Gyroscopic Investing

OMG that's a lot of LT Treasuries.

ochotona wrote: OMG that's a lot of LT Treasuries.

Yeah, especially inasmuch as that article was dated January 22 which was just a week before treasuries started sliding hard. Seems like the allocation to treasuries has to be lower when yields are so low.

Ya, there is no way I could stomach that many treasuries either.  It sounds similar to Ray Dalio's All Weather Portfolio  http://fmdcapital.com/can-handle-weather-portfolio/

I suspect this is the most relevant previous discussion here: http://gyroscopicinvesting.com/forum/pe ... -and-risk/

Thanks for linking to that, rickb. At the bottom of page #1 this jumped out at me:

"Another key thing Ray Dalio does is that he overlays a risk management system on top of all this. For instance, in 2008 he reduced massively the AWP allocations based on what he called his "depression gauge"�?.  This is on top of the targeted volatility risk management."

So it's "all weather" except when the weather is bad? I think Ray Dalio is brilliant but with the PP most of us are just trying to find something that really is all weather. We don't have to be studying and understanding things like 'depression gauge' to do OK.

Here's what you're looking for:

http://gyroscopicinvesting.com/forum/pe ... s%27-heel/

MangoMan wrote:

The equivalent portfolio mix is:

    Gold: 19%
    20yr Treasuries: 52%
    S&P 500: 29%

I personally would then add a healthy slug of cash to further dampen it.

Isn't that almost the same as a PP if you split the 20yr treasuries in half and call it 26% 30yr Treasuries and 26% Short Term Treasuries/Cash? At that point, you're only off a few % from the standard PP.

MangoMan wrote: Would you two think 30% stocks was a lot if the market had just tanked?
I don't see what current interest rates have to do with determining the realive amount of each asset to hold based on their risk parity.

-50% on stocks, no because stocks have upside juice to overcome the loss to gain 100% back to breakeven.  Bonds?  No guarantee at all in one's lifetime.  Especially at low rates.  Worst case is 30 years at 0% I guess.  But the PP does not hold to maturity, it rebalances at the bands and at 20-years, locking in losses.  That will be hard to do in a bear market, but thank gawd for the PP!

Gwarsh, investing....  is risky!!!

There is a way to get the correlated volatility for the bonds before 1968.  You'd just have to use monthly or yearly data which won't snag the high and low points.  The problem is someone needs to come up with synthetic gold or gold prices from Shanghai, etc..  I've looked or tried for years.  No luck.

OTOH, you could go 35% and during the next bond bear market recalculate the bond volatility at every annual or rebalancing band point to see if there's been any significant change in the weight.  We have to trust HB somewhat that the backtesting they did already accounted for bear markets in the 100-years.  Free gold didn't make up enough of that history to be realistic going forward, but its still only off by 5%.

barrett wrote: Thanks for linking to that, rickb. At the bottom of page #1 this jumped out at me:

"Another key thing Ray Dalio does is that he overlays a risk management system on top of all this. For instance, in 2008 he reduced massively the AWP allocations based on what he called his "depression gauge"�?.  This is on top of the targeted volatility risk management."

So it's "all weather" except when the weather is bad? I think Ray Dalio is brilliant but with the PP most of us are just trying to find something that really is all weather. We don't have to be studying and understanding things like 'depression gauge' to do OK.

The problem is depressions are seriously bad and if you protect yourself from a significant loss due to a depression the tradeoff is that you also cut off nearly all the upside as well. Dalio's "depression proof" portfolio is Gold 10%, T-Bills 30%, Inflation Linked Bonds 40%, T-Bonds 20%.  No stocks - so stocks crashing by 90% (which they did between 1929 and 1933) is no problem.  The return on this is essentially equal to inflation.  See http://sdcera.granicus.com/MetaViewer.p ... ta_id=9141

rickb wrote: The problem is depressions are seriously bad and if you protect yourself from a significant loss due to a depression the tradeoff is that you also cut off nearly all the upside as well. Dalio's "depression proof" portfolio is Gold 10%, T-Bills 30%, Inflation Linked Bonds 40%, T-Bonds 20%.  No stocks - so stocks crashing by 90% (which they did between 1929 and 1933) is no problem.  The return on this is essentially equal to inflation.  See http://sdcera.granicus.com/MetaViewer.p ... ta_id=9141

I never paid much attention to the "Safe Portfolio" before, but essentially it looks like a PP without the Prosperity component.  It might be a superior alternative to going to just 100% cash when equity trend following.  Note that he is recommending hedged global T-Bonds and IL Bonds to diversify away the sovereign risk.  How practical is that for us little people to implement?