Video from MARC DE MESEL

[frugal]

Our friend MARC DE MESEL:

http://www.youtube.com/watch?feature=pl ... kTnNE0FgZU


Please comment.


Thanks

[Libertarian666]

So he wants to increase his wealth, not just preserve it? I imagine almost everyone wants to do that; the question is how to do it.

This sounds like market timing rather than the PP as originally conceived.

(Note that I don't use the PP myself; I'm just analyzing the video on the basis of the PP concept.)

[Pointedstick]

It's the same argument he's been making for quite some time. Real inflation is 5%, bonds are going to get destroyed, the PP needs to exceed a 5 or 6% nominal return to avoid treading water, etc.

Needless to say, I disagree with him that inflation is actually 5% in the USA. Personally, I don't think that generalized measurements of inflation are that useful at all because everyone experiences different price movements depending on what they purchase. Someone whose budget is dominated by gasoline, concert tickets, medical bills and college tuition is probably seeing price inflation of 10% or more. Someone who buys a lot of consumer electronics, clothing, furniture, and pays a mortgage on a house has probably seen price deflation.

Regarding bonds, I think it boils down to the following statement regarding the value of government bonds:

"It cannot be valued higher--theoretically it could of course."

Marc is a very smart man, but sometimes I think he can outsmart himself, as he almost did when he nearly added Bitcoins to the portfolio. The future is unknowable. The fact that German bond yields are half the USA's and Japanese bond yields are less than 1/3 tells me that "theoretically" we have much farther we can go if current trends continue.


I also think it's a mistake to try to get rich through investment returns. We're talking about the difference between like 5% and 10%, if you're lucky. That's nothing. If you want to get rich, you need to be talking about numbers like 50%, 100%, 150%, and those are numbers you only have exposure to if you own a productive business.

We'll go nuts trying to eke out another 1% from our investment strategy; meanwhile, anyone with half a brain and a credit card can start an incredibly lucrative business buying cheap widgets from China in bulk for impossibly low prices and reselling them in the USA or EU for double or triple. Boom, 100% return. It won't last forever, but if you save 90% of the money you make, you're rich.

[Libertarian666]

...
I also think it's a mistake to try to get rich through investment returns. We're talking about the difference between like 5% and 10%, if you're lucky. That's nothing. If you want to get rich, you need to be talking about numbers like 50%, 100%, 150%, and those are numbers you only have exposure to if you own a productive business.

We'll go nuts trying to eke out another 1% from our investment strategy; meanwhile, anyone with half a brain and a credit card can start an incredibly lucrative business buying cheap widgets from China in bulk for impossibly low prices and reselling them in the USA or EU for double or triple. Boom, 100% return. It won't last forever, but if you save 90% of the money you make, you're rich.

From January 2003 to January 2013, gold had a CAGR of 17%. That was enough to quadruple one's money in 10 years, which isn't too bad but I agree doesn't produce enormous wealth.
Also, I don't agree that "anyone" can start such a business; if they could, then the return wouldn't be that great. There must be more to it than that.

[frommi]

I also think it's a mistake to try to get rich through investment returns. We're talking about the difference between like 5% and 10%, if you're lucky. That's nothing. If you want to get rich, you need to be talking about numbers like 50%, 100%, 150%, and those are numbers you only have exposure to if you own a productive business.

1% in real returns is a huge difference in the resulting networth over longer timespans. In retirement this means that you can withdraw 50.000$ from 1million$ instead of 40.000$ every year. That 1% is in reality a 20% increase. And with 20% returns every year you can get rich like Warren Buffet with enough time.

And he is right for the EU, because the situation is different as in the US. In germany it is not set in stone that we won`t default on our bonds. Its really crazy here, everybody involved in capitalmarkets (stocks or bonds) is brandmarked as a speculator, and the only real investment a german makes is buying his house (which in reality is not an investment ) or borrowing money to his bank . And the risk in bonds is currently much much higher than the possible reward.

Btw. most businesses fail, you have to really try hard and start over and over again to succeeed, or you had pure luck.

[Libertarian666]

I also think it's a mistake to try to get rich through investment returns. We're talking about the difference between like 5% and 10%, if you're lucky. That's nothing. If you want to get rich, you need to be talking about numbers like 50%, 100%, 150%, and those are numbers you only have exposure to if you own a productive business.

1% in real returns is a huge difference in the resulting networth over longer timespans. In retirement this means that you can withdraw 50.000$ from 1million$ instead of 40.000$ every year. That 1% is in reality a 20% increase. And with 20% returns every year you can get rich like Warren Buffet with enough time.

And he is right for the EU, because the situation is different as in the US. In germany it is not set in stone that we won`t default on our bonds. Its really crazy here, everybody involved in capitalmarkets (stocks or bonds) is brandmarked as a speculator, and the only real investment a german makes is buying his house (which in reality is not an investment ) or borrowing money to his bank . And the risk in bonds is currently much much higher than the possible reward.

Btw. most businesses fail, you have to really try hard and start over and over again to succeeed, or you had pure luck.

That's same as the US, other than the terminology: "default" and "hyperinflation" are equivalent as far as bond purchasers are concerned.

[Pointedstick]

From January 2003 to January 2013, gold had a CAGR of 17%. That was enough to quadruple one's money in 10 years, which isn't too bad but I agree doesn't produce enormous wealth.

True. Then again, stocks did the same in the 90s. Being able to pick the hot asset before it really takes off and sell it before it crashes will make you a ton of money, true. But of course, that has nothing to do with the PP and most people who try this fail dramatically.

Also, I don't agree that "anyone" can start such a business; if they could, then the return wouldn't be that great. There must be more to it than that.

I guess I'm talking about this in the same sense that anyone can learn how to write HTML or cook an egg. It's not like becoming an olympic athlete; there's no biological or genetic component to being able to own a successful business. Anyone can do it if they learn the right skills and adopt the appropriate mindset.

[frommi]

That's same as the US, other than the terminology: "default" and "hyperinflation" are equivalent as far as bond purchasers are concerned.

It is really hard to predict what will happen when the EU breaks up.

[Libertarian666]

From January 2003 to January 2013, gold had a CAGR of 17%. That was enough to quadruple one's money in 10 years, which isn't too bad but I agree doesn't produce enormous wealth.

True. Then again, stocks did the same in the 90s. Being able to pick the hot asset before it really takes off and sell it before it crashes will make you a ton of money, true. But of course, that has nothing to do with the PP and most people who try this fail dramatically.

As I have already pointed out, I don't use the PP, because my comfort level with so much invested in US government promises is inadequate.

Also, I don't agree that "anyone" can start such a business; if they could, then the return wouldn't be that great. There must be more to it than that.

I guess I'm talking about this in the same sense that anyone can learn how to write HTML or cook an egg. It's not like becoming an olympic athlete; there's no biological or genetic component to being able to own a successful business. Anyone can do it if they learn the right skills and adopt the appropriate mindset.

If "anyone" can do it, then how can it have such high expected returns? That is contrary to any economic theory I'm aware of.

[Pointedstick]

As I have already pointed out, I don't use the PP, because my comfort level with so much invested in US government promises is inadequate.

I know. And you've done very well for yourself. I guess what I'm trying to say is that it's a bit silly for Marc to even be talking about the PP given that he's basically doing pure market timing.

If "anyone" can do it, then how can it have such high expected returns? That is contrary to any economic theory I'm aware of.

Not everyone who can do it does it, due to personal preferences, imperfect information, fear of risk, emotional hangups about money, etc. But that's no impediment for the people who choose otherwise.

All I'm saying is that any given person who wants to make a lot of money and is willing to adopt a producer mindset, work really really hard, learn a lot about finance, accounting, marketing, web hosting, customer service, etc, it's a great option. These are all learnable skills.

[Pointedstick]

Fred Reed: Commentator's Disease

Well, that was depressing. But it rings true. Shoot, now I feel like a dickhead.

[Libertarian666]

Fred Reed: Commentator's Disease

Well, that was depressing. But it rings true. Shoot, now I feel like a dickhead.

Also see this (from http://en.wikipedia.org/wiki/Dunning%E2 ... ger_effect):

'Actual competence may weaken self-confidence, as competent individuals may falsely assume that others have an equivalent understanding. David Dunning and Justin Kruger of Cornell University conclude, "the miscalibration of the incompetent stems from an error about the self, whereas the miscalibration of the highly competent stems from an error about others".'

[dualstow]

Fred Reed: Commentator's Disease

Well, that was depressing. But it rings true. Shoot, now I feel like a dickhead.

It was easy to get back to this thread by searching for the word "dickhead" although you most assuredly are not one.
I love Fred. Especially the recent piece on Mac vs PC. Off topic, but I have to post an excerpt. It's so satisfying:

I was beginning to think of the Mac as an intensely personal computer for smart people who didn’t want to know techno-wizzygobble about driver incompatibility and interrupt hierarchies: a computer, not a puzzle.
Nothing wrong with that. It was how I looked at my refrigerator: Shut up, stay cold, and keep your internal workings to yourself.

[koekebakker]

I also think it's a mistake to try to get rich through investment returns. We're talking about the difference between like 5% and 10%, if you're lucky. That's nothing. If you want to get rich, you need to be talking about numbers like 50%, 100%, 150%, and those are numbers you only have exposure to if you own a productive business.

1% in real returns is a huge difference in the resulting networth over longer timespans. In retirement this means that you can withdraw 50.000$ from 1million$ instead of 40.000$ every year. That 1% is in reality a 20% increase. And with 20% returns every year you can get rich like Warren Buffet with enough time.

And he is right for the EU, because the situation is different as in the US. In germany it is not set in stone that we won`t default on our bonds. Its really crazy here, everybody involved in capitalmarkets (stocks or bonds) is brandmarked as a speculator, and the only real investment a german makes is buying his house (which in reality is not an investment ) or borrowing money to his bank . And the risk in bonds is currently much much higher than the possible reward.

Btw. most businesses fail, you have to really try hard and start over and over again to succeeed, or you had pure luck.

The eurozone is in such a mess... I'm not even sure the EU is suitable for the vanilla PP. Holding eurozone cash, eurozone bonds and eurozone stocks doesn't seem like an investment strategy to me, it's pure speculation. Eurozone government bonds are basically low yielding junkbonds. Corporates are probably safer...

I like your solution of 50% stocks/25% gold /25% bonds btw. I still haven't figured out what to do but I'm thinking of diversifying out of the EU with 40% global stocks, 20% gold, 20% cd's, 20% Dutch LTT's.

[Marc De Mesel]

Marc is a very smart man, but sometimes I think he can outsmart himself, as he almost did when he nearly added Bitcoins to the portfolio. The future is unknowable. The fact that German bond yields are half the USA's and Japanese bond yields are less than 1/3 tells me that "theoretically" we have much farther we can go if current trends continue.

Thanks for your critique Pointedstick. I think you are right that interest rates could go a lot lower. I realized that after making the video quoted by Frugal and doing some more research. I found a long term interest rates chart from the USA over the past hunderds of years and saw that the interest rate spike at the start of the 80's was historically much higher than it had ever been. It made me realize that the inverse could happen too, that interest rates could not go a little but a lot lower than they have ever gone. So instead of the low being 1% like in Japan maybe they do end up touching -2%? In which case they indeed would still play a crucial role in protecting your purchasing power.

I'm still planning to liquidate the 30y bonds but gradually. If they hit 1% I plan to sell half. If they would ever touch -1% I plan to liquidate the other half and switch to a PP3.

I also think it's a mistake to try to get rich through investment returns. We're talking about the difference between like 5% and 10%, if you're lucky. That's nothing. If you want to get rich, you need to be talking about numbers like 50%, 100%, 150%, and those are numbers you only have exposure to if you own a productive business.

Or with bitcoin...

We'll go nuts trying to eke out another 1% from our investment strategy; meanwhile, anyone with half a brain and a credit card can start an incredibly lucrative business buying cheap widgets from China in bulk for impossibly low prices and reselling them in the USA or EU for double or triple. Boom, 100% return. It won't last forever, but if you save 90% of the money you make, you're rich.

Doing a successful business is equally difficult than doing a successful investment. It requires knowledge, critical thinking and action. Since we are investors here why not go the extra mile on the investment front?

I made a new video about this as well as more critical arguments towards the Permanent Portfolio:
http://europeanpermanentportfolio.blogs ... bunks.html

[Marc De Mesel]

Also, I don't agree that "anyone" can start such a business; if they could, then the return wouldn't be that great. There must be more to it than that.

I guess I'm talking about this in the same sense that anyone can learn how to write HTML or cook an egg. It's not like becoming an olympic athlete; there's no biological or genetic component to being able to own a successful business. Anyone can do it if they learn the right skills and adopt the appropriate mindset.

If "anyone" can do it, then how can it have such high expected returns? That is contrary to any economic theory I'm aware of.

Good point Libertarian666.

High returns are exceptional, they require exceptional dedication and wit. This is true for an entrepreneur and investor!

It is a real pitty that Harry Browne threw the baby out with the badwater.

Speculation is hard, just like any entrepreneur you will likely fail several times, but if you persevere, apply all your energy and skill, it's possible. 

Check out my new video for hard proof that there are people who succeeded in speculation, and it has nothing to do with luck!:
http://europeanpermanentportfolio.blogs ... bunks.html