Gyroscopic Investing

This portfolio is fucked FUBAR.

Fucked? Looks to me like it's up almost 7% YTD with no drawdowns vs its starting value. Seems like it's doing its thing.

[img width=500]https://i.imgur.com/P6U9bQl.png[/img]

Today isn't so hot… but today doesn't look very hot for anything.

Pointedstick wrote: Fucked? Looks to me like it's up almost 7% YTD with no drawdowns vs its starting value. Seems like it's doing its thing.

[img width=500]https://i.imgur.com/P6U9bQl.png[/img]

Today isn't so hot… but today doesn't look very hot for anything.

Yes, but it isn't up EVERY DAY! We're all doomed!!!!! 

I was not referring to YTD performance, but your point is well taken.

Rising interest rates and the strengthening dollar are both wreaking havoc on the portfolio.

Pointedstick,

Is that your specific PP you are charting with ETFReplay or is it one of the ETF traded ones?

Thanks,

Mike

PS, the past couple weeks have been painful, for sure, but from where I was at (mainly in precious metals/PM stocks) the 1.8% or so drop in value over the past 2-3 weeks in my PP is PEANUTS compared to where I would have been before the change!

[img width=500]http://memetogo.com/media/created/gawpkc.jpg[/img]



It's been a down week, but the last few months have been pretty good.  Try not to overreact. 

Tyler, that was friggin' brilliant.

I too am feeling the pain this month. I am terribly loss averse and would do well to only check on this stuff every few months. It's just hard to ignore the markets and PP performance when checking out this forum.

Cortopassi wrote: Pointedstick,

Is that your specific PP you are charting with ETFReplay or is it one of the ETF traded ones?

It's charting VTI, TLT, GLD, and SHY.

Rising interest rates and a strengthening dollar don't particularly worry me. For as much as the portfolio drops in the present (and it has been a minuscule amount, let's be fair), these are good portents for the future. We'll get higher rates for bonds we purchase, and our dollars will buy more goods with foreign components (i.e. nearly all of them).

Yes, Budd, to put it slightly differently, the PP's performance over the past few days has not been optimal. 

But we gotta put on our asbestos underwear and think long term. And long term the PP is champ, IMHO.

Unless, of course, you want to cash in all your chips (including cash) to invest in that very attractive frog farm in Ecuador. Or how about a technical institute for lava lamp repairmen? 

Who was that comedian in the 80s [?] who used to peach passionately as the minister of The Church of What's Happening Now? Among his favorite rants to his parishioners was something like: "We all gotta pray hard to pass the test! Everybody has to take the test. The only problem is, nobody has ever passed the test!"

September/October time of year, November elections, a tightening federal reserve, and all-time market highs will at least make investing interesting for the foreseeable future.

@Tyler
ROFL! That's worth at least 50 cool points.

If I were in a stock heavy portfolio for the past couple years and looking for something to diversify into, the pp would be looking pretty good right now. As a holder of the pp, I'm doing fine, but from the perspective of an outsider, gold is depressed, bonds might not move in the same direction as stocks, cash could be a good anchor. Don't want to performance-chase. But that's just me.

Tyler, that was note perfect. 

FUUUUUUUUUUUUUUUUU

Seriously, though, 2-year performance is also very low

Yes, and that is the point.  Bad performance in the near future might be easier to accept had the last 2 or 3 years been a rewarding experience.

What do we have to look forward to, for the next year?  The next 2 years?

1 - Every time there is trouble in the Euro, there are apparently people exchanging Euros and other goods for dollars.  This may make it easier for me to buy plastic junk from Walmart, but it doesn't make me feel any better about my choice of investments, most of which do not rise with the plastic junk trade.

2 - What is going to happen if the Fed starts to raise rates?  I think we see it right now, since apparently people think it's going to happen in the 1st quarter of next year.  LTT and gold just dropped like rocks over little more than 2 weeks.  Gold has almost erased all its gains YTD.


I am waiting for good news, because all I have got right now is bad.  As I see it... half of the PP stands to gain only if there is a distinct trend in real rates: LTT for positive, gold for negative.  What if real rates just hover above zero?  Half the PP does nothing or declines, and the portfolio has to be carried by stocks.  Which it has been.


I don't have better ideas, myself.  I like the PP, in principle, but watching it tread water for 3 years has done little for my confidence in the strategy.  From now on I think new money is going to a Boglehead alternative.  Something with foreign stock exposure, which might ease my future worries about currency and interest rate risk.

Lowe wrote: I don't have better ideas, myself.  I like the PP, in principle, but watching it tread water for 3 years has done little for my confidence in the strategy.

In 2012 it was up 6.5% and it's up 6.8% YTD in 2014. 2013 wasn't great, but it was only down 2%. That's not what I would call treading water. It's performing exactly as advertised, IMHO. The PP is not an exciting, high-return investment portfolio. It's slow and steady. When the worst thing you can complain about is a down year of -2%, to me, that speaks volumes about it. The portfolio has us all trained to expect perfection! What other portfolio would cause fear and grousing if it had a single down year of negative two percent after a five year streak of strongly positive performance, weathered the crash of 2008 with nary a scratch, and had a 13-year positive streak prior to that?

These are the times when it was nice to have the wise reassurance of craigR and MediumTex. Are they just too busy for this place these days? No time to throw in a comment? No interest? 

So what is the real return for that period, PS?

The hard thing for people to see their portfolio drop a bunch of money in a short period of time. NO ONE wants to see their balance go steadily down. It creates angst. I do have this theory though that when my portfolio hits an all time high, it's time to go to cash for awhile and see if things correct. It doesn't feel half bad sitting on cash on highs.  Problem is everytime I do that, I wind up wasting hours of my time checking and re checking it. So now I stay and roll with the punches... ooh ahh ouch shit.. thats kind of what the last few weeks have felt like in PP>  Of course you know what happens next, stocks finally get hit and we take the last punch. Will gold and bonds bail us out? Who knows, the future is unknowable. Brother can you spare a dime?

Lowe wrote: So what is the real return for that period, PS?

In general:
http://www.stableinvesting.com/p/long-t ... mance.html

Specifically:
2012 real: 4.7%
2013 real: -3.5%
YTD real: 4.8%
(Nominal data from https://web.archive.org/web/20160324133 ... l-returns/ and http://www.etfreplay.com/combine.aspx plus inflation data from http://www.usinflationcalculator.com/in ... ion-rates/)

This averages out to about a 2% annual real return for the roughly 3-year period, which has included 2013, which had the worst yearly performance since 1994 (-2.4% nominal). I'm still feeling pretty good about it. 

My angst about the future is related to current events, yes, but it is primarily about the future.  I do not see things changing from the prevailing environment, which is some kind of near deflationary / tight-money slump, in which the economy continues to grow, but at a low rate.

Assets like gold and LTT have not done well in this environment.  Something has to change in a major way, for me to see an upside for either of those assets.  That doesn't mean I won't hold them at all, but I don't feel good about sinking more money into the PP.

Correct me if I am wrong, but I think we have seen an average nominal return of 4% per year, and a real return of 1.5%.  I realize this has been a bad period for the portfolio, and I accept that nobody ever guaranteed real returns higher than that.  The PP is a great idea, and I am very appreciative.  However I also want more alpha, and I want to feel like less of an idiot when stocks are surging.

Pointedstick wrote:

Lowe wrote: I don't have better ideas, myself.  I like the PP, in principle, but watching it tread water for 3 years has done little for my confidence in the strategy.

In 2012 it was up 6.5% and it's up 6.8% YTD in 2014. 2013 wasn't great, but it was only down 2%. That's not what I would call treading water. It's performing exactly as advertised, IMHO. The PP is not an exciting, high-return investment portfolio. It's slow and steady. When the worst thing you can complain about is a down year of -2%, to me, that speaks volumes about it. The portfolio has us all trained to expect perfection! What other portfolio would cause fear and grousing if it had a single down year of negative two percent after a five year streak of strongly positive performance, weathered the crash of 2008 with nary a scratch, and had a 13-year positive streak prior to that?

Harry Browne said to only look at your portfolio once a year.  What great advice that was. For most of us on this forum, including myself, we look way too often.  If I looked on Jan. 1 of this year and didn't look again until today and found that I was up 6.8%, would I really be disappointed?

I don't look at my PP very often.  I don't watch financial news.  As a result, I rarely have these sorts of anxieties.  I'm not trying to sound superior.  And I don't have any good advice on how to ignore the stuff.  But, if you CAN ignore it, you'll be better off.

Look, no asset allocation is going to be up all the time.  You all know the risk and reward profiles of various Boglehead AA's as well as the PP.  Either you chose the PP for the right reason, or you didn't.  If you didn't, i.e. you were chasing past performance, then you need to figure out if you are going to keep doing that, or pick a strategy you can stick with regardless of recent past performance.

Yeah, the PP is the worst way to invest, except for all the others.

I think it's useful when any AA is in a down period to run through some alternative scenarios in your head. For example, if I held all cash, I'd have almost no volatility unless we have inflation. But we are almost certain to have inflation over any kind of extended timeline. If I believe gold is a good inflation hedge, maybe just hold cash and gold. But then there is nothing to really take off when the economy is doing well so it makes sense to add in at least some stocks. Now that is not a bad looking portfolio, but there's very little income and not maybe not enough protection against deflation. Hmm, it happened in Japan so maybe just hold a few long-term bonds just in case.

If the above makes sense more or less, then we are really just talking about percentages and a lot of people tweak their PP percentages so that they hold more of one or two assets. The 25% bands are not intended to be a religion, right?

I started my PP in May 2013. After a year and a half, my ROI since inception is.......-0.05%. 

Wasn't it nice when we had somebody on here who could explain, defend, and promote the PP passionately?