Gyroscopic Investing

As PP articles go, that one wasn't too bad.

I always want the writer to talk more about why it works, not just a grudging admission that it does, in fact, work.

The author seems rather fixated on the funds. But not a bad article all in all.

Ad Orientem wrote: The author seems rather fixated on the funds. But not a bad article all in all.

Did you know that PRPFX trades for free on Fidelity, just like Fidelity's own funds? I don't know why that is but there must be something in it for Fidelity.

notsheigetz wrote:

Ad Orientem wrote: The author seems rather fixated on the funds. But not a bad article all in all.

Did you know that PRPFX trades for free on Fidelity, just like Fidelity's own funds? I don't know why that is but there must be something in it for Fidelity.

Thanks, I didn't know that. The ER is a bit stiff for my taste when I can do the 4x25 for for about 1/4 the expense. But PRPFX is a good choice for people who are looking for one stop shopping or who are really worried about inflation but not ready to bet the farm on it.

Ad Orientem wrote:

notsheigetz wrote:

Ad Orientem wrote: The author seems rather fixated on the funds. But not a bad article all in all.

Did you know that PRPFX trades for free on Fidelity, just like Fidelity's own funds? I don't know why that is but there must be something in it for Fidelity.

Thanks, I didn't know that. The ER is a bit stiff for my taste when I can do the 4x25 for for about 1/4 the expense. But PRPFX is a good choice for people who are looking for one stop shopping or who are really worried about inflation but not ready to bet the farm on it.

I liked PRPFX before they linked the Swiss Franc to the Euro. Since I'm not a Euro fan I started selling off PRPFX about 6 months ago

Mdraf wrote: I liked PRPFX before they linked the Swiss Franc to the Euro. Since I'm not a Euro fan I started selling off PRPFX about 6 months ago

I got my feet wet with PRPFX but I quit when I came here and learned how easy a DIY HBPP was (not to mention HBPP was doing much better at the time).

Today, I feel like low expense is a cornerstone of the philosophy and I would never go back.

Mdraf wrote:

Ad Orientem wrote:

notsheigetz wrote: Did you know that PRPFX trades for free on Fidelity, just like Fidelity's own funds? I don't know why that is but there must be something in it for Fidelity.

Thanks, I didn't know that. The ER is a bit stiff for my taste when I can do the 4x25 for for about 1/4 the expense. But PRPFX is a good choice for people who are looking for one stop shopping or who are really worried about inflation but not ready to bet the farm on it.

I liked PRPFX before they linked the Swiss Franc to the Euro. Since I'm not a Euro fan I started selling off PRPFX about 6 months ago

I wouldn't put too much store in that. The Franc is still one of the most sound currencies in the world, because the country is virtually debt free with a very stable economy and government. The link is artificial and the Swiss still control their own currency. If the Euro-zone breaks up (a very real possibility) the Franc will still be there.

I'd certainly buy Swiss bonds before German or even American excepting for the fact that I live here.

notsheigetz wrote:

Mdraf wrote: I liked PRPFX before they linked the Swiss Franc to the Euro. Since I'm not a Euro fan I started selling off PRPFX about 6 months ago

I got my feet wet with PRPFX but I quit when I came here and learned how easy a DIY HBPP was (not to mention HBPP was doing much better at the time).

Today, I feel like low expense is a cornerstone of the philosophy and I would never go back.

+1
The ER is my main hangup.

Ad Orientem wrote:

Mdraf wrote:

Ad Orientem wrote: Thanks, I didn't know that. The ER is a bit stiff for my taste when I can do the 4x25 for for about 1/4 the expense. But PRPFX is a good choice for people who are looking for one stop shopping or who are really worried about inflation but not ready to bet the farm on it.

I liked PRPFX before they linked the Swiss Franc to the Euro. Since I'm not a Euro fan I started selling off PRPFX about 6 months ago

I wouldn't put too much store in that. The Franc is still one of the most sound currencies in the world, because the country is virtually debt free with a very stable economy and government. The link is artificial and the Swiss still control their own currency. If the Euro-zone breaks up (a very real possibility) the Franc will still be there.

I'd certainly buy Swiss bonds before German or even American excepting for the fact that I live here.

Mario Draghi is a fan of QE infinity for the EU. If he weren't being restrained by Merkel he would be printing worse than Bernanke. Switzerland can't afford the Franc to decouple from the Euro right now or their exports will tank. I don't like to see PRPFX value fluctuating with the Euro. I agree that Swiss bonds are solid but my expenses are in dollars.

Have you guy ever thought of going long francs and short euros?

Regarless of what they do against the dollar, you can only lose if the franc falls against the euro, which seems extremely unlikely.

At some point if they ever decouple we should expect the franc to rise dramtically as the swiss central bank starts selling Euros or just stops buying. - Provided fundamentals don't change much.

Kshartle wrote: Have you guy ever thought of going long francs and short euros?

Regarless of what they do against the dollar, you can only lose if the franc falls against the euro, which seems extremely unlikely.

At some point if they ever decouple we should expect the franc to rise dramtically as the swiss central bank starts selling Euros or just stops buying. - Provided fundamentals don't change much.

I agree with your assessment but the timing is the big "if". I shorted Euros a couple of years ago and had to wait a long time to break even. I never tried agan. Gun shy of currencies now.

Mdraf wrote:

Kshartle wrote: Have you guy ever thought of going long francs and short euros?

Regarless of what they do against the dollar, you can only lose if the franc falls against the euro, which seems extremely unlikely.

At some point if they ever decouple we should expect the franc to rise dramtically as the swiss central bank starts selling Euros or just stops buying. - Provided fundamentals don't change much.

I agree with your assessment but the timing is the big "if". I shorted Euros a couple of years ago and had to wait a long time to break even. I never tried agan. Gun shy of currencies now.

There pretty much no nominal risk though unless the franc drops against the Euro. Since you're long and short you can lever up.....say 10 to 1 or 50 to 1 leverage and get a lot of bang for your buck.

I'm talking futures not the etfs like FXE and FXF.

I don't know what the carry costs would be though.

Kshartle wrote:

Mdraf wrote:

Kshartle wrote: Have you guy ever thought of going long francs and short euros?

Regarless of what they do against the dollar, you can only lose if the franc falls against the euro, which seems extremely unlikely.

At some point if they ever decouple we should expect the franc to rise dramtically as the swiss central bank starts selling Euros or just stops buying. - Provided fundamentals don't change much.

I agree with your assessment but the timing is the big "if". I shorted Euros a couple of years ago and had to wait a long time to break even. I never tried agan. Gun shy of currencies now.

There pretty much no nominal risk though unless the franc drops against the Euro. Since you're long and short you can lever up.....say 10 to 1 or 50 to 1 leverage and get a lot of bang for your buck.

I'm talking futures not the etfs like FXE and FXF.

I don't know what the carry costs would be though.

Hmmmm...I admit it's tempting. But it could be years before anything happens. Just last week Switzerland re-confirmed its intention to stay linked. Are you in?

Mdraf wrote:

Kshartle wrote:

Mdraf wrote: I agree with your assessment but the timing is the big "if". I shorted Euros a couple of years ago and had to wait a long time to break even. I never tried agan. Gun shy of currencies now.

There pretty much no nominal risk though unless the franc drops against the Euro. Since you're long and short you can lever up.....say 10 to 1 or 50 to 1 leverage and get a lot of bang for your buck.

I'm talking futures not the etfs like FXE and FXF.

I don't know what the carry costs would be though.

Hmmmm...I admit it's tempting. But it could be years before anything happens. Just last week Switzerland re-confirmed its intention to stay linked. Are you in?

Not currently but I am contemplatig setting aside 5k or so for a long-term bet on it. At just 20 to 1 leverage a 5% move would be 100% return.

Short EUR/CHF around 1.28. It's another place to store something cash-like although counterparty risk is present.

Of course the Euro could rally and crush it.

At current interest rates ST bonds are earning nothing anyway.

Kshartle wrote: Not currently but I am contemplatig setting aside 5k or so for a long-term bet on it. At just 20 to 1 leverage a 5% move would be 100% return.

Short EUR/CHF around 1.28. It's another place to store something cash-like although counterparty risk is present.

Of course the Euro could rally and crush it.

At current interest rates ST bonds are earning nothing anyway.

Wheres your edge in this trade against all the other currency traders/the central bank? When you have none, you are purely speculating and can simply go to the next casino. That has nothing to do with investing. 
But good luck anyway. 

MediumTex wrote: As PP articles go, that one wasn't too bad.

I always want the writer to talk more about why it works, not just a grudging admission that it does, in fact, work.

Probably because most on this website can't even explain it.

dragoncar wrote:

MediumTex wrote: As PP articles go, that one wasn't too bad.

I always want the writer to talk more about why it works, not just a grudging admission that it does, in fact, work.

Probably because most on this website can't even explain it.

Yes, but the concept that an unleveraged volatile asset can never lose more than 100% but can easily gain WAY more than 100% is pretty simple and it's a point many PP tire kickers often overlook.

That's only true when you never rebalance... When you do rebalance every asset can lose way more than 100%.

koekebakker wrote: That's only true when you never rebalance... When you do rebalance every asset can lose way more than 100%.

Leveraged or not.....how do you lose more than 100% of anything? How do you lose something that doesn't exist?

Perhaps an example of this is me losing my mind even though it never existed.

TennPaGa wrote:

koekebakker wrote: That's only true when you never rebalance... When you do rebalance every asset can lose way more than 100%.

??

Compared to the starting value, maybe.

Example:

1. Gold falls 70%, bringing your starting gold allocation of 100k to 30k, for a loss of 70k.
2. You've hit a rebalance band, so you sell some other assets and rebalance gold to 82.5k.
3. Gold falls another 50% from its previous value, bringing your 82.5k of gold to 41.25k; a loss of 41.25k. Total gold loss: 111.25k.

Without rebalancing, your gold loss would be 85k (70k loss + 50% of the 30k that remained). With rebalancing, your gold loss is 111.25k--more than you started out with.

Thanks for clarifying PS, that's exactly what I meant. It's very unlikely of-course but gaining much more than 100% is also very unlikely due to rebalancing.

I guess I just don't understand what Tex's comment has to do with how the PP works. IMO the PP works because rebalancing of volatile assets with low correlation, not because you let them gain a couple hundred percent. Tex's comment might be appropriate for the VP.

TennPaGa wrote: Got it.  Thanks.

Then again, if I had the entire $400k in gold, I'd have lost $340k. 

I would rather have lost 111% of the gold in my PP than 85% of the gold in the Libertarian666 portfolio.

koekebakker wrote: Thanks for clarifying PS, that's exactly what I meant. It's very unlikely of-course but gaining much more than 100% is also very unlikely due to rebalancing.

I guess I just don't understand what Tex's comment has to do with how the PP works. IMO the PP works because rebalancing of volatile assets with low correlation, not because you let them gain a couple hundred percent. Tex's comment might be appropriate for the VP.

Well, if we know that historically the PP asset that is declining will usually be in the process of losing 40-80% of its value from its prior high and the asset that is in the process of increasing will usually be increasing by between 200% and 1000% (or more) from its prior low, do you see how you would be making more money on the winners than you would be losing on the losers?

To your point about losing more than 100% from an arbitrary starting point after two decline-driven rebalancing events, I agree that such an even is possible, but given the nature of the PP I think that it would be exceedingly rare.

Remember that all four PP assets tend to rise in value over time, if for no other reason than the steady single digit inflation that is usually present no matter what.

As craig and I have noted before, in crazy market conditions there is no requirement that you MUST rebalance.  For example, in a true currency crisis where the dollar was losing 50% or more of its value every month, no PP investor would be required to continue selling stocks and gold and buying more treasuries.  It would probably make more sense to just wait until market conditions stabilized and decide what to do from there.

As far as the asymmetry between the rise and fall of PP assets, though, this is a key concept that all PP investors should understand, mostly because it can make life with the PP much less stressful.

Take a look at what gold did from 1982-2000 and then look at what the S&P 500 did over the same period and you will see what I mean.

From 2000-2011 gold gained almost 1,000%. 

Even with regular rebalancing, a PP investor's gold allocation would have seen a rise FAR in excess of 100% over that period because you are only harvesting a portion of the gains in that asset each time you rebalance.  You are still maintaining a core 25% position that can capture additional future price increases.