Gyroscopic Investing

sophie wrote:
And incidentally, who says the PP has "done nothing" for the past two years?  It was negative in 2013 and will be slightly negative this year, probably, but mine was up 9% in 2014.  It's definitely trailed my stock/bond retirement portfolios, but just wait for that next market crash.

Right now I am looking at a little worse than -3% for the PP this year.  Peak to Trough shows about -2.55%.  Does that fall into the slightly negative category?  Historically, for me, I guess I would say yes.

Stock market has now decided to take a dive with TLT getting killed.  Another one of those crappy days...

barrett wrote:

buddtholomew wrote: Looks like it's LTT's now. Sure makes the PP look obsolete doesn't it?

So much for it being a rising dollar issue. Dollar is down 1.5% and gold is up pennies.

Hey Budd... serious question

Do you think the PP is just a bad idea all the way around or is it in your opinion just not set up to deal well with whatever market conditions we have now? No agenda here. I am just curious. Thanks.

Honestly Barrett, I don't know what to think anymore. I used to believe that diversifying into gold, bonds and cash would make my portfolio more conservative. Now it appears the inclusion of gold and treasuries has made the portfolio more aggressive as compared to a more stock heavy allocation. How else do you explain gold down 11% YTD and treasuries down 5% (including today's 3% decline)? I just don't understand what I am holding anymore. All I do know is I continue to lose money.

MachineGhost wrote: I still have a problem with the PP having about a -25% maximum nominal drawdown.  Given the situation in the late 70's and early 80's that would have been incredibly painful and scary to experience, if you could manage to hold on.  The world felt like it was ending: gold was in a hyperbolic bubble, South America serially defaulted on its debt, our government was completely dysfunctional, Socialism/Communism was winning everywhere globally, union strikes were crippling entire industries, oil was at $185 a barrel in today's dollars, lots and lots and lots of social angst protests, etc.. You're right about everything else, though!

This is what I see on peaktotrough:

Max Drawdown 20.56% (1980-01-21 - 1980-03-27)

Add a few weeks of high inflation onto that and you're up around 22 - 23% Max DD. Yeah, that's a rough patch for sure but the PP recovered super quickly that year. An investor would have already been "made whole" again by early June. And gold certainly played a big part in that drama. At the end of January of that year the PP was off 9.7% in just five trading days. But what is one to do?

It seems to me that with any long-term investment strategy, following short-term trends too closely makes it harder to stay with your strategy.

If you understand the volatility of the portfolio you've chosen, and are ok with that, then under a wide range of "normal" conditions, you should feel ok just staying with it.

The harder question is when conditions stray outside of "normal" enough that you question whether or not the strategy is still the one you want, and aren't sure what to do instead.  And, how to decide whether the conditions at a given time are within that "normal" band or not.

And there are a lot of self-fulfilling prophecies at work too, like when everybody thinks bonds will go down, sells their bonds, and then...bonds go down.  Or when fears/expectations of inflation create inflation, or expectations of deflation create recessionary trends.

barrett wrote:

MachineGhost wrote: I still have a problem with the PP having about a -25% maximum nominal drawdown.  Given the situation in the late 70's and early 80's that would have been incredibly painful and scary to experience, if you could manage to hold on.  The world felt like it was ending: gold was in a hyperbolic bubble, South America serially defaulted on its debt, our government was completely dysfunctional, Socialism/Communism was winning everywhere globally, union strikes were crippling entire industries, oil was at $185 a barrel in today's dollars, lots and lots and lots of social angst protests, etc.. You're right about everything else, though!

This is what I see on peaktotrough:

Max Drawdown 20.56% (1980-01-21 - 1980-03-27)

Add a few weeks of high inflation onto that and you're up around 22 - 23% Max DD. Yeah, that's a rough patch for sure but the PP recovered super quickly that year. An investor would have already been "made whole" again by early June. And gold certainly played a big part in that drama. At the end of January of that year the PP was off 9.7% in just five trading days. But what is one to do?

Well if this is the best that can be done with an all weather portfolio -- and I certainly have been trying for three or four years to find something better, I guess we'll just have to live with it or deal with tactical.  I suppose its also small comfort to know you're in the Top 1% of investors during such an event.

Even the Browne Minimum Risk the MaxDD is around -10%.  That's pretty steep for basically what is just break-even on cash above inflation.

It is what it is.  There's no more rocks to turn over.

Sophie and PS hit the nail on the head.  My PP buttkicking has very little to do about asset allocation per se and everything to do with being able to stick with a ROBUST investment plan super long-term that I can pour income into without another thought.  The last thing I -- or anyone -- needs is to have the Mother of All Doubts halfway into what you thought was a "baked into the cake" investment plan.  That's even far more painful than choosing wrong at the outset and then immediately correcting as budd did.  Unlike subjective religion, you see the objective results if you choose wrong: you lose money (you likely cannot afford to lose).

Pointedstick wrote: I like my current health insurance plan but it is heavily subsidized by my employer, so after I quit my job I won't have that option anymore. It'll be Obamacare or Medicaid, and and I'm not really big on Medicaid. I suspect the quality of care is lower and the wait is long. Besides, I don't really want to be relying on a welfare program. I'd rather pay my own way, but I know that's a pipe dream in this crazy US health care market we have.

FWIW, between smart capital gains harvesting and IRA>Roth conversions, there are ways to stay above the MAGI threshold for Medicaid even with no earned income.

Tyler wrote: FWIW, between smart capital gains harvesting and IRA>Roth conversions, there are ways to stay above the MAGI threshold for Medicaid even with no earned income.

You guys are probably far away from being eligible for Medicare, but being eligible for Medicaid is actually a bonus if you also qualify for Medicare.  You get to have access to the cadillac of all health insurance, the Dual Eligible plans.  It will be insurance where Medicare is primary payor and Medicaid secondary payor.  States offer many enhanced benefits via Medicaid that Medicare does not cover.  The benefits are all combined together in a single Dual Eligible Advantage Plan.  So below MAGI should be planned for at official retirement if you have such flexible control over your income.  I think it could actually be an interesting challenge!

buddtholomew wrote:

barrett wrote:

buddtholomew wrote: Looks like it's LTT's now. Sure makes the PP look obsolete doesn't it?

So much for it being a rising dollar issue. Dollar is down 1.5% and gold is up pennies.

Hey Budd... serious question

Do you think the PP is just a bad idea all the way around or is it in your opinion just not set up to deal well with whatever market conditions we have now? No agenda here. I am just curious. Thanks.

Honestly Barrett, I don't know what to think anymore. I used to believe that diversifying into gold, bonds and cash would make my portfolio more conservative. Now it appears the inclusion of gold and treasuries has made the portfolio more aggressive as compared to a more stock heavy allocation. How else do you explain gold down 11% YTD and treasuries down 5% (including today's 3% decline)? I just don't understand what I am holding anymore. All I do know is I continue to lose money.

Well, my own opinion is that diversifying into those assets does make a portfolio less volatile. What I think might be happening with you (and believe me, I tend to be wired the same) is that you are looking at all of this through a microscope when the best thing is to probably step way back and think about how the next 40 or 50 years might play out. Lots of portfolios produce beautiful upward-sloping lines on a 40 to 50 year view, but in order to get that (and beat inflation), one has to go through lots of short-term ugliness.

Internet forums and having minute-by-minute updates are not likely to help much! Maybe we should all adjourn and come back in five years to compare notes.

Back to your last post for a second... If you look back at how the PP assets have performed historically, gold down 11% and LTTs down 5% in a year is not really unusual. There's just been nothing to really pick up the slack this year. Down years really stink when it's our money that is involved!

Edit: Also the PP gave us all that big head fake in January when both bonds and gold were way up. That's part of the current pain... that a 4X25 is well down from its earlier highs. My take is that as a whole the PP is probably just reverting to its mean performance. It got ahead of itself. That's less than ideal in the short term obviously, but ultimately these are just bonds, stocks, cash and some yellow stuff, none of which are capable of working magic. Which is why we work and save. Just thinking out loud hear. All my posts should be taken with a grain of salt.

MachineGhost wrote: Sophie and PS hit the nail on the head.  My PP buttkicking has very little to do about asset allocation per se and everything to do with being able to stick with a ROBUST investment plan super long-term that I can pour income into without another thought.

This is one of the reasons why I like Vanguard's platform so much. You can set up monthly transfers and auto-investments and then completely forget about the whole thing. There's something about a machine doing everything that seems to make it easier, at least for me. I can do 50% or 100% stocks there and not feel the least bit bad.

Pointedstick wrote:

MachineGhost wrote: Sophie and PS hit the nail on the head.  My PP buttkicking has very little to do about asset allocation per se and everything to do with being able to stick with a ROBUST investment plan super long-term that I can pour income into without another thought.

This is one of the reasons why I like Vanguard's platform so much. You can set up monthly transfers and auto-investments and then completely forget about the whole thing. There's something about a machine doing everything that seems to make it easier, at least for me. I can do 50% or 100% stocks there and not feel the least bit bad.

Yes, that's the next step I'm thinking about.  Unfortunately, there's no easy way to do that kind of thing with a tactical PP just yet.  Even Schwab doesn't seem to have autoinvestments in ETF's, just autodepoists.  Does Vanguard include the ETF's or just their mutual funds?

But one thing I now consider highly irresponsible -- and budd's experience is very reflective -- is this braindead idea of lump sum investing into the PP all at once.  It's that kind of braindead crap from Browne, MT and craigr (who are not acknowledged financial experts) that rolls my eyes on top of the "dumbo" portfolio idea from Browne.  As Tyler's pixel charts show, the sequence of risk returns can run as long as 2 years, probably 3 if I remember my own stats correctly (I use daily data, Tyler uses yearly).  No, you should dollar cost average over a period of time (daily, weekly, monthly, quarterly) to get rid of that last remaining sequence of returns risk the all weather PP cannot eliminate.  And then you finally have the Top 1% portfolio.  Top .5% if you can finagle tactical. 

I will be doing weekly deposits of the lump sum investment amount spread out whatever is the correct time frame.  I feel this is only sensible.  This stuff is highly emotional when you cannot afford to lose your precious capital.

Also, because the Browne Minimum Risk doesn't seem all that far off from the full deal for the bother, I think it'll be better to just carve out the cash for the "savings" from its bigger brother rather than having two portfolios.  In that deep 10% (or was 15%?) portion of cash that doesn't get touched during rebalancings.  Am I correct that the cash gets eating away at to buy assets that experienced losses which the sold winning asset doesn't completely cover upon liquidation?

No one is forced onto Medicaid.  The state is perfectly happy if you forget to apply.

Ironically, Medicaid patients potentially get better care than private patients do, although they're less comfortable.  They spend a lot of time in waiting rooms, see different doctors every time due to resident rotation schedules, and the clinics tend to be vomit colored and a bit smelly.  But the care standards are far, far higher than your typical private hospital.  I took my Dad to local/private hospitals initially, and the care was so awful it was shocking.  It felt like the staff were playing at being doctors and nurses, not doing it for real.

Stick to medical schools' primary teaching sites and you'll be fine.  Or, budget ungodly sums of money for private insurance into your early retirement plans, like $20K/year for a family plan & copays.

Barrett- your suggestion about adjourning for 5 years and then coming back to compare notes is great.  But we're all too prolific & noisy for that option :-)  plus this is too much fun.  (Lovin' the forum again guys!)

Vanguard only allows auto-investment in their mutual funds, not the ETFs. I'll start another thread for the post-FIRE medical planning subject.

sophie wrote: Barrett- your suggestion about adjourning for 5 years and then coming back to compare notes is great.  But we're all too prolific & noisy for that option :-)  plus this is too much fun.  (Lovin' the forum again guys!)

Me too! It's so nice when the signal-to-noise ratio is high.

MachineGhost wrote: But one thing I now consider highly irresponsible -- and budd's experience is very reflective -- is this braindead idea of lump sum investing into the PP all at once.  It's that kind of braindead crap from Browne, MT and craigr (who are not acknowledged financial experts) that rolls my eyes on top of the "dumbo" portfolio idea from Browne.  As Tyler's pixel charts show, the sequence of risk returns can run as long as 2 years, probably 3 if I remember my own stats correctly (I use daily data, Tyler uses yearly).  No, you should dollar cost average over a period of time (daily, weekly, monthly, quarterly) to get rid of that last remaining sequence of returns risk the all weather PP cannot eliminate.  And then you finally have the Top 1% portfolio.  Top .5% if you can finagle tactical. 

It's only costly if you have a bad entry point. I was lucky enough to have an entry point that was not bad (beginning of 2014). Of course a few years earlier would have been better! I think it's unfair to blame Craig & MT. All they did was write a book (and post prolifically on the topic for a long time). You're a thinking man, MG. You know there are good and bad entry points into any portfolio.

And most of us still have a lot of time on our sides. In 30 or 40 years your buy-in point will still matter, but not enough to put you in the poor house.... especially if you are able to add new money along the way.

Man, this PP thing was crap today! Hopefully tomorrow will be better.

barrett wrote: Man, this PP thing was crap today! Hopefully tomorrow will be better.

Wasn't gold--the only asset unique to the PP--up today? When stocks and bonds are down, it's not the PP that's having a bad day, it's everyone.

sophie wrote: No one is forced onto Medicaid.  The state is perfectly happy if you forget to apply.

Ironically, Medicaid patients potentially get better care than private patients do, although they're less comfortable.  They spend a lot of time in waiting rooms, see different doctors every time due to resident rotation schedules, and the clinics tend to be vomit colored and a bit smelly.  But the care standards are far, far higher than your typical private hospital.  I took my Dad to local/private hospitals initially, and the care was so awful it was shocking.  It felt like the staff were playing at being doctors and nurses, not doing it for real.

Stick to medical schools' primary teaching sites and you'll be fine.  Or, budget ungodly sums of money for private insurance into your early retirement plans, like $20K/year for a family plan & copays.

Barrett- your suggestion about adjourning for 5 years and then coming back to compare notes is great.  But we're all too prolific & noisy for that option :-)  plus this is too much fun.  (Lovin' the forum again guys!)

According to a study called "The Oregon Health Insurance Experiment", compared to no insurance:
"In the first one to two years, Medicaid increased health care utilization, reduced financial strain, and reduced depression, but produced no statistically significant effects on physical health or labor market outcomes. "

(from http://www.nber.org/oregon/)

Sounds great to me!

Pointedstick wrote:

barrett wrote: Man, this PP thing was crap today! Hopefully tomorrow will be better.

Wasn't gold--the only asset unique to the PP--up today? When stocks and bonds are down, it's not the PP that's having a bad day, it's everyone.

But gold wasn't up enough to make up for all the losses since January 1st, so it's useless!!! 

Pointedstick wrote:

barrett wrote: Man, this PP thing was crap today! Hopefully tomorrow will be better.

Wasn't gold--the only asset unique to the PP--up today? When stocks and bonds are down, it's not the PP that's having a bad day, it's everyone.

Yeah, I see your point but most individual investors don't hold LTTs either. They have bond funds with much shorter durations. LTTs got hit hard enough today to wipe out a year's worth of yield.

Hey doesn't anyone have an actual job around here? How does everyone have so much time for a dang Internet forum?

Libertarian666 wrote:

Pointedstick wrote:

barrett wrote: Man, this PP thing was crap today! Hopefully tomorrow will be better.

Wasn't gold--the only asset unique to the PP--up today? When stocks and bonds are down, it's not the PP that's having a bad day, it's everyone.

But gold wasn't up enough to make up for all the losses since January 1st, so it's useless!!! 

Gold was up and LTT's were down? Damn, I re-balanced from LTT's and Cash into gold yesterday. I'm a market-timing genius.

barrett wrote:

Pointedstick wrote:

barrett wrote: Man, this PP thing was crap today! Hopefully tomorrow will be better.

Wasn't gold--the only asset unique to the PP--up today? When stocks and bonds are down, it's not the PP that's having a bad day, it's everyone.

Yeah, I see your point but most individual investors don't hold LTTs either. They have bond funds with much shorter durations. LTTs got hit hard enough today to wipe out a year's worth of yield.

Hey doesn't anyone have an actual job around here? How does everyone have so much time for a dang Internet forum?

I don't know about anyone else, but I'm currently more or less a "man of leisure" at the moment.

I sit in front of a computer in my living room all day for work, so forum participation takes up a very small amount of time and I can context-switch back to work in a moment.

barrett wrote:

Pointedstick wrote:

barrett wrote: Man, this PP thing was crap today! Hopefully tomorrow will be better.

Wasn't gold--the only asset unique to the PP--up today? When stocks and bonds are down, it's not the PP that's having a bad day, it's everyone.

Yeah, I see your point but most individual investors don't hold LTTs either. They have bond funds with much shorter durations. LTTs got hit hard enough today to wipe out a year's worth of yield.

Hey doesn't anyone have an actual job around here? How does everyone have so much time for a dang Internet forum?

I work for the federal government. It's easy to get my job done and lurk on the forum.

Greg wrote: I work for the federal government. It's easy to get my job done and lurk on the forum.

Because of your sig, I always pictured you in some private robotics lab, something like the Batcave.

dualstow wrote:

Greg wrote: I work for the federal government. It's easy to get my job done and lurk on the forum.

Because of your sig, I always pictured you in some private robotics lab, something like the Batcave.

That's my home life where I'm working on building my own exoskeleton for the paralyzed that I'd like to put on kickstarter in a year or two.

The government job happened due to a longer story of trying to find funding for grad school, ignorance, contracts with huge termination fees, and lack of information from the people offering me a job after I graduated.

Greg wrote: I work for the federal government. It's easy to get my job done and lurk on the forum.

That was a great opening... but I'll be nice.

This specific question for Buffett (ignore the bloviating at the beginning) seems timely with what sophie, PS and Tyler said recently about risk going up once your "needs are met":

https://www.youtube.com/watch?v=C1LiATYSajw

MachineGhost wrote:

Greg wrote: I work for the federal government. It's easy to get my job done and lurk on the forum.

That was a great opening... but I'll be nice.

Now I'm curious as to what you were going to say when you'd be your true self. I'm a big kid, I can take it.

It's actually one of the reasons I'm not a huge fan of my job, because it is a job I'm not really having growth in and isn't challenging me to be better.