Gyroscopic Investing

Building on mathjak's idea of the three active PP assets "fighting" each other, consider that from 1975 until the Great Recession, all four assets of the PP had an upward, positive bias. The volatility of each of the three non-cash assets in a way served like an active noise cancellation scheme, which allowed the underlying positive bias of all four assets to emerge. Then cash went to 0% with QE, gold topped in 2011, LTTs and stock possibly topping in 2015. So now, noise cancellation system itself swamps out the very weak underlying signal, and all you see is the remnant volatility, which is what is driving people nuts.

good analogy i think .

i think going forward we waste our time driving and looking in the rear view mirror with charts of the pp and its results .

it may be like looking at Kodak and thinking film is  coming back because of the old history .

the global situation today and options available to go against the markets have totally changed the investing skyline .

what was may just have reached the point the noise cancelling squelched the signal .

So what you're saying is... gold is going to save the day? It's the only asset which, according to you, isn't 'possibly topping.'

I don't understand why everyone is so anti-PP all of a sudden, especially with it handily beating the market YTD. It is performing within the expected bounds (according to Tyler's wonderful charts) so all this talk is just pure speculation about how 'this time it's different.' Maybe it is different, but what would you recommend that would do better than the PP in the situation you describe?

just the opposite . gold has no idea what it is supposed to respond to and so far it has responded well to anything that eventually wasn't bettered by equity's at the end of the day .

as i pointed out since 1975 a reinvested 1 month t-bill performed better than gold .


the weight of gold is crippling the usual  the star athlete  and long term treasury's are holding his ankles .

there is no reason on the horizon for gold to respond if it hasn't already so until it wakes up it is a dead weight at a bad time where gains in equity's may be measured in single digits for years to come .

mathjak107 wrote: as i pointed out since 1975 a reinvested 1 month t-bill performed better than gold .

Aren't you contradicting yourself here? You're arguing against looking in the rear-view mirror, yet here you are discounting gold's future performance based on what's in the rear-view.

All anyone can do right now is speculate on 1) what global/political/central bank actions will take place in the future, and 2) how different assets will respond to those things.

Which is exactly what the PP is designed to avoid -- having to speculate.

You're right -- one absolutely should reflect on whether the assumptions they've based their choices on are still valid, and whether the choices are still the right ones at this time.  Personally, I have no clue what's going to happen.  I don't have friends on the Federal Reserve board, and I really don't have the constitution to speculate. So I'm going to choose what I see as a conservative route that has a chance to keep up with inflation, vs cash which is guaranteed to lose purchasing power over time.

We're saying gold has had a positive bias since 1975?

Sounds like we're not accounting for any time between 1980-2000.

1975 to 2015 an ounce of gold went  went from 175.00 to  1135.00 this very second .

175.00 in a one month t-bill rolled over each month  is worth 1206.00

just a point of information for all the talk about how it is an inflation hedge  it didn't even beat the thing it was supposed to protect which is cash instruments and that is over 40 years . ..

we are not  considering how it would do in the future but to this very minute  not so good .

mathjak107 wrote: 1975 to 2015 an ounce of gold went  went from 175.00 to  1135.00 this very second .

175.00 in a one month t-bill rolled over each month  is worth 1206.00

just a point of information for all the talk about how it is an inflation hedge  it didn't even beat the thing it was supposed to protect which is cash instruments and that is over 40 years . ..

not considering how would do in the future but to this very minute  not so good .

25/75 gold and cash rebalanced annually beats cash in that same time frame. 790%ish total return to 690%. It's the rebalancing that squeezes extra return out of something as volatile to both the up and downside as gold.

mathjak107 wrote: 1975 to 2015 an ounce of gold went  went from 175.00 to  1135.00 this very second .

175.00 in a one month t-bill rolled over each month  is worth 1206.00

just a point of information for all the talk about how it is an inflation hedge  it didn't even beat the thing it was supposed to protect which is cash instruments and that is over 40 years . ..

we are not  considering how it would do in the future but to this very minute  not so good .

All you are demonstrating is that both T-bills AND gold have been a pretty good inflation hedge since 1975.

mukramesh wrote: I don't understand why everyone is so anti-PP all of a sudden, especially with it handily beating the market YTD. It is performing within the expected bounds (according to Tyler's wonderful charts) so all this talk is just pure speculation about how 'this time it's different.' Maybe it is different, but what would you recommend that would do better than the PP in the situation you describe?

I think that it is mostly mathjak who is anti-PP.  Apparently, he tried the PP for a few months and didn't like it, and now considers himself an expert on why the PP is now obsolete.

Others just seem very nervous, though I'm really not sure why.

It may be that every few years investors just get nervous, no matter what their allocation is.  That seems to be happening right now all over the investment world.

i think it also shows that over 40 years gold offered less protection than cash instruments did . in fact that 1 month t-bill has been as close to cash as you could get . cd's would have done way better .

it all relates back to the subject . that asset may promise more in folklore and myth then it really provides and it may be killing the pp.

we are up 200 right now  on the dow . the pp is at a loss because gold and  the pull of long term bonds killed it .

just something to really give thought to .

the pp in the wrong set of circumstances may be actually committing financial suicide slowly .

MediumTex wrote:

mukramesh wrote: I don't understand why everyone is so anti-PP all of a sudden, especially with it handily beating the market YTD. It is performing within the expected bounds (according to Tyler's wonderful charts) so all this talk is just pure speculation about how 'this time it's different.' Maybe it is different, but what would you recommend that would do better than the PP in the situation you describe?

I think that it is mostly mathjak who is anti-PP.  Apparently, he tried the PP for a few months and didn't like it, and now considers himself an expert on why the PP is now obsolete.

Others just seem very nervous, though I'm really not sure why.

It may be that every few years investors just get nervous, no matter what their allocation is.  That seems to be happening right now all over the investment world.

i tried the pp long before most if not all of you here . 1987 was my first trial with it but once again it  wasn't for me but i did last 2 years with it before deciding i wanted more growth .

i ran it at the same time i strated with fidelity insight and couldn't see keeping the money in it when the insight model was doing so much better .  but i did give it a shot after the stock market crash of 1987 when i was scared .  today i abandoned it not because of growth but because of the interaction of the parts and the new normal we are seeing . .

i didn't think it ultimately fit the big picture as i call it .

mathjak107 wrote:

MediumTex wrote:

mukramesh wrote: I don't understand why everyone is so anti-PP all of a sudden, especially with it handily beating the market YTD. It is performing within the expected bounds (according to Tyler's wonderful charts) so all this talk is just pure speculation about how 'this time it's different.' Maybe it is different, but what would you recommend that would do better than the PP in the situation you describe?

I think that it is mostly mathjak who is anti-PP.  Apparently, he tried the PP for a few months and didn't like it, and now considers himself an expert on why the PP is now obsolete.

Others just seem very nervous, though I'm really not sure why.

It may be that every few years investors just get nervous, no matter what their allocation is.  That seems to be happening right now all over the investment world.

i tried the pp long before most if not all of you here . 1987 was my first trial with it but once again it  wasn't for me but i did last 2 years with it before deciding i wanted more growth .  today i abandoned it not because of growth but because of the interaction of the parts and the new normal we are seeing . .

What about it back in 1987 made you stop using it?

Did your risk tolerance change or did the PP somehow not meet your expectations with respect to its risk/return profile?

RE the topic of T-bills and gold, I'm surprised that anyone is surprised that T-bills have been a good investment since the 1970s.  The health of the U.S. economy has improved steadily since the 1970s and today the U.S. is the premier economy in the world by almost any measure.  Of course bonds of an economy like that are going to be considered safe investments.

Gold is for when the U.S. dollar is out of favor.  When things are going well with the U.S. economy, I would expect gold to struggle.

my first year investing in the markets i got caught in the crash of 1987 .

scared me to death of the markets so i ended up hearing about harry and the pp.

i said  now that looks  nice and safe .

as i learned more and more i learned about the insight newsletter .  i decided to try them too choosing the conservative model. so i ran both . the conservative . models just were not growing the way i wanted as i gained more confidence

i realized the 2 models will never make the money i want to have so i bit the bullet and went right to the growth model where it stayed for decades and just grew and grew .

never regretted it for a second .

mathjak107 wrote:
we are up 200 right now  on the dow . the pp is at a loss because gold and  the pull of long term bonds killed it .

Let me do a little historical revision, same quotes, but from last Monday, August 24th:
------------------
We are down 600 right now on the Dow and gold is flat.  The PP is at a loss because stocks killed it.

Stocks in the wrong set of circumstances may be actually committing financial suicide slowly .
------------------
Like you've said many times, to each his own.  I know gold is not ideally pulling its weight right now.  But neither are stocks, and you are pulling out your crystal ball by saying gold won't perform in the future and stocks will.  In virtually all respects it is a completely different world from 1987 to now and just as I can't forecast the future, I put little emphasis on historical data.

don't forget most of what was lost were the gains of the year .  the indexes may a be close to positive after today  . the markets fell more but they were up more  so it was a bigger cushion on the way down .

looking at today the 1.2 mil i had in the pp is up 1100  bucks today ,.  my 50/50  model is up 12,000.

once equity's pulls  i would say there is a very good chance they will still be the lead horse and the pp still  trying to get positive  .  the larger drops do not bother me because the up days are so much bigger .

mathjak107 wrote: 1975 to 2015 an ounce of gold went  went from 175.00 to  1135.00 this very second .

175.00 in a one month t-bill rolled over each month  is worth 1206.00

just a point of information for all the talk about how it is an inflation hedge  it didn't even beat the thing it was supposed to protect which is cash instruments and that is over 40 years . ..

we are not  considering how it would do in the future but to this very minute  not so good .

Well these are certainly interesting numbers but it doesn't mean that gold and T-Bills really perform the same. Both are good to hold for different environments, right? I believe LTTs beat stocks by a bit from 1981 to 2011, but we can't say that stocks are not worth holding because you can do just as well with bonds.

we don't know about the future but we certainly know right up the minute holding gold all those years made it the worst place to put money  right through until this very day .

for comparison the 175 bucks in gold that is  worth 1135.00 today would have been :

2151.00 in short term bonds

18,555.00 in a 60/40 portfolio

63,995.00 in a global portfolio .

lets knock 10 or 15% off the equity models just to bring them up to date .


so that is what gold got you in the past .

MediumTex wrote:

mathjak107 wrote:

MediumTex wrote: I think that it is mostly mathjak who is anti-PP.  Apparently, he tried the PP for a few months and didn't like it, and now considers himself an expert on why the PP is now obsolete.

Others just seem very nervous, though I'm really not sure why.

It may be that every few years investors just get nervous, no matter what their allocation is.  That seems to be happening right now all over the investment world.

i tried the pp long before most if not all of you here . 1987 was my first trial with it but once again it  wasn't for me but i did last 2 years with it before deciding i wanted more growth .  today i abandoned it not because of growth but because of the interaction of the parts and the new normal we are seeing . .

What about it back in 1987 made you stop using it?

Did your risk tolerance change or did the PP somehow not meet your expectations with respect to its risk/return profile?

RE the topic of T-bills and gold, I'm surprised that anyone is surprised that T-bills have been a good investment since the 1970s.  The health of the U.S. economy has improved steadily since the 1970s and today the U.S. is the premier economy in the world by almost any measure.  Of course bonds of an economy like that are going to be considered safe investments.

Gold is for when the U.S. dollar is out of favor.  When things are going well with the U.S. economy, I would expect gold to struggle.

It's nice to see you taking the time to defend the PP after your long absences.

This isn't the 100% gold portfolio forum, is it?

10K in 1975 to now, in various strategies and max drawdowns (rounded):

S&P:      681,951, 55%
60/40:  632,746, 27% (annual rebalance)
PP:        290,747, 18% (35/15 rebalance)
Bonds:  290,263, 32%
Cash:    79,283, 0%
Gold:    61,126, 70%

So no doubt equities far and away the winner, followed closely by 60/40 and gold the biggest drag. 

However, would I have made it through a 55% drawdown?  Not likely!  27% 60/40?  Possibly.  70% gold alone, no way.

18% PP.  Pretty darn sure.  Would I be pissing and moaning that I only made 29x my money vs. 68x.  NO.

I like low drawdowns for my sanity.  I like returns.  In that order.

a 40/20/20/20 would have gotten nearly an extra 50k return for a minimal rise in the drawdown level from the standard pp.

US dollar was and still is king.  That, seemingly, is questionable over the next couple decades.  I believe most *here* would agree, so because of this, I have no concerns with 25% gold.

MediumTex wrote:

mukramesh wrote: I don't understand why everyone is so anti-PP all of a sudden, especially with it handily beating the market YTD. It is performing within the expected bounds (according to Tyler's wonderful charts) so all this talk is just pure speculation about how 'this time it's different.' Maybe it is different, but what would you recommend that would do better than the PP in the situation you describe?

I think that it is mostly mathjak who is anti-PP.  Apparently, he tried the PP for a few months and didn't like it, and now considers himself an expert on why the PP is now obsolete.

Others just seem very nervous, though I'm really not sure why.

It may be that every few years investors just get nervous, no matter what their allocation is.  That seems to be happening right now all over the investment world.

+1

It's actually making me feel better that others are nervous.  Maybe that means things will turn around soon. 

Reub wrote:

MediumTex wrote:

mathjak107 wrote: i tried the pp long before most if not all of you here . 1987 was my first trial with it but once again it  wasn't for me but i did last 2 years with it before deciding i wanted more growth .  today i abandoned it not because of growth but because of the interaction of the parts and the new normal we are seeing . .

What about it back in 1987 made you stop using it?

Did your risk tolerance change or did the PP somehow not meet your expectations with respect to its risk/return profile?

RE the topic of T-bills and gold, I'm surprised that anyone is surprised that T-bills have been a good investment since the 1970s.  The health of the U.S. economy has improved steadily since the 1970s and today the U.S. is the premier economy in the world by almost any measure.  Of course bonds of an economy like that are going to be considered safe investments.

Gold is for when the U.S. dollar is out of favor.  When things are going well with the U.S. economy, I would expect gold to struggle.

It's nice to see you taking the time to defend the PP after your long absences.

As much as love this place and all of you guys, I do have an alter ego with a wife who enjoys my attention (and I enjoy hers as well), three kids who demand my attention, an employer who expects my attention, and a couple of side businesses, two cats and two dogs that all expect to get a little bit of me as well.

My father in law also had emergency open heart surgery a few months back and has been recovering (slowly), which has been a bit distracting.

With all that said, no one has posted more times and about more topics here than me. 

As much as I enjoy the MT persona, I'm not the Lei Feng of the PP.

MediumTex wrote:
Others just seem very nervous, though I'm really not sure why.

I would guess that it's likely due to the strong contrary opinions being voiced as of late  .. coupled with the PP's tracking error relative to a conventional Boglehead's portfolio.  Those who weren't very confident going into the PP are now getting extremely uncomfortable. Yikes 

medium  tex ,there is really just a small core  of regular posters here  and from what i see you are certainly one of them .