Gyroscopic Investing

mathjak107 wrote: not quite true about steep drops , michael kitces did a paper on this . it is only the duration . a steep drop like 2008  was a non event to its success rate .. a modest drop over an extended duration has far more serious consequences .

the worst case scenario's the 4% safe withdrawal rate is based on already expects steep drops .  that is why it is called a safe withdrawal rate .  all it cares about is the 15 year average is at least a 2% real return .


https://www.kitces.com/blog/how-has-the ... al-crisis/

Here's the problem.  The duration is out of your control unless you use downside risk management (whether that be trend following or adjusting portfolio duration).  Are you 100% confident the government will everywhere and always always prop up the markets AND the public will not lose confidence in their actions being positive, as is now occuring in China and Japan?

BTW, when I judge what is risk-reward optimal in terms of drawdowns, I take into consideration BOTH the magnitude AND the duration.  1987 was deep but a blip and it will have a lower risk score than something like 2007-2009.

we are never sure of much when it come to investing , but one thing seems pretty sure and that is out of all the timing systems out there including the failed market timing graveyard  i don't know of any that passed any academic study as far as working long enouh to be of use  .

mathjak107 wrote: The 2000 retiree is already half way through the 30-year time horizon with similar wealth to a 1929, 1937, or 1966 retiree had at this point, and the 2008 retiree is even further ahead than any of those historical scenarios (and even ahead of the 2000 retiree, too!).

Pretty much a solid argument there for using downside risk management.  2008 was the exception to the rule due to QEternity.  Betting on exceptions to repeat is foolish.

betting this time is different has been even more foolish and costly .

mathjak107 wrote: i disagree , no way can you say the pp can support a higher withdrawal rate because if sequence risk and performance are less going forward the good years all portfolio's have end up  paying  for the bad years .

i doubt the pp can claim that 90% of the time frames since 1926  30 years later  the ending balance is more than you started  with and 67% more than double left over .

first off you can't compare because of the gol issue pre 1975 .

Well I've provided tools to compare both portfolios since 1972. The relative SWR performance of the PP vs the 60/40 over the same timeframe is quite clear, with the PP supporting a significantly higher WR.  The absolute SWR throughout all of history is certainly up for debate, and the longer back you look the lower it will be.  I see no evidence, however, that if you look back to 1926 (and if the gold standard laws were the same then) the PP will look significantly worse while the 60/40 will not (the 60/40 SWR since 1972 is only 0.3% higher than the one since 1870).  So I believe one can make an educated decision on the relative merits with the data provided, and conservatively plan to reduce the absolute WR to account for longer timeframes.  You may disagree, and prefer to only invest in portfolios with data going back to 1926.  Either approach is fine, IMHO.  In the end, we all have to be comfortable with our plan. 

For the record, I think the 60/40 portfolio is a fine choice.  I just find the myopic focus on the S&P500 and total bond market to be pretty darn boring and shortsighted.  The investing world is a lot more interesting than that, and other portfolios may have different results.  Including your own Mathjak portfolio!

as long as we are making up what our perception of us gold prices would be make sure you use 35 bucks an ounce too , it will really shine .

mathjak107 wrote: we are never sure of much when it come to investing , but one thing seems pretty sure and that is out of all the timing systems out there including the failed market timing graveyard  i don't know of any that passed any academic study as far as working long enouh to be of use  .

I'll post them for you when I come across them again.  But there's many other downside risk management approaches that work to beat buy and hold besides just trend following.  There's trailing stops, there's rebalancing bands, there's modifying portfolio duration, there's constant proportion portfolio insurance, there's dollar cost averaging, there's the reverse glide path, etc.  Not all of these have formal academic evidence even though they work empirically.  Waiting for academics to catch up to the real world is how a lot of money is left on the table.  Academics are 1) not investors and 2) not traders.

the proof will be in the pudding as they say ,. 

mathjak107 wrote: the proof will be in the pudding as they say ,.

The proof will be in the backtesting? But I though you said that backtesting was...

nope , the proof will be going forward  and how "you " do . afterall that is all that counts .

Tyler wrote: For the record, I think the 60/40 portfolio is a fine choice.  I just find the myopic focus on the S&P500 and total bond market to be pretty darn boring and shortsighted.  The investing world is a lot more interesting than that, and other portfolios may have different results.

I sometimes feel the same way about the PP. In light of the old saying, "diversification is the only free lunch", sometimes I feel like we're leaving some food on the table in the form of international assets, real estate, commodities, etc.

Jack Jones wrote:

Tyler wrote: For the record, I think the 60/40 portfolio is a fine choice.  I just find the myopic focus on the S&P500 and total bond market to be pretty darn boring and shortsighted.  The investing world is a lot more interesting than that, and other portfolios may have different results.

I sometimes feel the same way about the PP. In light of the old saying, "diversification is the only free lunch", sometimes I feel like we're leaving some food on the table in the form of international assets, real estate, commodities, etc.

Ivy-5 has US stocks, ex-US stocks, REITs, bonds, commodities. Tyler has coded it as one of default lazy portfolios.

ochotona wrote:

Jack Jones wrote: I sometimes feel the same way about the PP. In light of the old saying, "diversification is the only free lunch", sometimes I feel like we're leaving some food on the table in the form of international assets, real estate, commodities, etc.

Ivy-5 has US stocks, ex-US stocks, REITs, bonds, commodities. Tyler has coded it as one of default lazy portfolios.

I know. 

I've been reading a lot of Faber's stuff recently. I just got a free ebook (Global Asset Allocation) from him. There's a section on the PP, but I haven't read it yet.

I have to balance the Faber 10 month MA model with my personality and my lack of interest in trading more, I chose the PP.  Back in 2014 I read his Tactical Allocation paper and I really thought that was the way I wanted to go.  But coming from a background of severe overtrading for the previous 5 years, it was time to stop that.  Not that the Ivy overtrades.  But I know from experience, the fewer things that entice me to trade, the better my portfolio does, by a LONG shot.

Jack Jones wrote: I sometimes feel the same way about the PP. In light of the old saying, "diversification is the only free lunch", sometimes I feel like we're leaving some food on the table in the form of international assets, real estate, commodities, etc.

Diversification is only a free lunch if the co-correlations go down.  Its the co-correlations that ultimately matter, not diversification.  At least at the asset level.

I have a metric I need to finish that tells you the Diversification Score of a portfolio.  Why add something if it doesn't up it?

I wish Faber were an annual rebalance, but that has been testing, doesn't work.

MJ,

On the topic of deep drawdowns and recoveries being faster generally in stocks, see the clip below from Zerohedge on why people aren't too crazy with stock investing. 

It led me to look a bit at the 2008/2009 drop in the S&P.  Peak prior to the crash was Oct, 2007.  It took until March, 2013, 5 1/2 years, to recover back to that point.

I don't know if that qualifies for you as a fast recovery?  I am asking seriously.

the s&p  alone is only a large cap index not a complete portfolio  , the midcap 400  recovered way before , bonds and small caps along with rebalancing all  cut  recovery time .

i know our insight model recovered way before the s&p did .

3 stocks in the s&p 500 accounted for most of the delay so any managed funds that did not own them likely recovered much sooner .

the biggest culprit was ibm  which carried a huge weighted share in the s&p  and  lagged a lot  from 2008 to 2013 pulling the index much lower then it should have been .

hewlett packard continued losing money until it finally got booted and alcoa was a big drag gaining 1/2 of what the index did without it \pulling down the success of hundreds of stocks with its weight . . .

technology and consumer discretionary stocks were soaring way before the s&p 500  broke even so managed funds had different break even points depending what they owned . or in the case of the miserable 3 what they didn't own . .

not sure if your chart includes reinvested dividends .


interesting comparison here of index's

http://www.fool.com/investing/general/2 ... t-1-2.aspx

Cortopassi wrote: ↑Wed Oct 21, 2015 3:55 pm I've tried timing before, failed miserably.  Stressed out constantly.  PP removed all that.  No way am I a timer in any fashion!  My timing will either be annual or the bands.

In reading so many of these old posts this is one CONSISTENT message you have had.

It is inspiring!

Thanks!

Cortopassi wrote: ↑Sun Nov 01, 2015 11:50 am All this is telling me that there is going to be blood in the streets in the next decade.  No pension plan can survive this level of return, and there is a limit to which citizens will be taxed to pay for pensions and such without revolt.  More municipalities are going to have to declare bankruptcy, and I do not look forward to what will happen!

All bets are off on comparisons to history for everything, IMO.

We are almost halfway through the above "next decade". But what you predicted has STILL not happened.

However, I share your concern about it happening and am amazed that the causes for this future problem just never seem to abate, i.e., all the burdens put on the taxpayer with much of this burden a result of the costs of government employees.

Vinny

vnatale wrote: ↑Tue Jan 21, 2020 11:12 pm

Cortopassi wrote: ↑Sun Nov 01, 2015 11:50 am All this is telling me that there is going to be blood in the streets in the next decade.  No pension plan can survive this level of return, and there is a limit to which citizens will be taxed to pay for pensions and such without revolt.  More municipalities are going to have to declare bankruptcy, and I do not look forward to what will happen!

All bets are off on comparisons to history for everything, IMO.

We are almost halfway through the above "next decade". But what you predicted has STILL not happened.

However, I share your concern about it happening and am amazed that the causes for this future problem just never seem to abate, i.e., all the burdens put on the taxpayer with much of this burden a result of the costs of government employees.

Vinny

Yup, and no matter if/when that revolt happens, the PP investors on this forum will just look on and go...