More people using PP is better or worst?

[frugal]

Hello,

on trading systems when too much people uses the same system the system ends being profitable.

On PP is the same or the opposite? Why?



Thanks.

[barrett]

It's difficult to imagine this being an issue anytime soon because the PP concept is so unattractive to most investors, but I'll take a stab at your question. Clearly there are other places people can put their money besides stocks, bonds, gold and cash. Let's say every investor on the planet went into a local version of the PP... The gold market is small compared to the bond and stock markets. Gold would skyrocket in price if everyone tried to bring it up to 25% of their investible assets. In fact, I think it would go up so much that whatever happens in stocks, bonds and cash would be almost irrelevant. But my guess is that stocks would do well and that we'd also see some extreme funkiness on the yield curve if everyone suddenly wanted 30-year bonds.

[goodasgold]

It's difficult to imagine this being an issue anytime soon because the PP concept is so unattractive to most investors...

It is highly unlikely that large numbers of people would adopt the PP, but stranger things have happened. Vanguard is growing by leaps and bounds as more and more people realize that passive index funds are the best way to accumulate wealth. Active managers are on the road to becoming an endangered species.

This raises another issue: The possibility of Vanguard failing is very remote, but I believe it is a sound principle to not put all your eggs in one basket. I diversify among several accounts, and this is especially true of gold ETFs, which could be subject to cataclysmic failure in times of stress due to fraud, insufficient reserves, mismanagement, confiscation, etc., etc., etc.

"A word to the wise is sufficient." 

[mortalpawn]

On PP is the same or the opposite? Why?

Agree with above posters that the PP is not going to become a mainstream investment strategy anytime soon.  I have trouble even discussing it in polite company, as most people look at me like I'm insane when I say I have 25% in gold and 25% in cash.  In general I avoid the discussion entirely, and just tell people I use a passive strategy with mutual funds and ETFs.

However, if theoretically a large number of people went to PP, it would have little impact on the stock, bond or cash markets as these are already huge and very diverse markets.  Most investors already hold a mix of stocks, bonds and cash - just in different percentages than we do, and there are a number of instruments available in each.

The largest impact would probably be in the gold market which is relatively small.  At today's prices, the value of all of the gold in the world is only 7.4 trillion dollars, and half of that is tied up in jewelry plus another 17% or so is held by central banks.  Only about 20% is available to investors.  In comparison stocks are nearly 10 times that, near 70 trillion, government debt worldwide is a whopping 220 trillion, and even cash is (using M3) again around 73 trillion dollars.  All of this is against a global GDP of around 66 trillion dollars.

So I think a mass move of investors to the PP would certainly drive the gold price up, and probably disrupt that market the most.  The other markets would likely continue to do whatever they were doing before as they are huge and also very diverse.

As a side note - I'm assuming physical gold here, as the paper gold market is larger due to gold loans, rehypothification, futures and other instruments.

[frugal]

As this is a cumulative PP I think it is better for everybody.