Gyroscopic Investing

ILoveMoney wrote: How can I get this? I entered my name and email and all I get is. "Thank You! Your form has been submitted."

MachineGhost wrote:

ILoveMoney wrote: How can I get this? I entered my name and email and all I get is. "Thank You! Your form has been submitted."

Give it time.  Faber will send you a $2.99 Amazon gift card you can use to purchase the eBook.  Also, his other two eBooks are free for another two days

Hmm, only a .91% annual real return from 1973 to 1981 for the PP?  That really sucks!  I'm guessing riding the gold bubble pop down really gutted the PP.

MachineGhost wrote:

ILoveMoney wrote: How can I get this? I entered my name and email and all I get is. "Thank You! Your form has been submitted."

Give it time.  Faber will send you a $2.99 Amazon gift card you can use to purchase the eBook.  Also, his other two eBooks are free for another two days

Hmm, only a .91% annual real return from 1973 to 1981 for the PP?  That really sucks!  I'm guessing riding the gold bubble pop down really gutted the PP.

craigr wrote: I need to read the book, but don't want to get on any junk lists so I've not signed up yet.

Volatility is a killer for most investors. They can't handle it and will almost always bail. I've seen it over and over again. The high flying strategies had tremendous volatility. In 2008 it looks like -40% declines. I know very few people why are going to sit by and watch a 40% decline. This even includes pros. They are going to bail and then they have the problem of when to get back in.

Most people do not match market returns because they are constantly going in and out of the market, changing strategies, etc. It is a huge problem for individual investors and even the pros again. If you can stick with a simple 60/40 strategy and keep costs low that's great. Same for the PP. Same for something else. But that volatility really smokes out a lot of people and that's often where they get hammered.

Also keep in mind that 1980-2000 was the biggest baddest stock bull market in U.S. history. It really skews the numbers. These kinds of charts look a lot different if you go outside the U.S. where stock markets have not done as well.

I think a stable portfolio is a great way to invest because it means investors will stay in the game longer and it's time that is their biggest ally. If they are in something volatile they will bail (just like anyone else), and that's where the problems start. I have known people that got burned in the Tech bust in 2001, and again in 2008 and just stay out of the market entirely as a result. That's really bad news but was a result of taking huge losses from volatile portfolios.

Sadly, spreadsheet data does not have a formula expression for this:

=REALRETURNS(EMOTIONS(SUM(A1:A36)))

If that formula did exist, I bet we'd see a lot more realistic returns from many portfolios.

craigr wrote: I need to read the book, but don't want to get on any junk lists so I've not signed up yet.

LC475 wrote:

craigr wrote: I need to read the book, but don't want to get on any junk lists so I've not signed up yet.

Then why not just pay the three dollars?

http://www.amazon.com/Global-Asset-Allo ... B00TYY3F3C

MachineGhost wrote: Not just fees, but taxes as well.  We really ought to be more aggressive about those.  Pity it takes too much work or expensive structuring/tax sheltering.

I think what I'd like to see is an automated roboadviser like WealthFront offering up the PP rather than the staid academic baloney.  I would be willing to pay .25% a year after the first $10K to have these extra yearly gains:

Tax-Loss Harvesting +1.0%
Automatic Rebalancing +0.4%
Tax-Aware Allocation +0.6%

The major downside is continuous tax-loss harvesting is only available on accounts >= $100K.

Kbg wrote: I would think continuous tax loss harvesting would be very difficult with a PP unless you were willing to expand your definitions of appropriate bonds, appropriate stocks and be willing to swap out gold with some other real asset. Wash rules still apply.

Mark Leavy wrote:

Kbg wrote: I would think continuous tax loss harvesting would be very difficult with a PP unless you were willing to expand your definitions of appropriate bonds, appropriate stocks and be willing to swap out gold with some other real asset. Wash rules still apply.

Stocks - swap between VTI and SPY.
Bonds  - hold individual bonds and move between bonds with a couple of years or interest point difference.
Gold    - hold physical.  No wash sale rules.  You can sell and buy back from your brother with no spread.

dragoncar wrote: I recently rebalanced my bonds at TD Ameritrade and saw a ridiculous spread.  Like .4% below the price Fidelity was offering. Ugh.

Mark Leavy wrote:

dragoncar wrote: I recently rebalanced my bonds at TD Ameritrade and saw a ridiculous spread.  Like .4% below the price Fidelity was offering. Ugh.

Ouch.
I use Vanguard for bonds.  The spreads are tight.  No commission.  The user interface sucks.

dragoncar wrote: I recently rebalanced my bonds at TD Ameritrade and saw a ridiculous spread.  Like .4% below the price Fidelity was offering. Ugh.  TD had a system called "request bids" or something like that.  I didn't find much if any discussion on this concept online.  The first bid was terrible and a second one didn't materialize within a couple hours.  I canceled my request, resubmitted, and the next bid was a little better.  I know this is offtopic, but what are you supposed to do here?  Just not buy individual bonds with TD?

http://www.investinginbonds.com/learnmore.asp?catid=4&id=406 wrote:Markups and Markdowns

Broker-dealers who hold bonds in inventory increase or “mark up”? the price when a customer buys a bond from them, and reduce or “mark down”? the price when a customer sells a bond back to them. This markup or markdown is built into the customer’s price rather than identified separately.

This pricing method of these so-called “principal”? transactions is similar to that used by any retail store. A store that sells stereos, for example, will buy a stereo from the manufacturer for one price and sell it to the customer for a higher price. Built into the difference or markup is the store owners’ proportional cost of rent and other overhead, the salaries of the salespeople, some compensation for the risk that the price may have to be reduced if the stereo doesn’t sell, and a profit for themselves. The person who buys the stereo does not know the amount of the markup, but can shop around for the best price.

Bond dealers face virtually the same issues: they have overhead costs, they need to pay their salespeople, they face the risk that interest rates or market conditions might cause a bond they hold in inventory to decline in value, and they need to make a profit. Their markups and markdowns may also be affected by the size of the transaction—the larger the amount, the lower the cost—and the liquidity of the security. Bonds that trade frequently should have lower markups and markdowns than thinly traded securities.

Both the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB) have rules governing how much a broker-dealer can mark up (or mark down) the price of a bond he or she sells (or buys from) you.

You can sometimes estimate the amount of the markup if you know the “bid-ask”? spread, or the difference between a price a dealer is willing to pay for a bond (the bid) and the usually higher price the dealer is willing to sell the same bond for (the ask).

Commissions

Brokers who are not also dealers or who do not have the particular bond you want in inventory will have to go into the marketplace to get it. In this case, the broker acts as an agent rather than as a principal, and the trade is sometimes called an agency transaction. In most cases, brokers will charge investors commissions on agency transactions, and the amount of the commission will be identified on the trade confirmation. (Remember, though, the agency broker also pays a markup to the dealer selling the bond.) Sometimes the commission will be based on a percentage of the bond’s price, and this percentage may decline as the size of the transaction increases. Other times, especially in the case of a discount or on-line broker, the commission may be a flat fee.

Keep in mind that the markup or commission is the fee imposed by the brokerage firm; the individual broker you work with will get a portion of that amount.

The bottom line is that you want the best price, and the broker you work with deserves to be compensated. To get the best price, you may have to shop around. Or you may decide that the service you receive from your broker is worth a higher price. If you build a relationship with a particular broker, you may also find that your transaction costs can be negotiated.

MachineGhost wrote:

dragoncar wrote: I recently rebalanced my bonds at TD Ameritrade and saw a ridiculous spread.  Like .4% below the price Fidelity was offering. Ugh.  TD had a system called "request bids" or something like that.  I didn't find much if any discussion on this concept online.  The first bid was terrible and a second one didn't materialize within a couple hours.  I canceled my request, resubmitted, and the next bid was a little better.  I know this is offtopic, but what are you supposed to do here?  Just not buy individual bonds with TD?

http://www.investinginbonds.com/learnmore.asp?catid=4&id=406 wrote:Markups and Markdowns

Broker-dealers who hold bonds in inventory increase or “mark up”? the price when a customer buys a bond from them, and reduce or “mark down”? the price when a customer sells a bond back to them. This markup or markdown is built into the customer’s price rather than identified separately.

This pricing method of these so-called “principal”? transactions is similar to that used by any retail store. A store that sells stereos, for example, will buy a stereo from the manufacturer for one price and sell it to the customer for a higher price. Built into the difference or markup is the store owners’ proportional cost of rent and other overhead, the salaries of the salespeople, some compensation for the risk that the price may have to be reduced if the stereo doesn’t sell, and a profit for themselves. The person who buys the stereo does not know the amount of the markup, but can shop around for the best price.

Bond dealers face virtually the same issues: they have overhead costs, they need to pay their salespeople, they face the risk that interest rates or market conditions might cause a bond they hold in inventory to decline in value, and they need to make a profit. Their markups and markdowns may also be affected by the size of the transaction—the larger the amount, the lower the cost—and the liquidity of the security. Bonds that trade frequently should have lower markups and markdowns than thinly traded securities.

Both the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB) have rules governing how much a broker-dealer can mark up (or mark down) the price of a bond he or she sells (or buys from) you.

You can sometimes estimate the amount of the markup if you know the “bid-ask”? spread, or the difference between a price a dealer is willing to pay for a bond (the bid) and the usually higher price the dealer is willing to sell the same bond for (the ask).

Commissions

Brokers who are not also dealers or who do not have the particular bond you want in inventory will have to go into the marketplace to get it. In this case, the broker acts as an agent rather than as a principal, and the trade is sometimes called an agency transaction. In most cases, brokers will charge investors commissions on agency transactions, and the amount of the commission will be identified on the trade confirmation. (Remember, though, the agency broker also pays a markup to the dealer selling the bond.) Sometimes the commission will be based on a percentage of the bond’s price, and this percentage may decline as the size of the transaction increases. Other times, especially in the case of a discount or on-line broker, the commission may be a flat fee.

Keep in mind that the markup or commission is the fee imposed by the brokerage firm; the individual broker you work with will get a portion of that amount.

The bottom line is that you want the best price, and the broker you work with deserves to be compensated. To get the best price, you may have to shop around. Or you may decide that the service you receive from your broker is worth a higher price. If you build a relationship with a particular broker, you may also find that your transaction costs can be negotiated.

MachineGhost wrote: Hey techo, any chance you could build in those WealthFront features into your software?