Changing to global stocks and gold only

[Marc De Mesel]

If you run it from Jan 1st 1981 through today without rebalancing it's CAGR of 8.16

With rebalance it's 35/15 it's 8.05

That's 32 years and not re-balancing returned higher.

There's no such thing as volatility capture. Rebalancing can hurt returns just as easily as improve them.

It does reduce volatility though. There's a logical reason for that, not for any volatility capture.

You can always data mine any set of returns and find a superior rule that would have worked for that set of data.

Rebalancing or not has the same chance of working going forward. Imagine stocks or gold tripling while everything else stays put. Not rebalancing will return a lot more. It will subject you to risk beyond what you might be able to bear though.......

OMG I was not aware of this after studying PP for years.

What a great post. I love your critical independent thinking.

Thanks for sharing!

Hey Thanks Marc. I always read your posts as well. Even if I disagree with you or anyone I appreciate independant thought and analysis based on logic and reason rather than accepting the collective "wisdom".

Welcome Kshartle


A lot is changing in my investments. I've read many of your posts yesterday and I think you make a convincing case to drop the bonds and cash and just have stocks (global) and gold.

I am struggling already some time to hold my long term bonds since all indicators are flashing extremely overvalued. The cash, short term bonds, do bring volatility down but due to a lower and lower interest rate you are losing more and more purchasing power with it. And they are still just gov bonds that can default. The risk/reward sucks big time. 

With just global stocks and gold, on first impression you would have done beter in most scenarios, in Iceland and recently Cyprus, you would have been untouched thanks to your stocks being global and the gold would have made you considerably richer in Iceland. Japan's deflationary collapse of the 90's would be hard since both stocks and gold went down but since your stocks are global, and those went up, you would also have preserved your purchasing power.

I like very much your approach to inflation. Instead of arguing how much prices are going up just go back to basics. Inflation = amount of money being printed. If you keep it simple like this it is clear that bonds and cash are a no-go as they are the one paying the bill.

Ofcourse such portfolio will be more volatile, so larger losses from time to time, but if I get overall larger profits that is fine for me. I am starting to prefer safety via favorable risk/reward over safety via lower volatility.


What global stocks do you prefer? Do you prefer certain funds for this?

[Kshartle]

I keep it rather simple. I own VWO and VEU. I actually have rotated completely out of US Stocks (even though a significant portion of the S&P derives it's revenue from overseas markets). Now US stocks have been the big winner this year so I've lagged behind, even though last year was fantastic for me (I had 1/3 of my investments in a global real estate fund which was up around 25%, 1/3 gold and silver and 1/3 in global stocks. I just think the US consumer is spending borrowed money, even if it's just the government doing the borrowing and sending out the checks. Rising interest rates will squash this and kill the businesses catering primarily to the Americans.

I also own GDX also because I think it's most likely the FED with continue printing and even up the amount of purchases. I expect Gold to break $2,000 within the next few years so the gold miners should have a big reversal. I've purchased at $42, $37, $25, and recently just above $23. Still losing money on these Canadian and Aussie companies for the most part. I probably have 25% of my investments in GDX now because it's the only thing I've been buying in the past 6 months.

To clarify, I think this will all end in a deflationary crash and cash/gold will be king. I just think they will not crash it until everyone is screaming about the inflation. I think they will inflate until it no longer serves their purpose. That being said if the FED actually announces a taper I am selling ALL stocks and going to cash/gold. Even if they come back and announce a 2 trillion dollar stimulus in response to the crash Gold should protect me, or if they let the DOW crash 60% or more It'll be a chance to get back in cheaply.

We'll see. It's active management based on what I think is most likely for the FED to do and what the results of their actions should have on the markets. I'm still diversified across two broad asset classes in all scenarios. If I were less confident I would have 1/3 in cash. I have the luxury of not being concerned with volitility since I have no kids and no mortgage and make a lot more than I spend every month, for now.

[Libertarian666]

I'm all in on the inflation thesis. So far, so good; in spite of the "recent unpleasantness", I'm still way ahead over the last 15 years.

And if I'm remotely correct, the "best" part is still ahead!

[Kshartle]

I'm all in on the inflation thesis. So far, so good; in spite of the "recent unpleasantness", I'm still way ahead over the last 15 years.

And if I'm remotely correct, the "best" part is still ahead!

Yes we aren't even 50% of 1981 gold in inflation adjusted terms although selling within 30% of the top will still be pretty damn good.

[MediumTex]

Marc,

How many times have you changed your investment allocation over the last five years?

How has your personal performance compared to what would have happened if you had simply put your money in the PP and forgotten about it?

[Marc De Mesel]

Marc,

How many times have you changed your investment allocation over the last five years?

How has your personal performance compared to what would have happened if you had simply put your money in the PP and forgotten about it?

Just made a post about my different portfolio switches and average returns here.

I'm sceptical whether you are really curious or just looking for points of attack.

[Thomas Hoog]

PEAKtrough:
HB balanced
Years 32.85
CAGR 7.53%
Starting Capital 10,000
Ending Capital 108,566
Total Return 985.66%
Max Drawdown 14.37% (1981-01-06 - 1982-03-15)
DD > 10% Count 4
Annualized Std. Dev 6.21%
Sharpe Ratio 0.42

HB no balanced
Years 32.85
CAGR 6.69%
Starting Capital 10,000
Ending Capital 83,995
Total Return 739.95%
Max Drawdown 17.35% (2000-09-02 - 2002-07-23)
DD > 10% Count 6
Annualized Std. Dev 5.86%
Sharpe Ratio 0.31

50 Stocks,50 % Gold balanced
Years 32.85
CAGR 7.13%
Starting Capital 10,000
Ending Capital 96,151
Total Return 861.51%
Max Drawdown 34.84% (1981-01-06 - 1982-06-21)
DD > 10% Count 24
Annualized Std. Dev 10.87%
Sharpe Ratio 0.21

50 Stocks,50 % Gold  no balanced
Years 32.85
CAGR 7.22%
Starting Capital 10,000
Ending Capital 98,722
Total Return 887.22%
Max Drawdown 36.92% (2000-09-02 - 2002-10-09)
DD > 10% Count 25
Annualized Std. Dev 10.55%
Sharpe Ratio 0.22

"This Time Is Different: Eight Centuries of Financial Folly"
"Opinionum enim commenta delet dies; naturæ judicia confirmat."

[Marc De Mesel]

I keep it rather simple. I own VWO and VEU. I actually have rotated completely out of US Stocks (even though a significant portion of the S&P derives it's revenue from overseas markets). Now US stocks have been the big winner this year so I've lagged behind, even though last year was fantastic for me (I had 1/3 of my investments in a global real estate fund which was up around 25%, 1/3 gold and silver and 1/3 in global stocks. I just think the US consumer is spending borrowed money, even if it's just the government doing the borrowing and sending out the checks. Rising interest rates will squash this and kill the businesses catering primarily to the Americans.

I also own GDX also because I think it's most likely the FED with continue printing and even up the amount of purchases. I expect Gold to break $2,000 within the next few years so the gold miners should have a big reversal. I've purchased at $42, $37, $25, and recently just above $23. Still losing money on these Canadian and Aussie companies for the most part. I probably have 25% of my investments in GDX now because it's the only thing I've been buying in the past 6 months.

To clarify, I think this will all end in a deflationary crash and cash/gold will be king. I just think they will not crash it until everyone is screaming about the inflation. I think they will inflate until it no longer serves their purpose. That being said if the FED actually announces a taper I am selling ALL stocks and going to cash/gold. Even if they come back and announce a 2 trillion dollar stimulus in response to the crash Gold should protect me, or if they let the DOW crash 60% or more It'll be a chance to get back in cheaply.

We'll see. It's active management based on what I think is most likely for the FED to do and what the results of their actions should have on the markets. I'm still diversified across two broad asset classes in all scenarios. If I were less confident I would have 1/3 in cash. I have the luxury of not being concerned with volitility since I have no kids and no mortgage and make a lot more than I spend every month, for now.

Very interesting

I'm still looking to keep the PP concept for part of my capital, but with just global stocks and gold. I was wondering if you know any trully global stock index fund, and I also am looking for index data of a global stock index to do some backtests.

My speculative portfolio is bitcoins, mining stocks and gold have lost all it's appeal for me because risk/reward. $2 billion market cap vs $6,000 billion, both same potential to go to market cap of say $20,000 billion. Take your pick.

Also gold and mining gold is history, bitcoin is the future. Money based on gold standard is always based on trust and corrupted sooner or later, bitcoin not unless math fails.

Want to invest in a better world where fiat money problems are finally solved after millenia of problems? Invest in bitcoin. 

[Kshartle]

I keep it rather simple. I own VWO and VEU. I actually have rotated completely out of US Stocks (even though a significant portion of the S&P derives it's revenue from overseas markets). Now US stocks have been the big winner this year so I've lagged behind, even though last year was fantastic for me (I had 1/3 of my investments in a global real estate fund which was up around 25%, 1/3 gold and silver and 1/3 in global stocks. I just think the US consumer is spending borrowed money, even if it's just the government doing the borrowing and sending out the checks. Rising interest rates will squash this and kill the businesses catering primarily to the Americans.

I also own GDX also because I think it's most likely the FED with continue printing and even up the amount of purchases. I expect Gold to break $2,000 within the next few years so the gold miners should have a big reversal. I've purchased at $42, $37, $25, and recently just above $23. Still losing money on these Canadian and Aussie companies for the most part. I probably have 25% of my investments in GDX now because it's the only thing I've been buying in the past 6 months.

To clarify, I think this will all end in a deflationary crash and cash/gold will be king. I just think they will not crash it until everyone is screaming about the inflation. I think they will inflate until it no longer serves their purpose. That being said if the FED actually announces a taper I am selling ALL stocks and going to cash/gold. Even if they come back and announce a 2 trillion dollar stimulus in response to the crash Gold should protect me, or if they let the DOW crash 60% or more It'll be a chance to get back in cheaply.

We'll see. It's active management based on what I think is most likely for the FED to do and what the results of their actions should have on the markets. I'm still diversified across two broad asset classes in all scenarios. If I were less confident I would have 1/3 in cash. I have the luxury of not being concerned with volitility since I have no kids and no mortgage and make a lot more than I spend every month, for now.

Very interesting

I'm still looking to keep the PP concept for part of my capital, but with just global stocks and gold. I was wondering if you know any trully global stock index fund, and I also am looking for index data of a global stock index to do some backtests.

My speculative portfolio is bitcoins, mining stocks and gold are not as favorable at all when it comes to risk/reward. $2 billion market cap vs $6,000 billion, both same potential to go to market cap of say $20,000 billion. Take your pick.

I haven't pulled the trigger on Bitcoins yet. I can't deny they have enormous potential. They've just come out of the blue and I fear that another digital currency or technological leap will render them valueless whereas there is no such risk with gold and silver. I don't worry about governments interferring in the long run. The market will decide if they have value.

It's illegal to buy and sell cocanie also but last time I checked it was highly valuable.

That being said I haven't reserched Bitcoin much and am not technically versed in them.

[Marc De Mesel]

I haven't pulled the trigger on Bitcoins yet. I can't deny they have enormous potential. They've just come out of the blue and I fear that another digital currency or technological leap will render them valueless whereas there is no such risk with gold and silver. I don't worry about governments interferring in the long run. The market will decide if they have value.

It's illegal to buy and sell cocanie also but last time I checked it was highly valuable.

That being said I haven't reserched Bitcoin much and am not technically versed in them.

You get it.

For an altcoin to beat bitcoin it must be not a little better, but a lot, because it must overcome the network effect.

Try to beat facebook or windows. You must be a lot better since the value of the network goes up with the amount of participants.

Even if an altcoin is a lot better and succeeds in being adopted, you will see it coming as the market cap comes closer and closer to bitcoin. You can always decide to buy some of that too as to protect yourself.

Up until now Litecoin succeeded in getting a market cap of 8% of bitcoin, and has fallen back now to 2%. I felt the fear at the time, so I bought some now for insurance. Problem solved.


You can start without much technical knowledge. Just open an account at an exchange and send fiat via bankwire. Sure you coins are not stored offline and can be stolen, but better a gold etf, than no gold at all. Physical gold takes more effort, and so do bitcoins in your own possession. Coinbase.com is popular in US, Bitstamp.net in EU. Always activate google 2 factor authenticator though as otherwise your bitcoins can get stolen.

[Kshartle]

I haven't pulled the trigger on Bitcoins yet. I can't deny they have enormous potential. They've just come out of the blue and I fear that another digital currency or technological leap will render them valueless whereas there is no such risk with gold and silver. I don't worry about governments interferring in the long run. The market will decide if they have value.

It's illegal to buy and sell cocanie also but last time I checked it was highly valuable.

That being said I haven't reserched Bitcoin much and am not technically versed in them.

You get it.

For an altcoin to beat bitcoin it must be not a little better, but a lot, because it must overcome the network effect.

Try to beat facebook or windows. You must be a lot better since the value of the network goes up with the amount of participants.

Even if an altcoin is a lot better and succeeds in being adopted, you will see it coming as the market cap comes closer and closer to bitcoin. You can always decide to buy some of that too as to protect yourself.

Up until now Litecoin succeeded in getting a market cap of 8% of bitcoin, and has fallen back now to 2%. I felt the fear at the time, so I bought some now for insurance. Problem solved.

Yes Litecoin is the closest competitor as far as I've seen. My reservation has to do with the fact that I don't understand the intrinsic value of bitcoins so I don't have confidence they will not go to zero. At this point if they do experience a major sell off I'll probably purchase some. Barring that one of my financial goals for 2014 is to settle my understanding of digital currency and move all my gold safely offshore.

[Marc De Mesel]

I haven't pulled the trigger on Bitcoins yet. I can't deny they have enormous potential. They've just come out of the blue and I fear that another digital currency or technological leap will render them valueless whereas there is no such risk with gold and silver. I don't worry about governments interferring in the long run. The market will decide if they have value.

It's illegal to buy and sell cocanie also but last time I checked it was highly valuable.

That being said I haven't reserched Bitcoin much and am not technically versed in them.

You get it.

For an altcoin to beat bitcoin it must be not a little better, but a lot, because it must overcome the network effect.

Try to beat facebook or windows. You must be a lot better since the value of the network goes up with the amount of participants.

Even if an altcoin is a lot better and succeeds in being adopted, you will see it coming as the market cap comes closer and closer to bitcoin. You can always decide to buy some of that too as to protect yourself.

Up until now Litecoin succeeded in getting a market cap of 8% of bitcoin, and has fallen back now to 2%. I felt the fear at the time, so I bought some now for insurance. Problem solved.

Yes Litecoin is the closest competitor as far as I've seen. My reservation has to do with the fact that I don't understand the intrinsic value of bitcoins so I don't have confidence they will not go to zero. At this point if they do experience a major sell off I'll probably purchase some. Barring that one of my financial goals for 2014 is to settle my understanding of digital currency and move all my gold safely offshore.

The intrinsic value is zero. And so is the intrinsic value of gold zero. Gold is only valuable because people value it. The value is totally based on supply/demand. People value gold because it has a limited supply. And people value bitcoin because it has a limited supply. The supply of gold could suddenly increase dramatically due to discovery but chances are very low as it never happened in the past. Bitcoin it's supply could suddenly increase dramatically due to technical failure but chances are very low as it never happened in the past.

Moving all your gold offshore is not required anymore if you also have a large part of your capital in bitcoin. You can aquire them anonymously, using cash via localbitcoins, store them anonymously, and use them anonymously. If you buy for 5% of your capital bitcoin it will likely be a larger part of your capital by 2014/2015.

Waiting for a buying opportunity in bitcoin is more risky than not owning any. The price can tenfold from here, chance is low, but it certainly is possible. A low chance to make a lot of money justifies a small investment. (Kelly criterium)

[MediumTex]

Marc,

How many times have you changed your investment allocation over the last five years?

How has your personal performance compared to what would have happened if you had simply put your money in the PP and forgotten about it?

Just made a post about my different portfolio switches and average returns here.

I'm sceptical whether you are really curious or just looking for points of attack.

I don't attack people.  After reading my perspectives for years, you should know that.

If I am reading your allocation changes correctly, it looks like you have changed your allocation about once a year for the past five years--i.e., in the PP, out of the PP, in the PP, out of the PP, in the PP, and finally out of the PP into bitcoin.

Also, gold and mining gold is history, bitcoin is the future. Money based on gold standard is always based on trust and corrupted sooner or later, bitcoin not unless math fails.

Want to invest in a better world where fiat money problems are finally solved after millenia of problems? Invest in bitcoin.

[Kshartle]

The intrinsic value is zero. And so is the intrinsic value of gold zero. Gold is only valuable because people value it. The value is totally based on supply/demand. People value gold because it has a limited supply.

Gold has intrinsic properties that people value. We've been through this before. You might have missed the thread, I think it's very instructive on the concept. - Not being condescending but I dissagree with your statement, I think I've proven that gold has intrinsic value but I'm not up for reliving it. That's not proof of anything though. You might enjoy the thread, I think there are some real gems in it. 

Value requires people to make that judgement. Since people exist we don't need to overrule the concept because if people didn't exist there would be nothing to discuss. Anyway I think it's all covered in the thread. I'll try and dig it up - I'd rather not re-argue it.

Tenfold? If it can really take hold I can't even imagine how valuable it might become. What is it currently running at and are there any good charts out there?

[moda0306]

Marc,

Bitcoin is one man's private attempt at a private currency.  Maybe it's a great idea (thought I think it's more of a game of greater-fools), and a great speculative experiment, but to put a ton of confidence in bitcoin, and to have it as a pillar of your investment strategy, is absolutely asinine in my opinion.  Not trying to insult... just be honest.

It's based on NOTHING but the idea of scarcity... before I thought scarcity had to be combined with some real value, even if it was just shiny and a good conducter (gold), but literally bitcoin is built on NOTHING but an algorithm that promises scarcity with ensue.

It also is build on our computer system, and no brick/mortar.  Solar flare?  Say goodbye.  It's got absolutely got NO fundamental roots other than "look, I built a computer program that simulates scarcity.... wanna buy some scarcity?"

Is there a "bit-coin primer" out there that isn't super long but lays out the case effectively for having it as a signficant portion of a portfolio?

I mean I was at the bar the other night and met a couple guys who were SELLING THIS $HIT!?  Selling bitcoin?  It felt like such a scheme.

[Marc De Mesel]

The intrinsic value is zero. And so is the intrinsic value of gold zero. Gold is only valuable because people value it. The value is totally based on supply/demand. People value gold because it has a limited supply.

Gold has intrinsic properties that people value. We've been through this before. You might have missed the thread, I think it's very instructive on the concept. - Not being condescending but I dissagree with your statement, I think I've proven that gold has intrinsic value but I'm not up for reliving it. That's not proof of anything though. You might enjoy the thread, I think there are some real gems in it. 

Value requires people to make that judgement. Since people exist we don't need to overrule the concept because if people didn't exist there would be nothing to discuss. Anyway I think it's all covered in the thread. I'll try and dig it up - I'd rather not re-argue it.

Tenfold? If it can really take hold I can't even imagine how valuable it might become. What is it currently running at and are there any good charts out there?

Fair enough but is this a semantics discussion? I am not interested in that. Whatever your definition of intrinsic value is, if gold has intrinsic value, than bitcoin also, or not?

Agreed that it will go up a lot more then tenfold if it even moderately succeeds. I meant short term. You say you will buy on a correction, short term it can not correct and tenfold from here. I think chances are low, but still 2 in 10. 8 in 10 I estimate you will be able to buy around $100 over the coming months. Currently it stands around $200, close to the all time high but that was already achieved half a year back.

Here you find great charts: http://bitcoincharts.com/charts/bitstam ... 10zm2g25zv

[KevinW]

FWIW:

I have cypherpunk leanings and would very much like a cryptocurrency to succeed. The principles are sound so a secure cryptocurrency should be possible. However I also have an education background sufficient to read cryptography papers and I am unconvinced that Bitcoin can be trusted to work as advertised. There is nothing in the "Satoshi Nakamoto" paper approaching the kind of mathematical proof or scientific evidence accepted within the crypto community to validate security claims.

So I was rather unsurprised by the story about how malicious messages, including links to child porn, were injected surreptitiously into the blockchain that gets automatically redistributed onto every Bitcoin user's computer.
http://money.cnn.com/2013/05/02/technol ... coin-porn/
Bitcoin apologists will downplay this, but since there is no proof or scientific theory that compromises are impossible, and there has already been one example of an embarrassing and potentially dangerous compromise happening, I have to expect that there will be more.

I should check out some of the follow-on currencies like Litecoin, I haven't given any of them a close look yet.

[Kshartle]

The intrinsic value is zero. And so is the intrinsic value of gold zero. Gold is only valuable because people value it. The value is totally based on supply/demand. People value gold because it has a limited supply.

Gold has intrinsic properties that people value. We've been through this before. You might have missed the thread, I think it's very instructive on the concept. - Not being condescending but I dissagree with your statement, I think I've proven that gold has intrinsic value but I'm not up for reliving it. That's not proof of anything though. You might enjoy the thread, I think there are some real gems in it. 

Value requires people to make that judgement. Since people exist we don't need to overrule the concept because if people didn't exist there would be nothing to discuss. Anyway I think it's all covered in the thread. I'll try and dig it up - I'd rather not re-argue it.

Tenfold? If it can really take hold I can't even imagine how valuable it might become. What is it currently running at and are there any good charts out there?

Fair enough but is this a semantics discussion? I am not interested in that. Whatever your definition of intrinsic value is, if gold has intrinsic value, than bitcoin also, or not?

Agreed that it will go up a lot more then tenfold if it even moderately succeeds. I meant short term. You say you will buy on a correction, short term it can not correct and tenfold from here. I think chances are low, but still 2 in 10. 8 in 10 I estimate you will be able to buy around $100 over the coming months. Currently it stands around $200, close to the all time high but that was already achieved half a year back.

Here you find great charts: http://bitcoincharts.com/charts/bitstam ... 10zm2g25zv

Thanks. No at this point I am 100% certain that gold has intrinsic value, always has and always will because humans value it's properties....divisible, uniform, scarce, conducts electricity, shiny etc.

Bitcoin I don't understand yet. It has no utility other than as a medium of exchange, that is, it has no value other than to it's utility value. No one desires it just for it's own sake. It's not an end unto itself. No one wants want it just for what it is, like say, the mona lisa which I used as an example in the other thread.

Yes I don't want to argue semantics......I'm content to leave it where I am at the moment, gold has intrinsic value....bitcoin does not. Dollars don't have intrinsic value....but I want them anyway so that doesn't rule out bitcoin as an investment to me. I just put it in a similar category to dollars because until I learn more about it and the businesses and people using it I fear it can drop to zero value so I haven't risked my wealth buying any yet.

I am too ignorant to buy any at the moment at the current price.

Thanks for the charts.

[Pointedstick]

Kshartle, I think you're right to classify Bitcoins in the same bucket as Dollars. They are both unbacked fiat currencies whose value is only due to its qualities for exchange. In fact, Bitcoins are even more inherently worthless than dollars because they exist only as electronic impulses in a sophisticated digital computer network. At least with Dollars, I can get them in paper form and burn them for fuel should the need ever arise.

[Kshartle]

Kshartle, I think you're right to classify Bitcoins in the same bucket as Dollars. They are both unbacked fiat currencies whose value is only due to its qualities for exchange. In fact, Bitcoins are even more inherently worthless than dollars because they exist only as electronic impulses in a sophisticated digital computer network. At least with Dollars, I can get them in paper form and burn them for fuel should the need ever arise.

Yes or you could roll them up and smoke them with something you bought with your bitcoins.

All that being said I think they have great potential to solve the world's money problems. I just want to learn more before I buy some.

[MediumTex]

I'm trying to figure out why Marc started a thread talking about the merits of a gold and global stock portfolio, but then proceeded to talk about his favorite asset, which involves neither gold nor global stocks, and in the process of describing the basis for his fondness for this asset (bitcoin) he mentions that gold is basically obsolete and has no intrinsic value.

[moda0306]

Kshartle, I think you're right to classify Bitcoins in the same bucket as Dollars. They are both unbacked fiat currencies whose value is only due to its qualities for exchange. In fact, Bitcoins are even more inherently worthless than dollars because they exist only as electronic impulses in a sophisticated digital computer network. At least with Dollars, I can get them in paper form and burn them for fuel should the need ever arise.

And don't forget you can pay the most massive military the world has ever seen not to take you to jail for "tax avoidance."

[KevinW]

A medium of exchange is a useful tool and people value useful tools. Including a medium of exchange that has no application other than as a medium of exchange.

The syntax and lexicon of the English language form a useful tool for the exchange of ideas. "English" has no intrinsic value, though, since you can't burn or eat "English" or turn it into jewelry. Yet, people value English enough to invest time, money, and energy into learning and using it. The value is in what you get by using English, not English itself.

So I don't think it is necessary for an object to have uses aside from currency, for that object to be viable as a form of currency. The value is what you get by using currency (goods and services with low transaction costs), not the currency itself.

[Marc De Mesel]

I'm trying to figure out why Marc started a thread talking about the merits of a gold and global stock portfolio, but then proceeded to talk about his favorite asset, which involves neither gold nor global stocks, and in the process of describing the basis for his fondness for this asset (bitcoin) he mentions that gold is basically obsolete and has no intrinsic value.

The topic diverted, I'm sorry. Please don't put words in my mouth.

I like the idea of a 50/50 global stocks/gold portfolio.

It will likely do better but more volatile. The returns calculated by Gerard show it did not do better in the US since 1972, but that changes quickly in a credit crises such as Iceland and Cyprus where government paper either defaults or loses massive value due to inflation. Since chances are high for this to happen in the US and EU, it seems unwise to me to have bonds and cash as part of your portfolio.

Also note that Gerard used US stocks to backtest, likely global stocks have done better due to emerging markets doing so well the last few decades, so even in the past decades in the US and EU where bonds performed historically strong, a global stocks/gold portfolio performed even better.

I think the pp can be improved in other ways too. From a profit optimization standpoint it is unwise to allocate the same amount of capital to events that have a high and low probability of happening.

The Kelly criterion is a formula that has proven to optimize the returns for the lowest risk possible. In short when you have a 1 chance of 10 to make a profit and 9 chances in 10 to make a loss, it does not make sense to bet 25% of your capital on it. It does make sense to bet 10% on it. And vice versa.

The problem ofcourse is in estimating the probabilities. But for gold for example there is a long history in valuation vs stocks. We have all seen the charts where 1 dow could be bought for only 1 ounce of gold end 1970's, and 20 years later 1 dow costed 40 ounces of gold. Yet it always goes back, today it's again only 10 ounces of gold for 1 dow, and chances are high it will again go to 1 ounce for 1 dow. But there is also a low chance that it reverses already here.

Without trying to predict the future you can objectively say that when 1 dow costs 40 ounces, the stock market is very expensive historically and gold very cheap historically. So chances are high that the next 10 years gold will go up vs stocks. So allocating more capital to gold is rational. And to profit you must let it ride for a while to because as Kshartle proved balancing to harvest volatility is an illusion. But ofcourse you want to balance in order to be better protected so you could create milestones. If the dow does not cost 40 ounces, but only 20 ounces, the historical average again, and you large allocation to gold has now become very large, you sell it all and go to a 50/50 stocks/gold allocation.

Interested in people's feedback.

[MediumTex]

I'm trying to figure out why Marc started a thread talking about the merits of a gold and global stock portfolio, but then proceeded to talk about his favorite asset, which involves neither gold nor global stocks, and in the process of describing the basis for his fondness for this asset (bitcoin) he mentions that gold is basically obsolete and has no intrinsic value.

The topic diverted, I'm sorry. Please don't put words in my mouth.

Okay, how about I put your own words in your mouth:

Also gold and mining gold is history, bitcoin is the future.

Marc, this may just be a matter of you not grasping the nuances of English because it is not your first language, but your abrasive style, ever-changing lines of reasoning and seeming inability to grasp the concept that reasonable people can draw different conclusions about a subjective topic without one being "right" and one being "wrong" are all starting to get on my nerves.

I have worked hard to make this forum a friendly and courteous place.  If you would like to hang around, please tone down the strident and aggressive tone of your posts.  If you feel that this is the only way you can make your points, please move on to another forum.