Gyroscopic Investing

Hi there,
My personal fiscal year end/start is October.
From Oct 2012 to Oct 2013, my Canadian PP lost 7.26%.
This is a record for the greatest loss ever by the Canadian PP.
The previous record was 6.53% in 1981 (according to the Stingy Investor Asset Mixer).

Mind you, the year start/end date is typically January, so the PP still has a chance to make a comeback in the next three months, if you're a January starter.

I'm planning to stay the course, but am a bit dissappointed that the PP has performed so poorly within the first two years of my investing in it.

I'm pretty sure there have been significantly higher intra-year drawdowns than that, so it's just an accident of the calendar that this is the worst it has ever been in your particular fiscal year.

christina wrote: Hi there,
My personal fiscal year end/start is October.
From Oct 2012 to Oct 2013, my Canadian PP lost 7.26%.
This is a record for the greatest loss ever by the Canadian PP.
The previous record was 6.53% in 1981 (according to the Stingy Investor Asset Mixer).

Mind you, the year start/end date is typically January, so the PP still has a chance to make a comeback in the next three months, if you're a January starter.

I'm planning to stay the course, but am a bit dissappointed that the PP has performed so poorly within the first two years of my investing in it.

Yeah...but what else can you do?

I would be losing sleep like crazy right now with a stock heavy portfolio waiting for the other shoe to drop. 

I think you need to take a look at how your PP is constructed. You should probably have at least half of your stock allocation in in a non-Canadian stock index fund or alternatively use something like VT. Also are you adding in the dividends you are receiving? All that said, down years are rare, but not nonexistent. The good news is that historically down years are usually followed by very strong up years.

Ad Orientem wrote: I think you need to take a look at how your PP is constructed. You should probably have at least half of your stock allocation in in a non-Canadian stock index fund or alternatively use something like VT. Also are you adding in the dividends you are receiving? All that said, down years are rare, but not nonexistent. The good news is that historically down years are usually followed by very strong up years.

Ad Orientem, are you an optomistic person in other aspects of your life? You certainly have a postive outlook on the future prospects of the PP. Personally, I am a pessimist by nature and continue to question the merits of holding a PP over a more conventional allocation - one that limits bond duration to intermediate and only allocates a small percentage to precious metals, if any.

buddtholomew wrote:

Ad Orientem wrote: I think you need to take a look at how your PP is constructed. You should probably have at least half of your stock allocation in in a non-Canadian stock index fund or alternatively use something like VT. Also are you adding in the dividends you are receiving? All that said, down years are rare, but not nonexistent. The good news is that historically down years are usually followed by very strong up years.

Ad Orientem, are you an optomistic person in other aspects of your life? You certainly have a postive outlook on the future prospects of the PP. Personally, I am a pessimist by nature and continue to question the merits of holding a PP over a more conventional allocation - one that limits bond duration to intermediate and only allocates a small percentage to precious metals, if any.

LOL I try to be optimistic where the facts lend themselves to optimism. The forty year track record of the PP gives me cause for hope. But I certainly won't condemn anyone who is comfortable with a good old fashioned Jack Bogle special. Just keep enough cash to hold you over in case things get bumpy. And I REALLY think people need to have a little gold lying around... just in case.

I have about 1/3 of my stock portion in US stocks, but used to be all-Canadian stocks until about 1/2 way through the 2013 year.

People on this board (and everywhere else) have told me that the Canadian economy is not diversified enough: it is over-represented by financials and resource stocks; therefore, it is risky to have my full 25% stock allocation in Canadian stocks. However, resources and financials are what the Canadian economy IS, so I still don't understand why I'd want to buy into say, consumer staples of other countries, since they don't represent MY country's prosperity...but whatever,  the backtesting shows that having american stocks lowers volatility, so I bought american stocks anyway.

I'm still more comfortable with the PP than other strategies, but will continue to monitor it.

Christina,

I'm in the same boat as you, and I started in the same timeframe. I think overall I am down 6.5% not taking into account spreads in gold since I purchase physical. I too am comfortable with the asset mix, although I have my own little twist on the portfolio. I have 1/3 cdn stocks, 1/3 us stocks, 1/3 emerging stocks and 1/3 xbb, 1/3 xlb, 1/3 high yield bonds. I like the structured approach and prevents me from going too heavy into any one asset.

How did you learn about the PP in canada?

Stunt -
I found out about the PP through the Canadian Couch Potato website.
Yes, I like the structured approach too.
I like buying bonds directly from the government, as there is no management fee :-), but I do top-up with Bank of Montreal's ZFL (long bonds etf).
It's interesting that 2/3rds of your stock allocation is non-Canadian.

Edited for grammar.

Hasn't CAD strengthened significantly in recent times? You should be able to buy more despite these losses. You should stick with your CAN PP.

Yearly drops of 5-10% were not that rare and they don't bother me. It is the very poor 3-year returns that bothers me. Oct-2010 to Oct-2013 returns for the Canadian PP are ~6%, 2% annualized.

B.t.w., I remember doing extensive back-testing re negative performance. The Canadian PP lost ~13% from July-2008 till Nov-2008 and ~20% in 1981.

I think the value of CAD went from something like 0.8 to 1.0 with respect to USD during 2010-2013, so you had some nice returns during that time period.

yes, the CAD went up during those years.
Isn't this currency bonus is only relevant for my gold, as well as my US stock holdings, which are unhedged?

christina wrote: I still don't understand why I'd want to buy into say, consumer staples of other countries, since they don't represent MY country's prosperity...but whatever,  the backtesting shows that having american stocks lowers volatility, so I bought american stocks anyway.

Hi Christina,
I'm also a Cdn PPer, with a year-end of 31 Dec.
First, putting your money only into Canadian assets is like trying to find culture in Calgary. This country accounts for about 4% of global markets, and yet 70% of all investors here have 100% of their money in Canadian assets. Bad choice. The TSX is up 6% this year. The S&P is ahead 21%. Markets in the UK and Germany have added 14%. The Nikkei has jumped 40.6%. Sticking your 25% equity allocation into a Cdn only ETF with that narrow a focus is bound to disappoint.

I have 12.5% in XIC and the other 12.5% in XWD. This gives me a broader exposure to US and Int'l markets, something like another 1500 stocks. My cash is 12.5% CLF, the rest is in a HISA. I also use ZFL for bonds and I use IGT for gold which has wilted badly. I'm down marginally but I don't rebalance until the New Year.

I wish you nothing but success but I do sleep better at night with a PP allocation for my retirement savings. I use a Variable PP for experimenting with sector rotation strategies and gambling on individual stocks.
All the Best!

Shadow - I don't understand why holding the Canadian stock market is a bad choice. I guess because you are not taking advantage of when the stock markets of the world beat Canada's? How often do the stock markets of the world beat Canada's?

If I look at the returns, I see that the S&P was crap against the TSX all through the 2000's, except for the last three years.

          Toronto          S&P
2002  -12%              -23% 
2003  27%              6%
2004  14.5%            3%
2005  24%              1.5%
2006  17%              16%
2007  10%              -10%
2008  -33%              -23%
2009    35%              9%
2010    18%              9%         
2011  -9%                4%
2012    7%                13.5%

christina wrote: Shadow - I don't understand why holding the Canadian stock market is a bad choice. I guess because you are not taking advantage of when the stock markets of the world beat Canada's? How often do the stock markets of the world beat Canada's?

My return for XIC since Dec '11 (when I started) is 7.3% and for XWD is 32.1%. I do this for diversification and to access Int'l Markets. I gave you the reason for not 100% Canada, again, it represents only 4% of Global Markets. I want more of a global exposure in the equity portion of my PP. It's what I do and not what I think you should do.