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Discussion Starter · #501 ·
Munger is only talking about SPACs and a few speculative stock areas like GME too btw.
No, Munger says US stocks are overvalued and calls the market a bubble. So why are you still investing in stocks?

My point is ... many "experts" and personalities have opinions, on all kinds of things. So what? This isn't how to make investment decisions.
 

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No, Munger says US stocks are overvalued and calls the market a bubble. So why are you still investing in stocks?

My point is ... many "experts" and personalities have opinions, on all kinds of things. So what? This isn't how to make investment decisions.
No he is talking about traders on Robinhood and SPACs.

Munger said inexperienced investors are being lured into the market by newer brokerages like Robinhood that offer commission-free trading. Robinhood has defended its practices but critics say some features on its trading platform make investing seem like a game, such as showering a user’s screen with virtual confetti every time they make a trade.

“The frenzy is fed by people who are getting commissions and other revenues out of this new bunch of gamblers,” Munger said.
Munger also took aim at the special purpose acquisition companies, or SPACs, that have exploded in popularity on Wall Street. Last year, the investment vehicles designed to invest in young businesses that don’t yet have shares trading in the public market raised $76 billion from investors, up from $13 billion the year before.

“I think this kind of crazy speculation in enterprises not even found or picked out yet is a sign of an irritating bubble,” Munger said.
There are 100s who say it isn't in a bubble so why do you cite one odd ball opinion?

The pt is the author who designed the half baked allweather portfolio in 1995 you follow now realizes it makes no sense 25 yrs later w the bonds portion after a 20 yr bull run bond bubble.

And is trying to advise people as such.

If even he has no conviction in it anymore, then neither should you. or you could just look at those awful charts which tell you as much.
 

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Discussion Starter · #503 ·
With some cash available to deploy, I bought more gold today (using CGL.C) as required by the asset allocation plan. In the last few months, gold has fallen the most and is relatively underweight in my portfolio.

If anyone is considering starting the Permanent Portfolio, I think the current environment is a good entry due to the attractive prices for bonds & gold. Surely it's better to buy things which are currently out of favour, than chasing stocks and buying them at all time highs?

That's what the Permanent Portfolio lets you do, with its broader diversification in multiple assets.
 

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Its after hours right now so my numbers are not 100% accurate but I think MNT is trading at a discount to NAV.... I wont be sure till markets open next week but just something to watch if you are thinking of buying some at some point.

A few months ago it had a double digit premium.

Ill update next week.....

Things to ponder for sure.

Opportunity knocks once.... temptation always knocks.....
 

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Intrigued by PP. Currently consolidated to 100% in VEQT between RRSPs and TFSAs. Has served me well but being 33% VEQT and 66% principle residence, my net worth feels rather “bubbly” to me at this 2021 moment...
If you woke up in my shoes how would you rebalance into PP? Just “sell one day, but the next” 100% of the VEQT?
 

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Discussion Starter · #506 ·
Intrigued by PP. Currently consolidated to 100% in VEQT between RRSPs and TFSAs. Has served me well but being 33% VEQT and 66% principle residence, my net worth feels rather “bubbly” to me at this 2021 moment...
If you woke up in my shoes how would you rebalance into PP? Just “sell one day, but the next” 100% of the VEQT?
If it was me, I'd start by taking 1/2 or 1/3 of the VEQT position and turning it into a PP mix (with bonds & gold). Keep the "stock" segment of the PP in VEQT.

Then maybe every two months, convert more of VEQT into the PP... that will gradually shift you over.

In the end, you'll still have some VEQT for the stock segment of course.
 

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Discussion Starter · #507 ·
I was reviewing my allocation weights as I try to decide how to invest new money.

At this point, I have to buy bonds, since that part of the portfolio has become the most underweight.

"Buy low" as the saying goes!
 

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I was reviewing my allocation weights as I try to decide how to invest new money.

At this point, I have to buy bonds, since that part of the portfolio has become the most underweight.

"Buy low" as the saying goes!
Does your backtest support "buying low" brings better performance? In history, bonds could drawdown 49% and gold could drawdown 59%. Therefore, buying at -20% could still be kind of buying high? I understand the concept of rebalance but am not sure how to execute this strategy appropriately.
 

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Does your backtest support "buying low" brings better performance? In history, bonds could drawdown 49% and gold could drawdown 59%. Therefore, buying at -20% could still be kind of buying high? I understand the concept of rebalance but am not sure how to execute this strategy appropriately.
I was wondering the same thing. Imagine "buying low" for 20 years. Each year, you buy lower and lower because... well... you are buying low and it's for rebalancing. But actually you just end up buying something which makes you lose money every year.
 

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Agree . Bonds just had a 30 yr bull run as interest rates fell to near zero and rates are now rising. ZAG has already fallen ~ 8% this year and will lose another 8% for every 1% rise in interest rates.

Buying low is still based on future prospects for growth and earnings and bonds offer nether.
 

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I was wondering the same thing. Imagine "buying low" for 20 years. Each year, you buy lower and lower because... well... you are buying low and it's for rebalancing. But actually you just end up buying something which makes you lose money every year.
But if you buy a bond or GIC to rebalance and keep it to maturity, you receive your face value with interest that results in a yield that you calculated when it was purchased. Now maybe that yield does or doesn't keep up with inflation, but the capital protection is still there and presumably the purchase of that bond came from profits of equities that were sold high.

I'm a believer in rebalancing. I guess the only argument I might have is at what limits you set to make the decision as a trigger point.

ltr
 

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Discussion Starter · #512 · (Edited)
Does your backtest support "buying low" brings better performance? In history, bonds could drawdown 49% and gold could drawdown 59%. Therefore, buying at -20% could still be kind of buying high? I understand the concept of rebalance but am not sure how to execute this strategy appropriately.
My own research absolutely supports rebalancing and buying the low, underweight asset. At the same time this is a large behavioural challenge, so this is where the psychology of portfolio management becomes the bigger issue. Not the technique itself, but human psychology and fear of loss.

Bonds at the 10 year maturity mark cannot have a 49% drawdown. The worst in history was more like 12% to 15%, so you might be thinking of long term bonds. As I wrote before, I don't like long term bonds.

There are a couple ways to do this rebalancing. One is explicitly doing some selling and buying (rebalance the portfolio) on an annual basis. The way I'm trying to do it at the moment is by using my new purchases to help rebalance, which means buying the underweight asset.

Think about VBAL, the 60/40 balanced fund. The web site shows they are currently 39.8% in bonds. How do you think that happened, when stocks are very strong and bonds are very weak? Vanguard is buying bonds, and likely is not buying stocks. That's the only way they can end up at 39.8% bonds under current market conditions.

I was wondering the same thing. Imagine "buying low" for 20 years. Each year, you buy lower and lower because... well... you are buying low and it's for rebalancing. But actually you just end up buying something which makes you lose money every year.
Same problem with stocks. How do you think stock investors would feel while buying low during a poor 10 or 15 year stretch in stocks? This is the nature of investing in financial markets. Any of these assets MIGHT do badly for a long time.

You either commit to a rebalancing strategy, or you don't. Both are valid so you just have to figure out your methodology. In my case I have committed to it and I already have experience doing this. I already understand that of the various assets I hold, they won't always all be going up.

Bonds might do very badly for a decade. Stocks might do very badly for a decade. The point of the Permanent Portfolio is that we can't predict the future, so we roll with all this without trying to predict which asset is going to do well.
 

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Discussion Starter · #513 ·
Agree . Bonds just had a 30 yr bull run as interest rates fell to near zero and rates are now rising. ZAG has already fallen ~ 8% this year and will lose another 8% for every 1% rise in interest rates.
Jimmy, this is not how bond funds work. The duration response (the 8% decline per percent yield change) you are thinking of only refers to a short term or immediate change, to a sharp change in interest rates. It is just an estimate for how the price moves in response to say, sudden central bank policy changes.

In more gradual interest rate changes, like movements over several years, the result is much less predictable and not at all like how you write. In fact if interest rates gradually creep up in the coming years, and the yield curve is steep, ZAG may not fall at all.

If interest rates keep rising over the coming years, indeed the bond funds would perform badly for several years (maybe worse than cash), but simultaneously get a boost in their performance due to the higher yields inside their portfolios. In ZAG, over the "long term" meaning 10+ year time frame, the return will be approximately the yield-to-maturity of the portfolio.

In the next 10 years, the return on ZAG will be positive. It will be roughly 1.8% CAGR. Yes, even if interest rates go up.

Of course, if you really think interest rates are going to go up something like 3% in the coming years, you should be much more worried about your stock investments as they would likely get crushed. Stocks have been riding a wave of "free money" and low interest rates ever since 2009.
 

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Discussion Starter · #514 ·
But if you buy a bond or GIC to rebalance and keep it to maturity, you receive your face value with interest that results in a yield that you calculated when it was purchased. Now maybe that yield does or doesn't keep up with inflation, but the capital protection is still there and presumably the purchase of that bond came from profits of equities that were sold high.
Right. This is the detail of the fixed income portfolio (whether it's a GIC ladder or bond fund) that many people don't get. The fixed income portfolio has a guaranteed positive return over time. Every instrument inside the bond fund (VAB for example) has a guaranteed positive return... and so in aggregate, that bond fund will have a guaranteed positive return.

There isn't really any difference between a GIC ladder and the VAB bond fund.

Both hold instruments with guaranteed positive returns. Both roll over and keep reinvesting into new instruments. There is only one difference between these two: the prices on bonds are visible, but are invisible for GICs.

Fact is, VAB offers capital protection and cannot have negative returns over the long term (10+ year time horizon) because everything inside the portfolio has a positive return.

In fact my suggestion is that anyone who feels nervous about a bond fund, or doesn't believe my argument, should simply use a GIC ladder, always buying 5 year GICs of course. For many people this is going to be the easier way to deal with fixed income, because it hides the volatility of bonds.
 

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Bonds at the 10 year maturity mark cannot have a 49% drawdown. The worst in history was more like 12% to 15%, so you might be thinking of long term bonds. As I wrote before, I don't like long term bonds.
Yes, I meant long term bonds. I tend to agree with Harry Browne's original idea of using long term bonds and cash.

I just went ahead and backtested your PP performance with or without annual rebalance. However, I show better CAGR for the non rebalance version. Did I miss anything here?

In my opinion, buying low is also a kind of timing the market because you think it's low now?

21703
 

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Jimmy, this is not how bond funds work. The duration response (the 8% decline per percent yield change) you are thinking of only refers to a short term or immediate change, to a sharp change in interest rates. It is just an estimate for how the price moves in response to say, sudden central bank policy changes.
Yes it is. ZAG is down ~ 8% in price since August. The ytm is ~ 1.5% now. you will be lucky to just beat inflation. This is not a good investment. You can make 7% even in a CDN index fund in comparison.

Fact is, VAB offers capital protection and cannot have negative returns over the long term (10+ year time horizon) because everything inside the portfolio has a positive return.
Not if interest rates rise over 10 yrs. You are young too and should be 80% in equities anyway and investing properly w a goal like you are trying to make $. Not investing in these half baked rhetorical contrarian academic outdated schemes just as some sort of academic exercise . They have had their day in the bond bull run and make no sense now when 1/2 the portfolio in bonds wont even cover inflation. IMO

If you want an academic exercise w rewards study making 20%/yr over 20 yrs w Amazon, Google or other stocks and not quibbling about which bond returns may be lucky enough to just cover inflation.
 

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Discussion Starter · #519 · (Edited)
I just went ahead and backtested your PP performance with or without annual rebalance. However, I show better CAGR for the non rebalance version. Did I miss anything here?
Indeed a topic of debate with some friends of mine. Rebalancing helps with risk control, but maybe not performance. If you look at those two results you will see the superior Sortino ratio (a good measure of risk adjusted return) and less declines in the rebalanced one -- as we'd expect.

So from a risk adjusted return perspective (a smoother ride), rebalancing helps. This is why rebalancing is advised on 60/40 funds as well, and why Vanguard is clearly rebalancing VBAL.

On the other hand, try the longest time frame back-test you can find, at this link. Here you will see
  • With rebalancing: 9.09% CAGR, max drawdown -14.34%, Sortino ratio 0.91 <-- dramatically better!
  • No rebalancing: 8.77% CAGR, max drawdown -39.42%, Sortino ratio 0.62
This longer time series, where both stocks and gold were extremely volatile, shows a significant improvement with annual rebalancing. Both in performance and in risk simultaneously, resulting in a far superior Sortino ratio (risk adjusted return).

Here's my own logic. Both your shorter time frame result, and this longer time frame result, shows SUPERIOR STABILITY when there's annual rebalancing. In particular, there's a huge improvement in max drawdown, and that means a lot to me. So I think annual rebalancing is the smartest strategy.
 
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