you reinvest the dividends in that index fund.

On a side note, if I were a trader or market timer, I'd be a tad nervous about stocks right now. The time to buy was late 08 and early 09 when everyone hated them. What I'm seeing on Wall Street these days is a classic case of dumb money chasing hot money. We have had near five years of stunning gains. You would have to go back to the 1920's to find a stock market that was this hot for this long.

But hey, we are just players in the biggest casino in the world. You put your money down and take your chances like everyone else. I'm just trying to shift the odds in my favor.
So where's the hot money going?

I think that in the next 12 months it will be moving back into gold and treasuries. JMHO, of course.

Posted: **Sat Aug 17, 2013 2:37 pm**

dragoncar wrote:
Ad Orientem wrote: In the end we all need to do what makes us most comfortable. It doesn't sound like you were really in the PP and you think you can beat the market. People who believe that almost never stay with the Permanent Portfolio. It is just too counter intuitive. And most can't handle the near term volatility, though they usually end up taking bigger losses following other strategies.

But I understand the pain of seeing negative returns when stocks are smoking hot. I have long argued that the PP has an anti-prosperity bias built into it. The best way to counter it without abandoning the concept and exposing yourself to steep losses the next time the stock market tanks, is to just keep a small VP oriented towards stocks. I use VT but if you want to try your hand at stock picking and market timing that's a good place to do it. But if you have 90% in an HBPP (indexing your stocks) and then the other 10% in a VP consisting of another stock index fund you are probably going to get slightly better returns during the good times without increasing your risk level too much. And those returns are guaranteed to be even better over time if you reinvest the dividends in that index fund.

On a side note, if I were a trader or market timer, I'd be a tad nervous about stocks right now. The time to buy was late 08 and early 09 when everyone hated them. What I'm seeing on Wall Street these days is a classic case of dumb money chasing hot money. We have had near five years of stunning gains. You would have to go back to the 1920's to find a stock market that was this hot for this long.

But hey, we are just players in the biggest casino in the world. You put your money down and take your chances like everyone else. I'm just trying to shift the odds in my favor.
So where's the hot money going?

My crystal ball is in the shop so I can't say where the hot money will be going. But I will note that as stocks have cooled somewhat and bonds continue to get pasted, gold has been creeping up and STTs are more or less flat for the year, which is what they should be of course.

Posted: **Sun Aug 18, 2013 10:08 am**

Hedge funds just started buying up tons of real estate in the recent past. I don't know if that's "where the money was going" or if it was just a small amount.

Posted: **Sun Aug 18, 2013 12:51 pm**

Ad Orientem wrote: On a side note, if I were a trader or market timer, I'd be a tad nervous about stocks right now. The time to buy was late 08 and early 09 when everyone hated them. What I'm seeing on Wall Street these days is a classic case of dumb money chasing hot money. We have had near five years of stunning gains. You would have to go back to the 1920's to find a stock market that was this hot for this long.

Yeah, it's definitely a concern. And another concern is the increasing leverage in the market. Historically leverage increases and gains decrease. (Personally I believe there is a causal relationship - decreasing gains cause people to increase their leverage to lever up their gains, but also perception of a "cannot lose" market makes people feel more comfortable about taking more leverage.) Leverage seems to peak 2-3 quarters before the market goes into a decline, and then we go into a recession. Leverage is about back to the 2007 peak.

Posted: **Sun Aug 18, 2013 1:19 pm**

So we're good for 2 or 3 more quarters? That almost coincides with my theory that the next major market crash will be in the fall of NEXT year, when the last election that is important to the President is over. It is at that point that there will no longer be a need to artificially prop up the stock market so look out below.

Posted: **Sun Aug 18, 2013 5:40 pm**

Reub wrote: So we're good for 2 or 3 more quarters? That almost coincides with my theory that the next major market crash will be in the fall of NEXT year, when the last election that is important to the President is over. It is at that point that there will no longer be a need to artificially prop up the stock market so look out below.

There is probably a boardroom somewhere we a few powerful people decide when they want to crash the market — for whatever reasons. I imagine these are the same people who meet with the new President after their 4th week in office and tell him/her they have to tear up their agendas and do whatever they say (or they will crash the markets).

Posted: **Sun Aug 18, 2013 10:46 pm**

Gumby wrote:
Reub wrote: So we're good for 2 or 3 more quarters? That almost coincides with my theory that the next major market crash will be in the fall of NEXT year, when the last election that is important to the President is over. It is at that point that there will no longer be a need to artificially prop up the stock market so look out below.
There is probably a boardroom somewhere we a few powerful people decide when they want to crash the market — for whatever reasons. I imagine these are the same people who meet with the new President after their 4th week in office and tell him/her they have to tear up their agendas and do whatever they say (or they will crash the markets).

And right after that they tell him about the aliens.

Posted: **Sun Aug 18, 2013 11:42 pm**

MediumTex wrote: And right after that they tell him about the aliens.

Or the President introduces them to his close personal friends, from the IRS.

Posted: **Mon Aug 19, 2013 9:29 am**

Ad Orientem wrote:
MediumTex wrote: And right after that they tell him about the aliens.
Or the President introduces them to his close personal friends, from the IRS.

Do you actually believe that the President is in charge?

Posted: **Mon Aug 19, 2013 12:12 pm**

Libertarian666 wrote:
Ad Orientem wrote:
MediumTex wrote: And right after that they tell him about the aliens.
Or the President introduces them to his close personal friends, from the IRS.
Do you actually believe that the President is in charge?

As opposed to the Free Masons? The Illuminati?

Sorry if you are looking for a conspiracy theorist you have knocked on the wrong door. I am not a Birther or a Truther. I think TWA Flight 800 was an accident. I think Vince Foster killed himself without any help from the CIA. Oswald killed Kennedy, all by himself. And yes Neil Armstrong really did go to the moon.

I will however concede that professional wrestling is fake.

Posted: **Mon Aug 19, 2013 12:18 pm**

Ad Orientem wrote: Sorry if you are looking for a conspiracy theorist you have knocked on the wrong door. I am not a Birther or a Truther. I think TWA Flight 800 was an accident. I think Vince Foster killed himself without any help from the CIA. Oswald killed Kennedy, all by himself. And yes Neil Armstrong really did go to the moon.

I'm with you on all but Oswald. I used to believe he more than likely acted alone but I'm not as firmly convinced as I once was.

Gyroscopic Investing

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