Gyroscopic Investing

I feel the need to sell one or more assets to capture recent out-performance even though the portfolio is well within tolerance bands.
YTD gains are surprising to me, although 2014 full year gains were exceptional as well.
Does anyone have the same desire to harvest some of the recent gains before the portfolio assets return to their mean?

P.S. I plan on doing nothing. It works.

buddtholomew wrote:I feel the need to sell one or more assets to capture recent out-performance even though the portfolio is well within tolerance bands.
YTD gains are surprising to me, although 2014 full year gains were exceptional as well.
Does anyone have the same desire to harvest some of the recent gains before the portfolio assets return to their mean?

Absolutely not. How can you predict whether you are actually "capturing" the gains or not? The asset you sell may very well continue to go up and the one you buy may very well go down, in which case you'll be back here kicking yourself for doing it.

curlew wrote:

buddtholomew wrote:I feel the need to sell one or more assets to capture recent out-performance even though the portfolio is well within tolerance bands.
YTD gains are surprising to me, although 2014 full year gains were exceptional as well.
Does anyone have the same desire to harvest some of the recent gains before the portfolio assets return to their mean?

Absolutely not. How can you predict whether you are actually "capturing" the gains or not? The asset you sell may very well continue to go up and the one you buy may very well go down, in which case you'll be back here kicking yourself for doing it.

Perhaps I was unclear. Exchange shares of SPY/IAU/TLT for Cash to capture recent portfolio out-performance.
Stocks are up, Gold is up and Treasuries are up too.

buddtholomew wrote:I feel the need to sell one or more assets to capture recent out-performance even though the portfolio is well within tolerance bands.
YTD gains are surprising to me, although 2014 full year gains were exceptional as well.
Does anyone have the same desire to harvest some of the recent gains before the portfolio assets return to their mean?

P.S. I plan on doing nothing. It works.

That's an interesting situation. Everything is cyclical and mean reverts. To do it properly you would need to know what the average or median yearly return was to determine when it was indeed, abnormal. But what happens when the downside is abnormal too? You've got to cut your losses because you already cut your gains.

buddtholomew wrote:

curlew wrote:

buddtholomew wrote:I feel the need to sell one or more assets to capture recent out-performance even though the portfolio is well within tolerance bands.
YTD gains are surprising to me, although 2014 full year gains were exceptional as well.
Does anyone have the same desire to harvest some of the recent gains before the portfolio assets return to their mean?

Absolutely not. How can you predict whether you are actually "capturing" the gains or not? The asset you sell may very well continue to go up and the one you buy may very well go down, in which case you'll be back here kicking yourself for doing it.

Perhaps I was unclear. Exchange shares of SPY/IAU/TLT for Cash to capture recent portfolio out-performance.
Stocks are up, Gold is up and Treasuries are up too.

That makes more sense. I thought you were talking about re-balancing. Still, you're talking about market timing which you know PP'ers frown upon.

And BTW, I'm very pleased with YTD performance too. Started the PP in 2010 and last year and two years before were a bummer, especially since I'm planning on retiring next year. This year seems almost too good to be true so far but those who have been using the strategy longer than I have may not be as surprised by the performance.

My IRR so far in the PP has been 5.7%, so I actually think I'm due another 10% gain before I start worrying about "outperformance"

You crack me up Budd.

If stocks, bonds, and gold are all up, perhaps cash is at less than 25%. You might want to consider selling whatever has gone up the most to rebalance cash to 25%. That way you are not rebalancing completely, but just skimming a little off the top. Profit taking.

FWIW, I feel pretty good about everything and have no desire to tinker. Why mess with a good thing, right?

buddtholomew wrote: Does anyone have the same desire to harvest some of the recent gains before the portfolio assets return to their mean?

Yes, I have that desire but I find that using some theoretical numbers is often helpful. So, say you have $500,000 in a PP and you sell off 10% in accounts where there are no tax implications and limited transaction costs. If the portfolio takes another 7% dip as it did last year AND you call the bottom correctly and get back in, you've saved yourself a loss of about $3,500. That $3,500 represents only .7% of your PP holdings.

For me that is not really a significant savings. After all, we all know that that the portfolio can easily move up or down by that amount in a single day. The risk of losing $ is already mitigated to a great extent by holding this rather odd mix of assets. Realistically we are really only hoping for about a real return of 4-5% a year anyway. The YTD move has really been a feel-good performance so far, but it's probably not anything out of the ordinary considering that 2015 was negative.

Just my two cents worth.

For the first time in a long time, the $ amount of my overall gain is about to surpass that of the stock gain.
Feeling good.

dualstow wrote:For the first time in a long time, the $ amount of my overall gain is about to surpass that of the stock gain.
Feeling good.

Translation, you are now positive on gold and/or treasuries.

buddtholomew wrote:

dualstow wrote:For the first time in a long time, the $ amount of my overall gain is about to surpass that of the stock gain.
Feeling good.

Translation, you are now positive on gold and/or treasuries.

Yes. Stocks are still doing fine, which is good. Of course, if stocks are always doing well and the rest isn't, you become one of those people who wants to abandon the pp for an all stock portfolio, or maybe 60/40 stocks/bonds.

Bonds are up. I sold some at breakeven. The remaining bonds are the better ones, so the % gain has artificially gone up, but the sale did not change the dollar amount of gains. I sold some "cash" (notes), so that also artificially helped the overall without changing stocks, but just a bit.

Gold is at a loss, but less of a loss. Gone has gone up.

Pointedstick wrote:FWIW, I feel pretty good about everything and have no desire to tinker. Why mess with a good thing, right?

Calm before the storm... the vast majority of portfolios and markets are in a drawdown at any given time.

The more I tinkered in the past, the more I lost. Period. No doubt about it.

Not touching a damn thing until bands are hit.

Cortopassi wrote:The more I tinkered in the past, the more I lost. Period. No doubt about it.

Not touching a damn thing until bands are hit.

Smart to learn from your mistakes.
Back to doing nothing...

Good job Budd...it will work out better over the long haul.

MachineGhost wrote:

Pointedstick wrote:FWIW, I feel pretty good about everything and have no desire to tinker. Why mess with a good thing, right?

Calm before the storm...

I'm a committed portfolio non-watcher but I'm retiring next year and also I'm more tempted to look when things are going well. So I've been paying closer attention lately.

Earlier this week I was bragging to my co-workers that I was up almost 8% YTD. I just looked today and now I'm up 9.36%.

The last time I remember a period of daily gains like this was in the 90's during the dot.com bubble - a period that Greenspan would eventually call "Irrational Exuberance".

But this seems a lot different.

What do you make of it when EVERYTHING is up?

I'm beginning to wonder if inflation might finally be starting. Having noted this, this has been a bad call for almost a decade now and I would not be the least surprised to see continued flat/declining prices.

curlew wrote:What do you make of it when EVERYTHING is up?

This kind of day seems to be followed soon enough by one in which 3 assets fall.