Commodities discussion on Bogleheads

[FarmerD]

Quick FYI - I just noticed there is a new thread on the Bogleheads regarding commodities as part of a portfolio.  Eventually the subject of gold comes up.  Larry Swedroe, Rick Ferri and our very own Craigr all participate.  Here, Larry sort of admits gold may have a place in a portfolio though he like commodity indexes better, Rick Ferri has his usual dislike of gold and commodities, and Craig makes his case for gold.  Excellent discussion. 

http://www.bogleheads.org/forum/viewtop ... 10&t=98364

[Gosso]

Fun stuff.  I quickly skimmed it, but became bored after their unwillingness to allow for the possibility that their ideas might be wrong.

It's funny how they continue to harp on the idea that gold will have a real return of 0%, but they say it as if this will be true every single year.  They never specify over what time period...is it over 1000 years, maybe 100, or is it monthly.  Is it not possible that gold will have a real return greater than zero over a period of a few decades, and then after this see a period of negative real returns, resulting in an average real return of 0%?  But as we all know here, the beauty of gold is that it will have that golden decade(s) exactly when stocks and bonds are receiving zero or even negative real returns.

[MediumTex]

I would take Swedroe more seriously if his ideas translated into actual investment returns, which in recent years they have not.

Gold is a tool, not a religion, but properly understood it is a very useful tool.  I think that a lot of these guys who talk trash about gold don't understand this distinction and they think that pointing out that gold is not a religion should be the end of the discussion.

It's not surprising that people who have been wrong about gold for years continue to be wrong about gold. 

[steve]

What I find hard to understand is the concept of gold having no real return: If I buy an ounce of gold for $800  and sell it for $1600 is the additional $800 that I now have real or not?  Saying gold does not produce anything is just not true in my opinion, it can produce an increase in value in my portfolio which is the whole point of investing. I basically stopped posting on the bogleheads forum. I feel more at home here.

[MediumTex]

I basically stopped posting on the bogleheads forum. I feel more at home here.

To put it in Land of the Lost terms, the people on this forum are like Enik (the more highly evolved Sleestak from an earlier time in Sleestak history), while the boglehead crowd is more like the devolved and brutish Sleestaks that came ages after Enik's people.

See the difference below.

Enik:



Typical Sleestaks of later vintage:

[craigr]

The Bogleheads offer good advice. I just think a stock/bond portfolio is better served by having some hard assets mixed in. The best hard asset to own is gold.

It's interesting because I see on that forum and my blog I have a lot of gold related posts, but I'm not a gold bug in the least. It's just that it's an asset with so much controversy/bad information that I tend to write more about it. I rarely comment on the stock debates because the idea of indexing is such a settled matter. Same pretty much for bonds. I only own Treasury bonds and it seems that opinion on that topic is coming around to the same conclusion. Gold still is viewed skeptically, but I think with everything going on in the world many realize that maybe it's not such a wacky idea to hold some of it along with their stocks and bonds.

[AdamA]

Quick FYI - I just noticed there is a new thread on the Bogleheads regarding commodities as part of a portfolio.  Eventually the subject of gold comes up.  Larry Swedroe, Rick Ferri and our very own Craigr all participate.  Here, Larry sort of admits gold may have a place in a portfolio though he like commodity indexes better, Rick Ferri has his usual dislike of gold and commodities, and Craig makes his case for gold.  Excellent discussion.  

I don't know how Craig has the patience to have this discussion over and over again (although I'm glad he does).  

Holding physical gold in one's portfolio 1.  Adds diversity and 2.  Acts as insurance.  

There is probably a larger body of evidence to support these two ideas than almost anything else in the world of investing.  I just don't understand the argument against it.  It seems almost delusional.  

[KevinW]

I learned about investing through the Boglehead literature and still agree with almost everything said there.

The problem is, after I digested and contemplated the complete Boglehead system, some contradictions became apparent. I lost interest in their forum because reasoned conversations about those contradictions weren't really happening. The thoughtful commentators would quickly get drowned out by a pig pile of people repeating mantras dogmatically and basically screaming "BURN THE WITCH!"

One Boglehead plank is total return. They argue, correctly I believe, that you shouldn't worry about interest or dividend yield rates and instead should focus on total return, including capital appreciation. So, the fact that gold provides returns only through appreciation, is compatible with that position and should be a non-issue. I don't understand why yields are irrelevant to stock indexing but are damning evidence when it comes to gold.

[MediumTex]

I learned about investing through the Boglehead literature and still agree with almost everything said there.

The problem is, after I digested and contemplated the complete Boglehead system, some contradictions became apparent. I lost interest in their forum because reasoned conversations about those contradictions weren't really happening. The thoughtful commentators would quickly get drowned out by a pig pile of people repeating mantras dogmatically and basically screaming "BURN THE WITCH!"

One Boglehead plank is total return. They argue, correctly I believe, that you shouldn't worry about interest or dividend yield rates and instead should focus on total return, including capital appreciation. So, the fact that gold provides returns only through appreciation, is compatible with that position and should be a non-issue. I don't understand why yields are irrelevant to stock indexing but are damning evidence when it comes to gold.

They have a lot of really good discussions over there and I have learned a lot from some of the posters.

It just seems like a crowded and relatively unimaginative place with a few loud voices that don't seem capable of revising their views no matter how much evidence is presented to them.

There are a lot of knowledgeable people over there, but for whatever reason many of them don't seem interested in taking a more holisitc view of investing and incorporating it into a larger philosophy of life.

[Alanw]

I skimmed through the bogleheads forum addressing commodities or rather the lack of them needed in your portfolio.  Nowhere in the forum could I find any annual returns from Larry Swedroe's or Rick Ferri's portfolios for the past several years so I could compare them to a portfolio that holds commodities (gold) such as the Permanent Portfolio.  I'm not sure what the comparison would show, but the PP certainly has nothing to be ashamed of and I would bet the volatility would be less.

[AdamA]

There are a lot of knowledgeable people over there, but for whatever reason many of them don't seem interested in taking a more holisitc view of investing and incorporating it into a larger philosophy of life.

That's what I just don't get.  One of the things I love about the PP is that HB's investing philosophy extends way beyond the world of investing.  When it first clicked for me, it was one of those handful of ah-ha moments in my life that allowed me to start to look at the world in a different way.  It's kind of exciting, and I don't see why some of these guys are so quick to dismiss it. 

[MediumTex]

I skimmed through the bogleheads forum addressing commodities or rather the lack of them needed in your portfolio.  Nowhere in the forum could I find any annual returns from Larry Swedroe's or Rick Ferri's portfolios for the past several years so I could compare them to a portfolio that holds commodities (gold) such as the Permanent Portfolio.  I'm not sure what the comparison would show, but the PP certainly has nothing to be ashamed of and I would bet the volatility would be less.

Swedroe's portfolio has provided 0% returns in each of the last three years.

He made a brief stop here a while back to toss small rocks at the PP, and when I looked into his strategies and found that the PP had stomped them in recent years I pointed this out, and he left shortly after that.

Swedroe seems like a smart and decent fellow.  He's probably about like one of those priests who wouldn't look into Galileo's telescope--just a conventional mind trying to make its way through life without too many cognitive snags.  When someone like that looks at the PP it probably triggers the same cluster of emotions that a boa constrictor might feel when looking at a porcupine.

[MachineGhost]

The problem is, after I digested and contemplated the complete Boglehead system, some contradictions became apparent. I lost interest in their forum because reasoned conversations about those contradictions weren't really happening. The thoughtful commentators would quickly get drowned out by a pig pile of people repeating mantras dogmatically and basically screaming "BURN THE WITCH!"

The field of psychology has found that the more someone is filled with doubt, the more adament and in-your-face they become about their beliefs.  Challenging them or using reason, logic, etc. does no good as it is a framing issue and most of us are not peace mediators.  Given the travails of the past several years on Boglehead-type portfolios, imagine all the doubt and anxiety such investors are dealing with.

Even though, like sex, it is socially repressed by [American] society, doubt serves a very useful purpose in keeping one open minded and always exploring, learning, questining, etc..  And when one comes to embrace uncertainty -- which is what doubt really reflects -- a sense of zen-like peace becomes apparant.

[MediumTex]

The problem is, after I digested and contemplated the complete Boglehead system, some contradictions became apparent. I lost interest in their forum because reasoned conversations about those contradictions weren't really happening. The thoughtful commentators would quickly get drowned out by a pig pile of people repeating mantras dogmatically and basically screaming "BURN THE WITCH!"

The field of psychology has found that the more someone is filled with doubt, the more adament and in-your-face they become about their beliefs.  Challenging them or using reason, logic, etc. does no good as it is a framing issue and most of us are not peace mediators.  Given the travails of the past several years on Boglehead-type portfolios, imagine all the doubt and anxiety such investors are dealing with.

Even though, like sex, it is socially repressed by [American] society, doubt serves a very useful purpose in keeping one open minded and always exploring, learning, questining, etc..  And when one comes to embrace uncertainty -- which is what doubt really reflects -- a sense of zen-like peace becomes apparant.

I really enjoy talking with people with loose but sturdy minds.

I hate arguing and I hate upsetting people, but I deeply enjoy talking about controversial and challenging topics.  Many people seem to hate getting to a point where they no longer feel in command of a topic, but I love getting to that point because then I can just listen and learn.  I think it's more fun to be the student than the teacher.

Knowledge should be like a swap meet.  You show what you've got and you check out what other people have and you see if there is any basis for profitable trading.

[steve]

They have a lot of really good discussions over there and I have learned a lot from some of the posters.

It just seems like a crowded and relatively unimaginative place with a few loud voices that don't seem capable of revising their views no matter how much evidence is presented to them.

There are a lot of knowledgeable people over there, but for whatever reason many of them don't seem interested in taking a more holisitc view of investing and incorporating it into a larger philosophy of life.

I read and learned a lot from reading the bogleheads guide to investing and also from knowledgeable people over there. I even went sailing with Taylor one of the authors, who is a very nice person. However the stock and bond to age ratio did not fit me. I had the best job in the world and retired in my early 50s. I already won the game so the PP is a much better fit. I will be happy just keeping what I have and being able to sleep without worring about the big ups and downs of the traditional portfolios.

[Alanw]

Saw a quote from Bongleur on the Bogleheads site: "Steadier increases the odds of making enough at the expense of making much too much or lots too little."
Great quote for summing up the reasons for using the PP.

[dualstow]

melveyr hasn't posted here for a while, but has anyone read his June 19 entry at his site?
http://www.stableinvesting.com/
It's called "Gold's Contribution to Portfolio Risk."

I had the best job in the world and retired in my early 50s.

You, too, were an ice dancer for Disney?