Gyroscopic Investing

Thanks stuper1 and goodasgold for your comments. If the PP doesn't hedge equity declines, then perhaps I have selected the inappropriate investment for me. Personally, I want to participate in times of prosperity and am willing to re-balance when equities fall. I am tired of rooting for the S&P 500 to drop in the hopes that gold and treasuries can advance and return the overall portfolio to positive.

buddtholomew wrote: I have been invested in the PP since 2011. I would feel more comfortable having 45% in equities and IT-Treasuries with only 10% allocated to Gold. I dont envision having the intestinal fortitude to rebalance into either Gold or LTTs when the need arises. Investing in equities after the 2008 decline was difficult, but I followed through with the plan.

It looks as though I am more comfortable with a bullet FI strategy than a barbell one and not comfortable at all having 25% allocated to precious metals.

I started about 2010 with a very short investment horizon.

I think you could probably write the same sentences above and make random substitutions with the words Gold, LTT, and equities and it would fit perfectly somewhere else in the history of the PP besides today.

I chose the PP because I wanted an all-weather portfolio that stood the test of time. I figured I had to be prepared if the bad weather came sooner than expected. The gold meltdown this year was a pretty good test, I think, despite what you have concluded about precious metals.

Sometimes "abandon ship" is the only sensible option but I'm not any where near that.

Again, what are the better alternatives that don't have either:
1. Worse performance over time, or
2. Bigger drawdowns?

I don't know of any, and I'm not even a PP investor.

The best investment you can have is a good nights sleep.

If you start loosing sleep, its a sure sign that you are doing something wrong.

That said, it may be that you will loose sleep whatever your investment does, be sure to know the cause before making changes that you might regret.

That said. If you change your investment how do you know when to change the investment yet again?
If you wait until you start loosing sleep again, it's probably too late. You then end up doing what so many people do: jump in near the top, sell shortly before or after the bottom.

The PP was designed to help you avoid that.

This however does not mean that you should accept sleep deprivation. But instead of changing your investment allocation it's probably better to simply go to cash.

Cash is not without risk or opportunity costs, but most people can handle invisible losses better than visible ones.

Budd instead of looking at your portfolio every day and waste time posting your emotions here, just learn how to invest. There are plenty of books out there. You just have to forget about EMH and mostly everything you have learnt in this forum. There is no free lunch in the market, and the PP is not guaranteed to function in the future. Only because something has worked 40 years, doesn`t mean it will work in the future. Mastering investing is not possible without a raw understanding of when something is cheap or expensive.

So tell me, is the S&P 500, Gold or LTT cheap? Also, posting my emotions on this forum is both therapeutic and conforting to others who may experience similar anxiety with our investments.

buddtholomew wrote: So tell me, is the S&P 500, Gold or LTT cheap? Also, posting my emotions on this forum is both therapeutic and conforting to others who may experience similar anxiety with our investments.

I won`t tell you, you have to do the homework for yourself, anything else doesn`t help.
But one hint, the PP is a totally top-down approach. I only do bottom-up now and feel much better. Valueing the S&P as one piece is not what i would do.

buddtholomew wrote: So tell me, is the S&P 500, Gold or LTT cheap? Also, posting my emotions on this forum is both therapeutic and conforting to others who may experience similar anxiety with our investments.

To chip in on the conversation, an appreciation on valuations can be useful.  As commented on Bogleheads, one of my favourite conservative fund directors said recently:-

Equities may look cheap compared
to conventional bonds, but conven-
tional bonds are so overpriced that
the comparison is meaningless at
best and dangerous at worst. We
can find no compelling reasons to
take a positive view on stocks

Unquote

Contrary to the above, my personal view looking at the valuations is that of the four asset classes only stocks have not yet been blown up to totally unrealistic prices by QE.  Yes stocks are well above 2008/9 but with hindsight that was a golden opportunity.  Earnings and dividends have moved on since the last peak.

For the cautious IBonds and the non-PP TIPS provide a refuge for those not wishing to commit too much to stocks.

Just my thoughts.

All best

frommi wrote:

buddtholomew wrote: So tell me, is the S&P 500, Gold or LTT cheap? Also, posting my emotions on this forum is both therapeutic and conforting to others who may experience similar anxiety with our investments.

I won`t tell you, you have to do the homework for yourself, anything else doesn`t help.
But one hint, the PP is a totally top-down approach. I only do bottom-up now and feel much better. Valueing the S&P as one piece is not what i would do.

I don't believe in market timing and my question above was rhetorical. Do you really believe I would accept your opinion and act accordingly? Do yourself a favor and look up active management and dynamic asset allocation. Perhaps you are the one who should educate yourself on investing.

Seems easy enough to unwind your portfolio Budd. I'm sure you have losses in treasuries and gold, so sell those and harvest the losses. Keep your stock and fill in the blanks. You can do 10% in precious metals with a closed end fund like CEF and harvest all of the gold losses. Or just keep 10% of your gold.

45/45/10 is a great portfolio. It'll be more volatile for sure but you'd still probably be more diversified than most mom and pop investors.

buddtholomew wrote: I don't believe in market timing and my question above was rhetorical. Do you really believe I would accept your opinion and act accordingly? Do yourself a favor and look up active management and dynamic asset allocation. Perhaps you are the one who should educate yourself on investing.

It has nothing to do with market timing. Do you buy stuff in the supermarket when its too expensive?
Its somethings that works since humans trade. Its buy low sell high, or value investing or whatever name you give it.
Dynamic asset allocation has nothing to do with it, and active fund management can work, but the fees would normally eat the excess returns. Doing it yourself can earn the excess returns without fees and whithout the hassle of customers and their money in and outflows.

All i say is that EMH is bullshit, and that is the basis of the PP and other Asset Allocation strategies. But just believe what everybody is believing, because you will than get what everybody gets.

frommi wrote:

buddtholomew wrote: I don't believe in market timing and my question above was rhetorical. Do you really believe I would accept your opinion and act accordingly? Do yourself a favor and look up active management and dynamic asset allocation. Perhaps you are the one who should educate yourself on investing.

It has nothing to do with market timing. Do you buy stuff in the supermarket when its too expensive?
Its somethings that works since humans trade. Its buy low sell high, or value investing or whatever name you give it.
Dynamic asset allocation has nothing to do with it, and active fund management can work, but the fees would normally eat the excess returns. Doing it yourself can earn the excess returns without fees and whithout the hassle of customers and their money in and outflows.

All i say is that EMH is bullshit, and that is the basis of the PP and other Asset Allocation strategies. But just believe what everybody is believing, because you will than get what everybody gets.

This is a joke, right? Why even frequent this board if there is no chance that you will ascribe to the philosophy. You, sir are the ine that is waisting your time. You sound young and naive, I was that way before I made my first million.

I empathize, budd.  I don't think I will re-balance fully into LTTs and gold when the time comes.  I like the PP concept, but the tracking error against the SP has been eating at me for the last year.

My plan is to re-balance only enough to get the allocation to one I deem reasonable, but slightly biased toward equity.  I think of it as betting the VP on stocks.  Enough to reduce the tracking error, but not enough to kill me if the stocks bull market reverses.  Maybe you could do something similar.

buddtholomew wrote: This is a joke, right? Why even frequent this board if there is no chance that you will ascribe to the philosophy. You, sir are the ine that is waisting your time. You sound young and naive, I was that way before I made my first million.

Gz for making that million. I studied the PP for around 2-3 month before i invested in it (I read craigs resources, nearly all posts in the forum etc.). That was 12 months ago. At the point of investing into the PP i thought that everybody in this forum was wise and with much more knowledge than most people in the net, myself included. So i invested nearly 10 years of saving into the PP and added new funds for 5 months. But than the gold plunge came and i couldn`t really buy more of it, because i had added month after month to gold.

I read many books about investing since then ( i think around 15 ) and came to the conclusion that the PP doesn`t fit my investing style, and that there is something that works regardless how many people do it or if the market tanks or not.

But you are right, i am wasting my time in here, i should delete my bookmark. 

frommi wrote:

buddtholomew wrote: This is a joke, right? Why even frequent this board if there is no chance that you will ascribe to the philosophy. You, sir are the ine that is waisting your time. You sound young and naive, I was that way before I made my first million.

Gz for making that million. I studied the PP for around 2-3 month before i invested in it (I read craigs resources, nearly all posts in the forum etc.). That was 12 months ago. At the point of investing into the PP i thought that everybody in this forum was wise and with much more knowledge than most people in the net, myself included. So i invested nearly 10 years of saving into the PP and added new funds for 5 months. But than the gold plunge came and i couldn`t really buy more of it, because i had added month after month to gold.

I read many books about investing since then ( i think around 15 ) and came to the conclusion that the PP doesn`t fit my investing style, and that there is something that works regardless how many people do it or if the market tanks or not.

But you are right, i am wasting my time in here, i should delete my bookmark. 

Don't keep us in suspense: what is this "something"?

Libertarian666 wrote:

frommi wrote:

buddtholomew wrote: This is a joke, right? Why even frequent this board if there is no chance that you will ascribe to the philosophy. You, sir are the ine that is waisting your time. You sound young and naive, I was that way before I made my first million.

Gz for making that million. I studied the PP for around 2-3 month before i invested in it (I read craigs resources, nearly all posts in the forum etc.). That was 12 months ago. At the point of investing into the PP i thought that everybody in this forum was wise and with much more knowledge than most people in the net, myself included. So i invested nearly 10 years of saving into the PP and added new funds for 5 months. But than the gold plunge came and i couldn`t really buy more of it, because i had added month after month to gold.

I read many books about investing since then ( i think around 15 ) and came to the conclusion that the PP doesn`t fit my investing style, and that there is something that works regardless how many people do it or if the market tanks or not.

But you are right, i am wasting my time in here, i should delete my bookmark. 

Don't keep us in suspense: what is this "something"?

Maybe it's MONEY STRATEGIES USING SOMETHING GUARANTEED SAFE, by Harry S. Dent.

Best of luck to Frommi if we don't see him again. It does take some balls to come here and preach against the choir (or maybe not, it's only the internet and nobody knows who you really are except maybe the NSA).

If I'm not mistaken (but very well could be because I didn't double-check), I think frommi likes value investing.

Well, I just rebalanced into Gold & LTT from Cash & Stocks, so maybe that set the turning point

Thanks for taking one for the team, Gerard!

Thank you sir, may I have another? 

I believe that frommi is an adherent of the ideas promoted by Rob Bennet, based on the language he uses (e.g.: "Do you buy stuff in the supermarket when its too expensive?").  This is sometimes called "value-informed investing".

Is that correct, frommi?

You can learn more about this here:
http://www.passionsaving.com/
and here:
http://www.passionsaving.com/stock-valuation.html

There is an interesting discussion in the comment section here involving Harry Browne's PP(the post's OK, too):
http://arichlife.passionsaving.com/2008 ... /#comments

I personally find Bennet's ideas interesting, and would enjoy a discussion of them.  It's basically: stocks are too expensive right now (based on a rolling 10-year average of P/E).  So, most likely, returns will be bad (2.21%, currently).  So don't buy them.

frommi wrote: It has nothing to do with market timing. Do you buy stuff in the supermarket when its too expensive?
Its somethings that works since humans trade. Its buy low sell high, or value investing or whatever name you give it.
Dynamic asset allocation has nothing to do with it, and active fund management can work, but the fees would normally eat the excess returns. Doing it yourself can earn the excess returns without fees and whithout the hassle of customers and their money in and outflows.

All i say is that EMH is bullshit, and that is the basis of the PP and other Asset Allocation strategies. But just believe what everybody is believing, because you will than get what everybody gets.

But there is some truth to EMH, clearly.  Everything is priced by what, frommi?  Supply and demand.  The stock market is no exception.  If demand for coconuts goes up, the price will go up.  The P/D10 ratio -- price to coconutty deliciousness, averaged out over 10 years -- will then make coconuts look wildly overpriced.  Ahh, just temporary fluctuation, you say.  Emotional irrationality.  Well then, in ten years will the price have come down again?  In twenty?  Do you know that for sure?  If so, how?  What if The Coconut Diet has become a new cultural mainstay and everybody just really, really loves coconuts?

EMH is not perfect. Bubbles can and do form. Mis-pricing can happen. Etc.

But it's much more right than wrong. And when you are investing that's the most you can expect because it's not a science.

Sure value investing is fine and I think most people think they get it. But you know I always found it funny that one person will assess that something is a good value, and another person will make an equally compelling case that the same item is not a good value. They can argue this minor amount of information until both are blue in the face and not convince each other.

At that intersection of disagreement, the EMH investor is sitting and waiting patiently. The markets work out the details as more people come down on one side of the argument over another and eventually that EMH/Passive investor is going to be rebalancing away from the popular opinion into the unpopular one. They manage to harvest good profits, and move into assets that are "undervalued" without wasting any time paying attention to a bunch of noise in the markets.

If anyone doesn't believe the above, then read some value investing forums/articles you will see people debating with each other over these value points. They don't agree.

Heck, even the P/E guys only look at 1/2 of the equation many times. They may see a low P/E and assume it's a good value. But there could be perfectly good reasons why the market priced it that way. P/E is great if earnings are going up and you catch it at the right time. But you know sometimes earnings go down and stay down.

The markets are much smarter about a great many things than I think people give credit. It's basically full of value investors looking for an edge. Seeing how Wall St. trading desks operated many years ago taught me that it's a pretty bad bet to go up against those guys. They have access to information and resources that the average investor doing analysis on a spreadsheet at home can't imagine. And even with all that information, Wall St. traders frequently get burned by bad calls.

Passive investing is simply the winning strategy. There is no other conclusion to reach when you look at the mountains of data available in the literature.

I definitely agree with craigr when it comes to the insiders having tools that we don't. I'll never forget watching a guy named Dick Bove, a respected hedge fund trader, state on CNBC in 2008 that the stock market was ready for a crash....just before it did. He is a seasoned investor and not someone who would seem to favor hyperbole. Bove said it with a pained look and with conviction. The crash began within days of his call.

Individual investors are not going out-trade Wall Street at their own game. If it does happen, it's luck. Here is the UBS trading floor below. Does anyone really want to go head-to-head with those guys on trades? I don't.



http://www.wallstreetandtech.com/photos ... loors/ubs/

From the above:

"With 1,400 seats, 2,000 computers and 5,000 monitors, the UBS trading floor is noted by the Guinness Book of World Records as the largest single trading floor in the world. The floor is home to traders, sales traders, quants, technology support, executives and others among its various groups, which include fixed income, commodities, currencies, money markets, derivatives, equities, international trading, algorithmic trading, direct market access, program trading and more."

craigr wrote: [mod CraigR: I put in my edits to my original post] Individual investors are not going out-trade Wall Street at their own game. If it does happen, it's luck. Here is the UBS trading floor below. Does anyone really want to go head-to-head with those guys on trades? I don't.



http://www.wallstreetandtech.com/photos ... loors/ubs/

From the above:

"With 1,400 seats, 2,000 computers and 5,000 monitors, the UBS trading floor is noted by the Guinness Book of World Records as the largest single trading floor in the world. The floor is home to traders, sales traders, quants, technology support, executives and others among its various groups, which include fixed income, commodities, currencies, money markets, derivatives, equities, international trading, algorithmic trading, direct market access, program trading and more."

And yet they still managed to endanger their bank as well as the entire financial system of Switzerland, and maybe the world.