Gyroscopic Investing

I am in the accumulation phase and adding $$ to the PP on a weekly basis. With the volatility going on right now, on any given date I may be purchasing on a day when stocks are down 5% while LTTs are up 5% or vice versa. In times like these am I better to just stick with putting 25% in each slice without regard to recent price movements? Or am I better looking at what is down on that particular date and buying that instead to get some value for my $$.

For example, on one day I was scheduled to buy my weekly amount stocks were down almost 6%. In that case am I better placing my weekly funds all in stocks to buy low (assuming this is low) as opposed to buying gold and LTT when they were up 3% on the day?

Or just add it to cash.

I personally am a fan of buying the asset that is the lowest percentage. It's like a slow rebalance over time. I will say though it is indeed frustrating on a 401k contribution day when stocks are the lowest asset by percentage yet up like 5%+ that day.

jalanlong wrote: ↑Wed Apr 01, 2020 9:00 am In that case am I better placing my weekly funds all in stocks to buy low (assuming this is low)

We should not assume anything. It is market timing.

Kriegsspiel wrote: ↑Wed Apr 01, 2020 9:09 am Or just add it to cash.

Yes, and rebalance when you hit a band.

I believe you should adjust the PP when you deposit to reach your 25-25-25-25 goal. That doesn't mean you need to force a complete rebalancing if you're making a relatively small deposit; just buy whatever is the lowest portfolio percentage at that moment.

But as you build the PP, I believe the ideal is to constantly try to reach the ideal mix, i.e., 25% each. To do anything other than that runs counter to the whole philosophy and strategy of the PP.

Examples: 1. You currently have $25x in each of the four assets. You want to deposit another $100x. Put it equally into all four assets, (unless that's impractical due to low amounts).

2. You have $15x stock, $30x bonds, $30x gold, and $25x cash = $100x. You deposit $60x. Your new total will be $160x, so target is $40x each. Put $25x into stock, $10x into bonds, $10x into gold, and $15x into cash, resulting in $40x each.

3. Same mix as #2, but you are only depositing $20x, so new total will be $120x; target for each is $30x. $15x into stock, $5x into cash gets you to the ideal balance.

4. Same mix as #2, but you're only depositing $10x. Target is $110x/4 = $27.5x. For simplicity you could just put it all in stocks and not rebalance. Now you'll have $25x stocks, $30x bonds, $30x gold, and $25x cash. That's well within the "normal" range for a PP and didn't require rebalancing. If you can easily (and cost-free) rebalance, just moving some funds between mutual funds online, then why not, but the point of this example is that there's nothing wrong for relatively small amounts to just buy whatever is underfunded in your portfolio. "Underfunded" doesn't necessarily mean underpriced. You might have strong feelings that it's going to go down more tomorrow and for many tomorrows after that. And you might turn out to be right. But that doesn't matter. To assume that you know what's overpriced and what's underpriced totally goes against the philosophy of the permanent portfolio. Review the rules below.

Excerpts from Harry Browne's Rules of Investing:

Rule 4: No one can predict the future.

Rule 5: No one can move you in and out of investments consistently with precise and profitable timing.

Rule 12: Speculate only with money you can afford to lose.

Rule 17: Whenever you’re in doubt about a course of action, it is always better to err on the side of safety.

"Don’t play games with your Permanent Portfolio. Don’t wait for any investment to become cheaper before you buy it. And don’t go overboard investing in something that happens to be doing well now. Just put 25% in each of the four categories.
No matter how strong your expectations about the near future, you could easily be mistaken. And the point of the Permanent Portfolio is to ignore your own expectations and let the portfolio take care of you no matter what may come.
Fund it with equal portions of all four investments and don’t worry over which is going to do best. It is a package of investments that provides the safety you need. Tear apart the package and you tear apart the safety."

It depends. You have to do whatever works for you and it may take a while to work that out.

The PP is supposed to be pretty hands-off, so if you're making weekly contributions it might get cumbersome to make purchases every week. Not to mention the anxiety about market gyrations.

Personally, I let contributions go to cash and just rebalance when necessary/desired or when I spot buying opportunities.

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InsuranceGuy wrote: ↑Thu Apr 02, 2020 1:08 am Down 10% one day so you buy, next day up 10% sell, etc.

How would you know that on the next day it will not go down another XX% ?

Ugly_Bird wrote: ↑Thu Apr 02, 2020 10:56 am

InsuranceGuy wrote: ↑Thu Apr 02, 2020 1:08 am Down 10% one day so you buy, next day up 10% sell, etc.

How would you know that on the next day it will not go down another XX% ?

If it will go down the next day, obviously you shouldn't buy it.

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Basically you can level the field or just put money into cash until it becomes 35% of total and then re balance or what ever re balance band you use some use 30%.

InsuranceGuy wrote: ↑Thu Apr 02, 2020 1:08 am Rebalancing during times of high volatility can be very profitable. Down 10% one day so you buy, next day up 10% sell, etc. In times of low volatility it does seem best to let it ride until a rebalance band is hit.

IG

IMHO it's not that simple. "Down 10% one day so you buy" you say. What if it stays flat for a while? You stay out of the market? What if during this period the market goes up 10%? You lose all gains.

In normal times, you could set up an auto-investment program to contribute to all assets equally.

I did that at first, but switched to adding new money to cash. Then I use that periodically to buy lagging assets. So much simpler and it helps prevent taxable events, because I rarely have to rebalance.