Gyroscopic Investing

Budd,

I've seriously enjoyed your commentary. Angst is what makes us all think.

How much gold would you hold if you thought it was nothing more than a currency hedge?

I.e. Most of your assets are valued in US dollars. Imagine that gold represents a basket of all of the other world currencies. Nothing more, nothing less. Gold goes down if the dollar goes up. Gold goes up if the dollar goes down.

What percentage of your portfolio should be allocated to a dollar hedge?

Just brainstorming here...

Mark

Mark Leavy wrote: ↑Wed Jun 20, 2018 10:16 pm Budd,

I've seriously enjoyed your commentary. Angst is what makes us all think.

How much gold would you hold if you thought it was nothing more than a currency hedge?

I.e. Most of your assets are valued in US dollars. Imagine that gold represents a basket of all of the other world currencies. Nothing more, nothing less. Gold goes down if the dollar goes up. Gold goes up if the dollar goes down.

What percentage of your portfolio should be allocated to a dollar hedge?

Just brainstorming here...

Mark

Thanks Mark; I just don’t know the answer to your question - PP is around 20% now and overall portfolio 6.9%. Target is around 7.5%

“Gold up if dollar down” - sure; but what about International stocks as a currency hedge (VWILX holding > +40% since 2017). I’ve had success with everything but gold. Maybe one day I’ll break even.

buddtholomew wrote: ↑Thu Jun 21, 2018 5:38 amI’ve had success with everything but gold. Maybe one day I’ll break even.

Isn't that exactly the PP plan? At least one asset is going to stink up the joint. You just don't know which. So far for you it's been gold.

Xan wrote: ↑Thu Jun 21, 2018 9:41 am

buddtholomew wrote: ↑Thu Jun 21, 2018 5:38 amI’ve had success with everything but gold. Maybe one day I’ll break even.

Isn't that exactly the PP plan? At least one asset is going to stink up the joint. You just don't know which. So far for you it's been gold.

Yes Xan but it’s the asset that distinguishes the PP from other portfolios right - a whole 25%. I’m just screaming in the gold room, not changing anything

We should be in the Bond scream room. They are both sucking YTD

Budd,

mathjack107 reported success with the Fidelity Monitor & Insight Newsletter. He mentioned an annual gain of approximately 11% or a bit more. Sounds OK for a high net worth individual. I believe the newsletter deemphasizes gold.

The newsletter might be nice when implementing a VP.

Dollar up, gold down
Dollar down, gold down

When you start a PP you know that gold can easily go down for 10-20 years. As long as one or more other assets make up for it. PP has performed exactly as expected.

It's not a portfolio to make money, it's for protecting your money.
There was a lot of talk about 'solid 3-5% real returns', but I don't think Browne ever said something like that himself. It was always about protecting what you can't afford to lose. So far the PP has done exactly that, during the 'lost decade' and this bull run.

What are your expectations Budd?

bedraggled wrote: ↑Thu Jun 21, 2018 11:33 am Budd,

mathjack107 reported success with the Fidelity Monitor & Insight Newsletter. He mentioned an annual gain of approximately 11% or a bit more. Sounds OK for a high net worth individual. I believe the newsletter deemphasizes gold.

The newsletter might be nice when implementing a VP.

Hulbert Financial Digest independently tracks the success/failure of newsletters. It is pretty well respected (?)
This the the 20 track record of several newsletters including the Fidelity Insight one. Doesn’t look like the results that mathjak107 spoke of, although his mix may have generated more. It also shows the risk levels.

http://hulbertratings.com/20-year-scoreboard/

WhiteElephant wrote: ↑Thu Jun 21, 2018 2:54 pm When you start a PP you know that gold can easily go down for 10-20 years. As long as one or more other assets make up for it. PP has performed exactly as expected.

It's not a portfolio to make money, it's for protecting your money.
There was a lot of talk about 'solid 3-5% real returns', but I don't think Browne ever said something like that himself. It was always about protecting what you can't afford to lose. So far the PP has done exactly that, during the 'lost decade' and this bull run.

What are your expectations Budd?

Somehow everyone thinks the PP is doing what it is supposed to be doing. You mean it has been going up the last decade because of equities, right? I’ll believe it when I see Gold or LTT’s carry the portfolio during my lifetime that it is doing what it is designed to do.
All I see is a drag on performance.

I love clipping these charts. This is for all of 2000s, peak to trough. No rebalancing, 10,000 in each. A clear winner.

BUT, to budd's point, the same test for any time period 1997 and earlier to present, S&P destroys gold easily. So things are really time sensitive.

I would imagine in the matter of a short few months or years starting difference, you can have people on one side who hate gold and love stocks and vice versa just because of when they started their investing life.

So I'd rather just spread it around and accept a lower overall return, knowing I might be missing out, but also better mentally with less severe drawdowns and less concerns about most of my eggs in one basket.

ANY of the methods, 100% stocks, 60/40, PP would have been better than my haphazard investing style, as long as you are able to stick with it.

buddtholomew wrote: ↑Thu Jun 21, 2018 4:23 pm All I see [from gold] is a drag on performance.

The PP is designed to trade some long-term performance for protection against volatility and extreme drawdowns. It's a feature, not a bug.

Just as one buys a Honda Accord instead of a Ferrari if he prioritizes reliability over flashiness, one invests in the PP instead of an all-stock portfolio if he prioritizes downside protection and stability over maximum long-term return.

Also, just as most car drivers' time is better spent driving and not constantly peeking under the hood and poking around at all the moving parts, most PP investors' time is better spent focusing on the performance of the overall portfolio and not that of its component assets.

Tortoise wrote: ↑Thu Jun 21, 2018 7:55 pmAlso, just as most car drivers' time is better spent driving and not constantly peeking under the hood and poking around at all the moving parts, most PP investors' time is better spent focusing on the performance of the overall portfolio and not that of its component assets.

Or, indeed, their time is better spent focusing on their real life (family, job, hobbies, volunteering) instead of their investments.

Or working to improve income....

Financially I'd be better of without Gold (I think LTT+ "cash" has been a wash for me vs TBM), but worry less. Even if do still spend too much time, um , "reviewing"....

Did put in to buy my first TBill at the next auction.

WhiteElephant wrote: ↑Thu Jun 21, 2018 2:54 pm When you start a PP you know that gold can easily go down for 10-20 years. As long as one or more other assets make up for it. PP has performed exactly as expected.

It's not a portfolio to make money, it's for protecting your money.
There was a lot of talk about 'solid 3-5% real returns', but I don't think Browne ever said something like that himself. It was always about protecting what you can't afford to lose. So far the PP has done exactly that, during the 'lost decade' and this bull run.

What are your expectations Budd?

That’s a good question.

I’ve always assumed comparable returns to a 60/40 allocation with lower volatility and reduced drawdowns.
From that perspective the PP has fulfilled the objective.

What I can’t seem to comprehend is the agnostic nature of 4x25 with a 25% allocation to Gold.
I hold all 25% in taxable for an overall 7.5% portfolio allocation.
I “think” if some of the Gold was in tax-deferred I may feel more inclined to just let it be.
I hold REIT in retirement accounts and couldn’t care less what it is doing on a daily basis.

In the archives, Harry said the 25% share was really a guideline. You don’t have to hold that much. And of course, we get around it by holding a vp.

The best way to own gold is some way where its a little bit hard to get out of the position; physical gold. ETFs are too easy to sell. You want it a bit locked up. Then you won't worry about it. The problem people have is we have too many choices.

Even that ultra gold bull and generalized doomsayer Jim Rickards says most people should have 10% gold, and if you're really a fan then up to 20%. He never mentions 25%. I'm happy at 10%. If it takes off like Jim thinks it might, and they sky really does fall, then I won't sell until I hit a 35% rebalancing band, and take it back to 25%. That probably happens at $5,000 per ounce.

I run what I loosely call a 2x Permanent Portfolio.

45% 30 year bonds.
35% Physical Gold
15% Inverse Volatility (Currently SVXY - now reduced to 50% inverse of VIX)
05% T-Bill Money Market Fund (Mostly to collect bond dividends and to provide some grease for transactions)

Plus (and this is a big plus) 3 Year's living expenses in cash spread across multiple checking accounts.

So... based on this, you could say that I think the proper PP gold allocation is about 17.5%

Mark

ARGHHHH If I had converted my gold IRA to a Roth this week instead of months ago, my tax bill would've been $1,100 less!

Inverse and leveraged ETFs are dangerous sob's to buy and hold. I had my face ripped off once.

ochotona wrote: ↑Fri Jun 22, 2018 7:18 pm The best way to own gold is some way where its a little bit hard to get out of the position; physical gold. ETFs are too easy to sell. You want it a bit locked up. Then you won't worry about it.

I think I agree here. Since starting to convert to physical, I feel much less attached to the daily prices. My gold is my gold. If the price falls, I'll just end up owning even more.

I don't think I could've reached this point early on. I wanted to easily move in and out of my position. Now I want stability. I can take this store of value with me wherever I go and it cannot be easily erased like the numbers I hold in my accounts. It has its own frailties, but they are unique and not correlated with the frailties of my other holdings.

eufo wrote: ↑Sat Jun 23, 2018 4:16 pm

ochotona wrote: ↑Fri Jun 22, 2018 7:18 pm The best way to own gold is some way where its a little bit hard to get out of the position; physical gold. ETFs are too easy to sell. You want it a bit locked up. Then you won't worry about it.

I think I agree here. Since starting to convert to physical, I feel much less attached to the daily prices. My gold is my gold. If the price falls, I'll just end up owning even more.

I don't think I could've reached this point early on. I wanted to easily move in and out of my position. Now I want stability. I can take this store of value with me wherever I go and it cannot be easily erased like the numbers I hold in my accounts. It has its own frailties, but they are unique and not correlated with the frailties of my other holdings.

Good points; avoids marking to market daily.

MangoMan wrote: ↑Sat Jun 23, 2018 7:36 am

Mark Leavy wrote: ↑Fri Jun 22, 2018 8:05 pm I run what I loosely call a 2x Permanent Portfolio.
...

Mark, could you clarify? Is SVXY a reasonable proxy for 2x stocks?

Depends on what you mean by "reasonable". As ochotona implies, SVXY is a dangerous thing and can quickly go to zero. (Much like XIV did recently) But, as to your question, yes. SVXY is inverse volatility, and moves "approximately" at some multiple of SPY. Not every day and not exactly, but over time, I have found the above mix to have fairly consistent performance to a 2X PP.

You just really have to understand that SVXY is NOT a leveraged version of SPY (it is volatility) and in the case of a market crash, it really moves hard against you.

buddtholomew wrote: ↑Sat Jun 23, 2018 7:23 pm Good points; avoids marking to market daily.

If houses were marked-to-market every day, some people would not be able to stand that information flow, and they'd remain renters.

ochotona wrote: ↑Sat Jun 23, 2018 8:55 pm

buddtholomew wrote: ↑Sat Jun 23, 2018 7:23 pm Good points; avoids marking to market daily.

If houses were marked-to-market every day, some people would not be able to stand that information flow, and they'd remain renters.

That’s what Zillow is for; I use the estimate to calculate equity and total net worth monthly. My house is not an investment although it has done well in the Bay Area since my purchase in 2005.