Gyroscopic Investing

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Those are the pages from the financial section of the paper 100 years ago today. Take a good look. Read some of the articles including what the experts were suggesting for investments. Look at the stocks listed on the exchange, the bonds being sold, including foreign government bonds.

On another thread it was asked which stock you would buy if you could only own one (presumably as a buy and hold forever). Now put yourself in the lazy hot summer of August 1913. Besides trying to find someway to keep from roasting in a major city with no air conditioning you have to plan for your financial future.

But what you don't know is that in the next five years the world will be torn apart by a global war, that half the major powers in Europe will have their governments overthrown and their currencies rendered worthless. That the US will temporarily abandon the gold standard sparking a brief but brutal inflation followed by a post war recession. Then about six years of relative economic prosperity followed by the worst depression in the history of the world. Then another world war, and so on. Probably half or more of the major stocks listed in your Sunday morning paper won't be around by 1933, just twenty years away.

What are the majority of your blue chip stocks? Railroads. But what you don't know is that in less than ten years the majority of American families will be able to afford a motor car and with roads being paved all over they will be able to actually drive from one town to another, or even to another state! The golden age of the railroads is already over. It's just that nobody realizes it yet.

So take a good look at the financial section of the paper your great great grandfather might have read as he pondered where to invest his money.

The lesson from Sunday August 24th 1913, and the reason I am a huge fan of the Permanent Portfolio, is that the future is unpredictable. (That and people dressed a lot better in those days.)

Great post. This reminds of a time I was tasked with listing the various stocks comprising the djia, by year, for a family friends research. I was maybe 14 at the time, and what amazed me was how few stocks I recognized.

Terrific post!

I agree.  Excellent post.  My physical gold always makes a feel a little better.

Thank you, Ad.  That was a wonderful little "thought for the day".

A little vignette along the same lines.  My uncle spent his career on Wall Street as a floor trader, and lived and breathed the stock market.  Whenever I talked to him, he'd go on and on about his favorite stocks, government monetary policy, et ad nauseum and I never once understood anything he said.  When he retired, he set up a fully functional trading station and set out to make himself a lot of money.  He did, initially.  In the end, he ended up losing almost everything he owned, including his home.  Several family members who took his advice also lost big time.

Every time someone suggests I buy such and such a stock, I think about my uncle.  If he couldn't succeed in this game, then what chance I do have???

Furthermore, Harry Browne was the first and only investment guru I heard whose message I could truly understand.  I find that investing works the same way as science:  if I read an article I can't understand, the normal first reaction is to assume that it's saying something too complex and impressively worked out for my limited intellect to grasp.  What I've slowly learned, though, is that the real reason is typically that the paper is utter b-s.  The paper that lays out a simple hypothesis and analysis that's straightforward and thoroughly logical, is the one that's worth reading.

Ad, this is a powerful argument for our chosen portfolio. I would love to see this reposted every time there is a "my portfolio is down 1% today, and I feel queezy" post.

I know someone that worked on Wall Street and knew just what to do. Today, in his retirement, he is almost penniless.

I heard that the guys at Lehman Bros. were highly skilled at anticipating future market movements.



One of the best stories in modern times about the futility of trying to predict the future in the investment world involves Long-Term Capital Management and was told really well in When Genius Failed.

It's a really good book about some really smart people who were fed a lot of humble pie in the process of creating enormous losses for their clients.

apart from the message
nice site, i love the internet for opening historic content
Buffett has still investments in railroad stocks

Thomas Hoog wrote: apart from the message
nice site, i love the internet for opening historic content
Buffett has still investments in railroad stocks

I think its a valuable lesson in indexing and diversification, but not necessarily specific to the PP.

buddtholomew wrote:

Thomas Hoog wrote: apart from the message
nice site, i love the internet for opening historic content
Buffett has still investments in railroad stocks

I think its a valuable lesson in indexing and diversification, but not necessarily specific to the PP.

I think that is fair, for the most part. If one had followed a boglehead type portfolio you would probably have been OK... until 1929. And that really only applies to the US markets. If one had been in Germany, the greatest industrial and military power in Europe in August of 1913, a boglehead portfolio would have left you destroyed.

Thanks to everyone for your kind comments on the post.

Has some bot broken into the forum's DB and created spam posts? There are a couple of posts in this thread that are sort of uncharacteristic of their authors...

Pointedstick wrote: Has some bot broken into the forum's DB and created spam posts? There are a couple of posts in this thread that are sort of uncharacteristic of their authors...

I just saw one, but yeah that had a botlike cadence to it.

Nice post.

I know many people that lost tremendous wealth thinking they were smarter than the markets. The markets have a siren song about them that attracts and sells the idea that it's easy to get rich trying to beat it. The results are usually horrifyingly bad for the investor.

Ad Orientem wrote:

buddtholomew wrote:

Thomas Hoog wrote: apart from the message
nice site, i love the internet for opening historic content
Buffett has still investments in railroad stocks

I think its a valuable lesson in indexing and diversification, but not necessarily specific to the PP.

I think that is fair, for the most part. If one had followed a boglehead type portfolio you would probably have been OK... until 1929. And that really only applies to the US markets. If one had been in Germany, the greatest industrial and military power in Europe in August of 1913, a boglehead portfolio would have left you destroyed.

A BH portfolio often includes a percentage held in international stocks for further diversification outside of the US. The main difference between the BH portfolio and the PP is the inclusion of gold. Some may argue long-term treasuries as well, but average maturity of LTT and Cash is similar to intermediate term bonds (barbell vs. bullet). Nevertheless, thank you for a wonderful post Ad.

craigr wrote: Nice post.

I know many people that lost tremendous wealth thinking they were smarter than the markets. The markets have a siren song about them that attracts and sells the idea that it's easy to get rich trying to beat it. The results are usually horrifyingly bad for the investor.

My portfolio seems to be an exception to that rule... so far.
But I'm not suggesting anyone else follow my example; for one thing, you need to be really convinced that your analysis is right, and be willing to ride out the severe volatility that sometimes occurs.

Libertarian666 wrote: My portfolio seems to be an exception to that rule... so far.
But I'm not suggesting anyone else follow my example; for one thing, you need to be really convinced that your analysis is right, and be willing to ride out the severe volatility that sometimes occurs.

What is your AA, 100% Gold? If yes whats your target to sell?

frommi wrote:

Libertarian666 wrote: My portfolio seems to be an exception to that rule... so far.
But I'm not suggesting anyone else follow my example; for one thing, you need to be really convinced that your analysis is right, and be willing to ride out the severe volatility that sometimes occurs.

What is your AA, 100% Gold? If yes whats your target to sell?

I describe my portfolio here:
http://gyroscopicinvesting.com/forum/pe ... /#msg72150

I have no target price to sell. I'll liquidate my portfolio gradually after I stop working and need the money for living expenses.

Libertarian666 wrote: I describe my portfolio here:
http://gyroscopicinvesting.com/forum/pe ... /#msg72150

I have no target price to sell. I'll liquidate my portfolio gradually after I stop working and need the money for living expenses.

OK, i accept your opinion, but do you know that that portfolio has never worked to retire from unless it was 10x the size of a normal retirement portfolio for the last 130 years?

frommi wrote:

Libertarian666 wrote: I describe my portfolio here:
http://gyroscopicinvesting.com/forum/pe ... /#msg72150

I have no target price to sell. I'll liquidate my portfolio gradually after I stop working and need the money for living expenses.

OK, i accept your opinion, but do you know that that portfolio has never worked to retire from unless it was 10x the size of a normal retirement portfolio for the last 130 years?

No, I didn't know that. Do you have a source for that?

http://www.cfiresim.com/input.html

try with 100% gold. Ok 3.6x is enough.

frommi wrote:
http://www.cfiresim.com/input.html

try with 100% gold. Ok 3.6x is enough.

If the future is like the past, that is probably correct.
What is the probability of that, though? I don't see the figures for that. 

Libertarian666 wrote:

frommi wrote:
http://www.cfiresim.com/input.html

try with 100% gold. Ok 3.6x is enough.

If the future is like the past, that is probably correct.
What is the probability of that, though? I don't see the figures for that. 

Also, when I input my SS numbers, I get 100% success rate. 

Is that really going to be accurate for a 100% gold portfolio? For most of the historical timeframe that the sim investigates (i.e. pre-1970s), gold was pegged to a currency, meaning that it was much less volatile. A 100% gold portfolio was more like a 100% cash portfolio.