Gyroscopic Investing

I remember thinking that most of his posts really had a lot of effort put into them - e.g. backestesting completely sui generis investment strategies.

Then it seems that for some reason all his posts got edited down to nothing and finally deleted completely. Which is kind of a shame since - as I say - most of what he posted was very interesting even if I didn't always agree with it

Shame really. Anyone tried to contact him and get him to come back?

Clive was banned from the site - see http://gyroscopicinvesting.com/forum/ot ... /#msg56539

Didn't have a habit to delete older posts anyway, after a few months?

Oh, I see.

Still it's a shame. I'd love to have asked him how he was able to backtest stuff so quickly. The problem with banning him is that we've got no way to know if his criticism of the Permanent Portfolio was rational like his backtests or irrational like his criticism of Craig and MT.

kev_in_tw wrote: The problem with banning him is that we've got no way to know if his criticism of the Permanent Portfolio was rational...

Well...we have some ways of knowing. 

kev_in_tw wrote: Oh, I see.

Still it's a shame. I'd love to have asked him how he was able to backtest stuff so quickly. The problem with banning him is that we've got no way to know if his criticism of the Permanent Portfolio was rational like his backtests or irrational like his criticism of Craig and MT.

That's not so much a result of banning him.  He would regularly delete all of his posts.

I too had been wondering what happened to Clive.  That's a real shame to learn that he has been banned.  I enjoyed reading his posts, as he often played the "devil's advocate" and tried to tear down the theory of the 4x25 PP; even if you disagreed with him, the debates usually were thought-provoking at the very least.  I think this forum benefits from having people like Clive around who are constantly questioning the PP fundamentals (as long as it's done in a respectful manner). 

Clive is still active on the Bogleheads site.  Just yesterday he put up some long posts on inflation-linked bonds.  Better read it soon though, who knows how long it will be before it's all deleted.

http://www.bogleheads.org/forum/viewtop ... 5#p1774597

TennPaGa wrote:

jan van mourik wrote: Didn't have a habit to delete older posts anyway, after a few months?

The greatest trick Clive ever pulled was convincing the world he didn't exist.

Bwahahahahaha! 

Good one.

Clive's most recent tear-down of the PP:

http://www.bogleheads.org/forum/viewtop ... 7#p1779487

Clive makes some valid points, but he seems to be overly concerned about the PP's performance during Weimar-style hyperinflation.

clive wrote:There's a fundamental flaw with the Permanent Portfolio. It carries high insurance and hence cost in times when that insurance is unlikely to be called upon, but then lightens up on that insurance just when it might be needed the most.

For much of time gold might be a drag upon the rest of the portfolio. Then under exceptional circumstances when gold might be on a path to rise 10,000% - or much much more the Permanent Portfolio instructs you to repeatedly reduce gold to add to other assets - reducing down the amount of gold held relatively quickly into that (large) up-run to a level that might be less than another investor who had bought and held just 7% (or maybe less).

In effect you pay a sizeable insurance premium (cost during stable times) only to reduce the cover just before a major storm might be endured (unstable times). Yes there would have been some profit taking during that earlier phase, but in feeding those proceeds into other declining assets those profits evaporate....

[Mod edit: Follow the link over to the BH site to read the rest.  I don't want any copyright issues with the folks over there.]

Austen Heller wrote:Clive makes some valid points, but he seems to be overly concerned about the PP's performance during Weimar-style hyperinflation.

If your country is going Weimar, then you don't rebalance out of gold. Investors need to use their heads. For the record, if the U.S. dollar is experiencing 100%, 200%, 1000%, etc. inflation I'm not going to sell gold to buy dollars/bonds until the political/fiscal situation pans out to determine if that is the best option. I would hope nobody else following the Permanent Portfolio would either. The gold in the portfolio is to counter stock/bond risk of inflation but also to counter extreme currency risk like hyperinflation. There is nothing written in stone that you need to go down with the ship to maintain a rebalancing band if the dollar is hyper-inflating.

craigr wrote:

Austen Heller wrote:Clive makes some valid points, but he seems to be overly concerned about the PP's performance during Weimar-style hyperinflation.

If your country is going Weimar, then you don't rebalance out of gold. Investors need to use their heads. For the record, if the U.S. dollar is experiencing 100%, 200%, 1000%, etc. inflation I'm not going to sell gold to buy dollars/bonds until the political/fiscal situation pans out to determine if that is the best option. I would hope nobody else following the Permanent Portfolio would either. The gold in the portfolio is to counter stock/bond risk of inflation but also to counter extreme currency risk like hyperinflation. There is nothing written in stone that you need to go down with the ship to maintain a rebalancing band if the dollar is hyper-inflating.

Also, if you rebalance only once a year you won't have to worry about that as much; a year is an eternity in a hyperinflation once it gets roaring, so it's unlikely you would rebalance more than once anyway during its reign.

craigr, those are good points.  I'm sure that if hyperinflation comes, it will seem like 'common sense' to keep hold of your gold.

Libertarian666, rebalancing only 1 time per year does help with the matter that was bothering Clive: too much rebalancing out of winning asset classes.  I wonder if you could also rebalance in a way that continues to capture the momentum of winning asset classes.  For example, when I did a lot of backtesting a few years ago, I found that rebalancing events were often triggered by breaching the upper band at 35%, rarely the lower band at 15%.  So the PP is managing risk, but at the expense of not 'letting the winners ride'.  What if you only sold the winning asset class back to 30% instead of 25%?  This could improve overall returns.  I'm sure this has been discussed ad nauseum , but I don't remember the conclusion.

The idea that any PP investor would mechanically rebalance into the teeth of a hyperinflationary event seems silly.

If that's the best criticism of the PP that a person can come up with, it actually makes me feel better about the strategy than I already did.

As far as the idea that a strategy is probably just about out of gas when someone writes a book about it, that seems not to have happened with the PP, given that Harry Browne wrote books about it in the 1980s and 1990s, and the strategy seemed to survive those PP books just fine.  I'm confident that Craig and I didn't break the PP by writing our book.

People look at the PP and see what they want to see.  For a person who sees some Rain Man-style investor babbling to himself about Judge Wapner and his underwear as he rebalances out of gold every other day as inflation rages, I would say that the PP is probably not for him.

That guy hates the PP with a passion

He has a point regarding hyperinflation though. When do you decide it's no longer safe to rebalance your gold? When your own currency loses 100% a month it's obvious, but what about all those scenarios in between? It's going to be a tough call lots of times and his idea of a smaller amount of gold which you never rebalance might work just as well. It's an interesting idea.

His other point about past and future returns makes sense as well. IMO the PP has outperformed it's return potential over the last 40 years because all it's asset classes did very well. The same story can be told of stock/bond portfolios of course but it does explain that the PP could achieve those high, stocklike returns with so little risk. It's hard to see any 3%+ real return for the PP going forward. This is not a criticism of the PP as it's designed to offer low but relatively stable returns. 

koekebakker wrote:When do you decide it's no longer safe to rebalance your gold? When your own currency loses 100% a month it's obvious, but what about all those scenarios in between?

I think it would take a lot of inflation — or currency problems — to rebalance out of gold more than once a year. I'm going off the top of my head here, but I tend to think that rebalancing out of gold is something that normally happens very rarely (like, maybe, only a few times in a lifetime). So, we are talking about extreme and unusual events. The PP, of course, should be able to handle those events, but I tend to think a double-gold or triple-gold rebalancing in and of itself is a built-in canary in the coal mine that should alert an investor that something is not right with the home currency.

Keep in mind that there are always exogenous events that precede modern hyperinflations. Hyperinflations are usually the last gasp of a currency — right at the very end — which happens in response to those exogenous events.

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So, hyperinflation is not something that should surprise people out of nowhere (although it often does). Case in point:

Wikipedia.org wrote:The cause of the immense acceleration of prices that occurred during the German hyperinflation of 1922–23 seemed unclear and unpredictable to those who lived through it, but in retrospect was relatively simple. The Treaty of Versailles imposed a huge debt on Germany that could be paid only in gold or foreign currency. With its gold depleted, the German government attempted to buy foreign currency with German currency, but this caused the German Mark to fall rapidly in value, which greatly increased the number of Marks needed to buy more foreign currency. This caused German prices of goods to rise rapidly which increased the cost of operating the German government which could not be financed by raising taxes. The resulting budget deficit increased rapidly and was financed by the central bank creating more money. When the German people realized that their money was rapidly losing value, they tried to spend it quickly. This increase in monetary velocity caused still more rapid increase in prices which created a vicious cycle. This placed the government and banks between two unacceptable alternatives: if they stopped the inflation this would cause immediate bankruptcies, unemployment, strikes, hunger, violence, collapse of civil order, insurrection, and revolution. If they continued the inflation they would default on their foreign debt. The attempts to avoid both unemployment and insolvency ultimately failed when Germany had both.

Source: http://en.wikipedia.org/wiki/Hyperinfla ... ic#Outcome

So, the war reparations (i.e. foreign-denominated debt) were a highly significant exogenous contributor to the German hyperinflation. Economists were well aware that the reparations could trigger hyperinflation and it was viewed as a sort of punishment, before the sanctions were even put in place.

If your home country owes lots of foreign-denominated debt, or is involved in a brutal war, or is undergoing an extremely chaotic regime change/instability, those should always be a cause for concern. And, meanwhile, if your PP has you rebalancing out of gold two times in a row — particularly in a short period of time — you will want to use common sense, step back, and re-evaluate the entire situation. (And think about getting the f*ck out of that place)!

Of course, I wouldn't expect any Bogleheads to understand any of this. With their anti-politics stance, they wouldn't even be allowed to discuss such matters if they were living right through them!

koekebakker wrote: That guy hates the PP with a passion

And something tells me that as the PP grinds onward and upward it is only going to increase his hatred of it more.  It's probably something along the lines of how infuriating gravity would be to someone who didn't believe in it.

He has a point regarding hyperinflation though. When do you decide it's no longer safe to rebalance your gold? When your own currency loses 100% a month it's obvious, but what about all those scenarios in between? It's going to be a tough call lots of times and his idea of a smaller amount of gold which you never rebalance might work just as well. It's an interesting idea.

I wonder how a typical BH portfolio would do in a hyperinflationary period with NO gold?

His other point about past and future returns makes sense as well. IMO the PP has outperformed it's return potential over the last 40 years because all it's asset classes did very well. The same story can be told of stock/bond portfolios of course but it does explain that the PP could achieve those high, stocklike returns with so little risk. It's hard to see any 3%+ real return for the PP going forward. This is not a criticism of the PP as it's designed to offer low but relatively stable returns.

That's an interesting point of view.  How can you say that a strategy has "outperformed its return potential over the last 40 years"?  Aren't a strategy's returns after 40 years just its returns?  In other words, how can you "outperform" your own historical mean return rate?  That would be like if I was a baseball player with a .300 career batting average and someone said that this batting average exceeded my batting average potential.  With the benefit of hindsight, we know what the potential of something actually turns out to be.

Maybe you are saying that the future returns of the PP will be lower than its past returns, but you need to provide a stronger rationale for that position than simply saying that over the 40 year period that we are looking at all of the portfolio's assets did very well.  Depending on when you bought and sold during that period, all three of the PP's volatile assets could have done very poorly, and each of them did for extended periods of time.

It's possible that the PP's future won't be as rosy as its past, but isn't that true of everything in life?  That's the whole point of the PP's core premise that the future is fundamentally unknown and un-knowable, and that's why you want to have constant and strong diversification within the portfolio.

koekebakker wrote:He has a point regarding hyperinflation though. When do you decide it's no longer safe to rebalance your gold?

The point that he misses is that at least Permanent Portfolio investors will have a choice about what to do in that scenario vs. other portfolios that hold no gold. It's about having options, not blindly following a strategy in the face of extraordinary events.

Again, I hope nobody reading this forum would ever sell out of gold into a hyperinflation of the dollar. This isn't to say that won't be an option once things settle out, but everyone needs to use their heads when there is an emergency.

His other point about past and future returns makes sense as well. IMO the PP has outperformed it's return potential over the last 40 years because all it's asset classes did very well.

But this point is factually incorrect. Stocks did poorly in real terms from 1966-1981 if I recall. Basically zero returns. Bonds did horribly in the 1970s as well. Gold did poorly from the 1980s-1990s. Stocks did poorly again in the 2000s. Now stocks are on the rise as gold is falling. Bond rates are going back up so maybe they'll be useful again. Etc.

I tend to see a lot of Clive's postings as relatively benign trolling.
I don't think that was one of his better efforts.

gizmo_rat wrote: I tend to see a lot of Clive's postings as relatively benign trolling.
I don't think that was one of his better efforts.

Does clive ever post any strategy that he actually uses and the investment results that he has actually obtained from whatever strategy he uses?

He apparently lives off of his investments, so I assume that he does okay, but I would be interested to compare his actual long term results and the volatility he experienced along the way to the PP's returns.

MediumTex wrote:

gizmo_rat wrote: I tend to see a lot of Clive's postings as relatively benign trolling.
I don't think that was one of his better efforts.

Does clive ever post any strategy that he actually uses and the investment results that he has actually obtained from whatever strategy he uses?

He apparently lives off of his investments, so I assume that he does okay, but I would be interested to compare his actual long term results and the volatility he experienced along the way to the PP's returns.

Well, if he did post it, it's long since been deleted by now. Honestly I don't understand all the fuss over him. He's just a quant that bounces from one good/bad recommendation to another. And if he ever got anything right, we'd never know about it since he erases every word he's ever uttered. My guess is that he's no better at investing than any other "guru" out there.

I do remember he once posted his portfolio, but it was complex and required constant monitoring. And I'd be willing to bet he's moved on to something else since then.

If you read enough of his posts, you start to notice that he overuses the words "might," and "perhaps" waaay too much. It's all just a lot of hypothetical/theoretical musings in an attempt to make sense of an uncertain future.

MediumTex wrote:

koekebakker wrote: That guy hates the PP with a passion

And something tells me that as the PP grinds onward and upward it is only going to increase his hatred of it more.  It's probably something along the lines of how infuriating gravity would be to someone who didn't believe in it.

He has a point regarding hyperinflation though. When do you decide it's no longer safe to rebalance your gold? When your own currency loses 100% a month it's obvious, but what about all those scenarios in between? It's going to be a tough call lots of times and his idea of a smaller amount of gold which you never rebalance might work just as well. It's an interesting idea.

I wonder how a typical BH portfolio would do in a hyperinflationary period with NO gold?

His other point about past and future returns makes sense as well. IMO the PP has outperformed it's return potential over the last 40 years because all it's asset classes did very well. The same story can be told of stock/bond portfolios of course but it does explain that the PP could achieve those high, stocklike returns with so little risk. It's hard to see any 3%+ real return for the PP going forward. This is not a criticism of the PP as it's designed to offer low but relatively stable returns.

That's an interesting point of view.  How can you say that a strategy has "outperformed its return potential over the last 40 years"?  Aren't a strategy's returns after 40 years just its returns?  In other words, how can you "outperform" your own historical mean return rate?  That would be like if I was a baseball player with a .300 career batting average and someone said that this batting average exceeded my batting average potential.  With the benefit of hindsight, we know what the potential of something actually turns out to be.

Maybe you are saying that the future returns of the PP will be lower than its past returns, but you need to provide a stronger rationale for that position than simply saying that over the 40 year period that we are looking at all of the portfolio's assets did very well.  Depending on when you bought and sold during that period, all three of the PP's volatile assets could have done very poorly, and each of them did for extended periods of time.

It's possible that the PP's future won't be as rosy as its past, but isn't that true of everything in life?  That's the whole point of the PP's core premise that the future is fundamentally unknown and un-knowable, and that's why you want to have constant and strong diversification within the portfolio.

One can characterize the long term return potential of the PP as the expected long term returns of its constituent parts, plus a rebalancing bonus.  Someone help me out with these long term averages:

Stocks - around 6% real (div reinvested)
Long bonds - 4% real?? I haven't found good data yet following the PP assets
Cash -2% real??
Gold- 0% real

Average: 3% real plus 1% rebalancing bonus?

But the last 30 years, the PP has outperformed this expectation due to gold returning 2-3% real.  One might expect gold to underperform in the next decades if one had any idea where it currently is in relation to fair value.

MediumTex wrote: I wonder how a typical BH portfolio would do in a hyperinflationary period with NO gold?

Don't think it's important how a Boglehead portfolio would do. The PP should be able to handle as many extreme circumstances as possible in my opinion and it's interesting to think about how it would hold up during hyperinflation. It's interesting to think about how permanent the PP really is.

That's an interesting point of view.  How can you say that a strategy has "outperformed its return potential over the last 40 years"?  Aren't a strategy's returns after 40 years just its returns?  In other words, how can you "outperform" your own historical mean return rate?  That would be like if I was a baseball player with a .300 career batting average and someone said that this batting average exceeded my batting average potential.  With the benefit of hindsight, we know what the potential of something actually turns out to be.

Maybe you are saying that the future returns of the PP will be lower than its past returns, but you need to provide a stronger rationale for that position than simply saying that over the 40 year period that we are looking at all of the portfolio's assets did very well.  Depending on when you bought and sold during that period, all three of the PP's volatile assets could have done very poorly, and each of them did for extended periods of time.

It's possible that the PP's future won't be as rosy as its past, but isn't that true of everything in life?  That's the whole point of the PP's core premise that the future is fundamentally unknown and un-knowable, and that's why you want to have constant and strong diversification within the portfolio.

The future is unknown ofcourse. But that doesn't mean that asset classes have no expected return at all. I think most people agree the expected real return of gold is about 0% for example. Ofcourse things can and will turnout differently but investing is about combining expected return and uncertainty, not about uncertainty alone.

The risk/return of the PP was really good over the last 40 years, but only partially because of diversification and re-balancing. The biggest reasons are the CAGR of gold and long-term bonds over that period. The last 40 years were almost perfect for the PP, will the next 40 be just as good? Maybe, but most likely not.

Now I'm not saying the PP is flawed, but just that the 3-6% real return is likely to be unsustainable in the future. Does that matter? For some it does, for some it doesn't.

Gumby wrote: ... It's all just a lot of hypothetical/theoretical musings in an attempt to make sense of an uncertain future.

Yep, with a large portion of personal entertainment mixed in. However for every person that understands that I suspect a 100 don't, which is just going to cause unnecessary anxiety. 

koekebakker wrote:

MediumTex wrote: I wonder how a typical BH portfolio would do in a hyperinflationary period with NO gold?

Don't think it's important how a Boglehead portfolio would do.

Of course it's important and relevant. It gives context. Many of us came here from bogleheads. Clive is back at bogleheads. And Clive is, after all,
the subject of this thread.

koekebakker wrote:

MediumTex wrote: I wonder how a typical BH portfolio would do in a hyperinflationary period with NO gold?

Don't think it's important how a Boglehead portfolio would do. The PP should be able to handle as many extreme circumstances as possible in my opinion and it's interesting to think about how it would hold up during hyperinflation. It's interesting to think about how permanent the PP really is.

Well, nobody said the PP was designed to be "permanent" once a currency dies. (I believe Browne said, in one of his radio shows, that you might have time to rebalance out of gold twice, at most, in a severe hyperinflation scenario). In other words, you don't rebalance into the glaring death of a currency — that would be dumb. Think about it. If your neighbors are burning your national currency for warmth, why on Earth would you rebalance into that currency?

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You wouldn't. At that point, you would go into survival mode. You certainly wouldn't be sitting in your armchair stroking your chin and pondering about whether to rebalance or not.

And, furthermore, I think any portfolio denominated in that dead currency would be difficult to salvage. It would pretty much just come down to how much gold you had in your immediate possession — since that's all anybody would want in exchange for food, supplies, shelter, etc.