Gyroscopic Investing

Not trying to beat a dead horse here but I'm curious to hear what others are doing with the equity portion of either of these portfolios.

Much discussion in earlier threads of what Harry Browne meant by "growth" stocks and how to translate that to today's tech-dominated environment.

I note that for 2020 we have TSM at +20.87%, SCV (@ the GB) at 5.72% and - for the sake of including a FAANG-driven growth option - QQQ at 48.62%. And of course essentially all of the positive return of TSM was driven by the FAANG stocks, with the rest of its holdings counting towards "diworsification" by dragging down returns.

In the case of the GB I totally get the argument for SCV perfectly complimenting TSM's lack of size and value diversification, but in terms of returns - over the past 20 years and going forward - to what end?

As for the PP, why wouldn't one replace some or even most of TSM with QQQ or the like?

Kevin K. wrote: ↑Sun Jan 17, 2021 10:20 am Not trying to beat a dead horse here but I'm curious to hear what others are doing with the equity portion of either of these portfolios.

Much discussion in earlier threads of what Harry Browne meant by "growth" stocks and how to translate that to today's tech-dominated environment.

I note that for 2020 we have TSM at +20.87%, SCV (@ the GB) at 5.72% and - for the sake of including a FAANG-driven growth option - QQQ at 48.62%. And of course essentially all of the positive return of TSM was driven by the FAANG stocks, with the rest of its holdings counting towards "diworsification" by dragging down returns.

In the case of the GB I totally get the argument for SCV perfectly complimenting TSM's lack of size and value diversification, but in terms of returns - over the past 20 years and going forward - to what end?

As for the PP, why wouldn't one replace some or even most of TSM with QQQ or the like?

See the dotcom bubble burst in 2000 for your answer.

Not exactly a comparable situation since growth has been trouncing value for 18 years now - and Browne himself recommended growth stocks.

It's gotten to the point where I'm indifferent to what Browne really meant by "growth" stocks.

Heck, just buy TSM. Good enough. And certainly not worth arguing over IMHO.

Smith1776 wrote: ↑Sun Jan 17, 2021 7:07 pm
It's gotten to the point where I'm indifferent to what Browne really meant by "growth" stocks.

Heck, just buy TSM. Good enough. And certainly not worth arguing over IMHO.

Thank you for that!

Smith1776 wrote: ↑Sun Jan 17, 2021 7:07 pm It's gotten to the point where I'm indifferent to what Browne really meant by "growth" stocks.

Heck, just buy TSM. Good enough. And certainly not worth arguing over IMHO.

Maybe or maybe not. Over the last 10 years VONG (Russell 1000 Growth ETF) has outperformed TSM by over 3% a year. $10,000 invested 10 years ago would be $48k for Growth vs $36k for TSM. It may or may not continue but it is certainly not small potatoes to consider which indexes to choose.

I feel like if stocks are in the PP for times of economic growth then you would want growth stocks to capitalize on that. If we were in a time when utilities or consumer staples were leading the market then another part of the PP would probably be pulling the weight of the portfolio.

As a correction of some of what I said in my initial post - and a nod to Tyler's savvy in dividing the equity portion of the GB into TSM and SCV - here's a comparison of TSM and SCV over the past 20 years (one of my favorite time frames to use for backtesting since it captures both the dot.com boom/bust and the GFC):

https://www.portfoliovisualizer.com/bac ... ion2_2=100

As Larry Swedroe pointed out in an excellent recent interview on Morningstar's "The Long View" podcast pretty much all of the woeful SC and SCV underperformance vs. growth has been since 2016. In going with all TSM one is essentially placing a massive bet on the FAANG stocks continuing to drive market returns going forward. I like Tyler's TSM/SCV split, or perhaps an even three-way split between those two and international. And now that DFA ETF's are a thing one can invest in value in an even more sophisticated way. YMMV - and I appreciate the simplicity of the original PP of course.

jalanlong wrote: ↑Mon Jan 18, 2021 12:42 pm

Smith1776 wrote: ↑Sun Jan 17, 2021 7:07 pm It's gotten to the point where I'm indifferent to what Browne really meant by "growth" stocks.

Heck, just buy TSM. Good enough. And certainly not worth arguing over IMHO.

Maybe or maybe not. Over the last 10 years VONG (Russell 1000 Growth ETF) has outperformed TSM by over 3% a year. $10,000 invested 10 years ago would be $48k for Growth vs $36k for TSM. It may or may not continue but it is certainly not small potatoes to consider which indexes to choose.

I feel like if stocks are in the PP for times of economic growth then you would want growth stocks to capitalize on that. If we were in a time when utilities or consumer staples were leading the market then another part of the PP would probably be pulling the weight of the portfolio.

10 years is just statistical noise. I personally wouldn't pay any attention to it. Market beta was negative for the 13 year period of 2000 - 2012, but that didn't invalidate the prudence of investing in stocks over bonds.

It seems Browne by the end of his life simply defaulted to recommending a market cap weighted fund. I'm perfectly fine with that.

We've been around this rodeo before. What does one mean by "growth" stocks? If you follow the academic definition of growth but you are following Browne's philosophy you would actually want value stocks. Browne said to invest in stocks that benefit disproportionately when the economy is experiencing prosperity. That's precisely what value stocks are because value companies are subject to distress/bankruptcy risk. Growth companies (again, using the academic definition of growth) do not benefit disproportionately from economic prosperity because they tend to be companies that are already profitable to begin with. That's why they sell at higher multiples.

However, looking at the Permanent Portfolio Family of Funds website, it looks like management defines growth stocks as stocks that are projected to have above average appreciation potential in terms of underlying fundamentals. Earnings, revenue, dividends, market share, etc. Okay, so that actually does dovetail with the academic definition of growth. However, it is completely at odds with Browne's writings and philosophy that the stock portion should benefit disproportionately from prosperity (as mentioned previously). The academic evidence is very clear that value stocks benefit more from turns to prosperity more than growth stocks do. Value companies go from being barely profitable to hugely profitable from small increases in revenue thanks to the effects of operating leverage.

It looks to me that it's Browne himself that really got his underlying economics mixed up.

I want stocks that dont pay a dividend. use that $ to expand.

boglerdude wrote: ↑Mon Jan 18, 2021 9:23 pm
I want stocks that dont pay a dividend. use that $ to expand.

Sometimes that drives the company owners to make bad or marginal investments. In those times it is the right thing to return the excess in the form of dividends.

Or preferably buybacks. But then, I want out and into a growing company. Too much work to make those call tho, so I hold total market

Dividends are not a factor. As such, most people are aware that there is no good reason to prefer dividend paying stocks.

However, there's no particularly good reason to avoid dividend paying stocks either. If there were, then ironically dividends actually would be a factor.

vnatale wrote: ↑Mon Jan 18, 2021 9:35 pm

boglerdude wrote: ↑Mon Jan 18, 2021 9:23 pm I want stocks that dont pay a dividend. use that $ to expand.

Sometimes that drives the company owners to make bad or marginal investments. In those times it is the right thing to return the excess in the form of dividends.

That is a fallacy , dividend payers have made some of the worst blunders with investor money ..that is more myth then reality


case in point .

AT&T paid $100 billion to enter the cable business

AT&T thought it would be a good idea to diversify by paying $100 billion to take on cable company TCI. It was wrong! AT&T broke itself up a few years later and sold off the cable assets.

AT&T tried to elbow its way into the personal computer business with a hostile $7 billion takeover of NCR. It didn't work, and AT&T later spun the company back out at a $4 billion valuation.

Microsoft paid an estimated $500 million for mobile phone company Danger. It was supposed to be working on new phones for Microsoft, but most of the key employees left the company. The end result of the acquisition was the Kin, a social smartphone from Microsoft that totally bombed.

Cisco probably bought Pure Digital, the company that makes the Flip, right at the peak of its value in 2009. Since then high definition video cameras have been built into just about every smartphone making the Flip pretty much worthless in the long run. Which is probably why Cisco killed the $590 million acquisition earlier this year.

After Google bought DoubleClick, Microsoft tried to keep up by buying ad company aQuantive for $6 billion. The acquisition never really worked out. The aQuantive executives left two years after the deal closed and the technology was discarded.
..
AOL-Time Warner is obviously the worst

i can go on and on

mathjak107 wrote: ↑Wed Jan 20, 2021 12:22 pm

vnatale wrote: ↑Mon Jan 18, 2021 9:35 pm

boglerdude wrote: ↑Mon Jan 18, 2021 9:23 pm
I want stocks that dont pay a dividend. use that $ to expand.

Sometimes that drives the company owners to make bad or marginal investments. In those times it is the right thing to return the excess in the form of dividends.

That is a fallacy , dividend payers have made some of the worst blunders with investor money ..that is more myth then reality


case in point .

AT&T paid $100 billion to enter the cable business

AT&T thought it would be a good idea to diversify by paying $100 billion to take on cable company TCI. It was wrong! AT&T broke itself up a few years later and sold off the cable assets.

AT&T tried to elbow its way into the personal computer business with a hostile $7 billion takeover of NCR. It didn't work, and AT&T later spun the company back out at a $4 billion valuation.

Microsoft paid an estimated $500 million for mobile phone company Danger. It was supposed to be working on new phones for Microsoft, but most of the key employees left the company. The end result of the acquisition was the Kin, a social smartphone from Microsoft that totally bombed.

Cisco probably bought Pure Digital, the company that makes the Flip, right at the peak of its value in 2009. Since then high definition video cameras have been built into just about every smartphone making the Flip pretty much worthless in the long run. Which is probably why Cisco killed the $590 million acquisition earlier this year.

After Google bought DoubleClick, Microsoft tried to keep up by buying ad company aQuantive for $6 billion. The acquisition never really worked out. The aQuantive executives left two years after the deal closed and the technology was discarded.
..
AOL-Time Warner is obviously the worst

i can go on and on

I think you are stating what bogledude stated is a fallacy as all what you wrote seemed to support my response?