Why diversification is not a viable strategy?

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pward
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Re: Why diversification is not a viable strategy?

Post by pward » Fri Mar 15, 2019 9:06 am

gmaynardkrebs wrote:
Fri Mar 15, 2019 8:56 am
KlangFool wrote:
Fri Mar 15, 2019 8:08 am
gmaynardkrebs wrote:
Thu Mar 14, 2019 9:57 pm

If I thought hyper-inflatio was a threat, I'd own gold or possibly silver. For garden variety above-average inflation, TIPS would seem to be a much better choice.
gmaynardkrebs,

You believe that hyperinflation is not possible. So, you do not own any gold. I know that I know nothing. As a result, I am prepared for hyperinflation by owning a few thousand in gold.

KlangFool
I would say virtually impossible. However, as it happens, I do have a few thousand in junk silver (pre-1965 halves quarters, and dimes) which I bought in the 1980s. Gold doesn't make sense to me for practical reasons. Buying a loaf of bread or a dozen eggs with a gold bar, a gold Eagle or even a 1/10 Eagle would be hard. The denominations are too large IMO. Some friends of mine buy the really slim gold "wafers" for that reason, but I could see those being rejected by some sellers. So while I think it is borderline nutty to protect yourself against hyperinflation in the USA, I still have my coins, so I must be borderline nutty still. :D
Improbable, yes. Impossible, no. Most developed country hyper-inflations (i.e. Weimar Germany) come as a result of losing a war and owing substantial amounts of reparations in foreign currency. It's something that could happen to the U.S. Unlikely, sure. But not impossible. Also, if we were to lose world reserve currency status, it could generate very high inflation though massive foreign selling of the dollar. It think this is much more likely, and is inevitable to happen at some point in time (whether that's in our lifetimes or not, who knows?). But even a brief run of the mill spike up to 5%+ inflation would be very painful for our country that has grown all too comfortable with non-existent inflation. I think that just that small jump in inflation would cause a lot of people to panic and send the price of gold way up.

That being said, in a hyper-inflation people don't always pay directly for things with gold or silver. They generally exchange some gold for the failing currency (or, if available, foreign currency), then spend that money on the goods they need ASAP before it loses too much value. I've posted this earlier in the thread, but this is a free pdf from Ray Dalio on debt crisis. They have a case study on Weimar Germany that is absolutely fascinating. To think that the amount of currency it took to buy a loaf of bread in 1923 was more than the entire amount of currency that existed 10 years earlier in 1913 is simply astounding. It just doesn't seem possible, especially in a developed country. It's definitely worth a read: https://www.bridgewater.com/big-debt-crises/
Last edited by pward on Fri Mar 15, 2019 9:15 am, edited 3 times in total.

Topic Author
KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Fri Mar 15, 2019 9:10 am

Vulcan wrote:
Fri Mar 15, 2019 9:00 am
KlangFool wrote:
Fri Mar 15, 2019 8:08 am
You believe that hyperinflation is not possible. So, you do not own any gold. I know that I know nothing. As a result, I am prepared for hyperinflation by owning a few thousand in gold.
What percent of your overall net worth is physical gold holdings?
Is it enough to provide meaningful protection?
Vulcan,

It is enough to get my family out to a safer location. That is the goal. My extra safety net is my extended family all over the world.

KlangFool

Jags4186
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Re: Why diversification is not a viable strategy?

Post by Jags4186 » Fri Mar 15, 2019 9:28 am

pward wrote:
Fri Mar 15, 2019 9:00 am
Jags4186 wrote:
Fri Mar 15, 2019 3:18 am
Countries hold gold because it is tradition and almost universally across all cultures gold has been desired.
It is not just a tradition. If gold were just a tradition why would central banks be buying massive quantities of gold in recent years, at a faster rate than they have since the 1970s (https://www.bloomberg.com/news/articles ... in-decades)? They could instead use that money for social programs, to stimulate their economy, to pay their debts, to build their military power... but instead they are choosing to buy and hold gold. Now you have to ask yourself why they would do that? I can tell you, they certainly wouldn't do that for "tradition". What country has been the most active gold buyer? Not surprisingly, China. Now ask yourself why?

That being said, I do want to make a few points of clarification. I'm not a "gold bug" and I don't see the end of the world coming in my lifetime. I'm not predicting disaster or anything like that. My main point in the post that spurred this whole thing is that it is a great way to diversify a stock and bond portfolio a'la MPT. It sounds like we are in agreement on that aspect at least. The point of contention that got pulled off in a tangent was stated more as a side benefit to the first one, my belief that if we should ever enter a period of high inflation (which I think is more probable than people assume) that holding physical gold would be the best way to store value. I also stated that one could "exchange" that gold for goods one way or another; whether that's a direct trade or through exchanging it for currency and using the currency to purchase goods matters little and the play on words has grown tiring. Moreover, in that high inflation environment gold wouldn't just store value, it would shoot through the roof and generate substantial profits, all at a time when stock would be getting hammered and bonds would be made about worthless. This has been proven throughout history, and in different locales, and even in the modern age. I do believe that a 15-25% allocation to hard assets (gold being the most volatile in inflation, but other commodities, while not as powerful in an inflation, would still do the trick) is a smart way to defend a stock and bond portfolio against inflation.
I’m not arguing that gold isn’t valuable or over very long periods of time maintains its purchasing power. I’m saying it is not money. Countries buy gold because countries have always held gold—it’s a relic of the past. If you already have a system where you hold gold reserves and it is universally desired for its value then there would be no reason to throw it out the window and start hoarding staplers or fishhooks. It is a form of reserve.

It is not a means of exchange, it is not a unit of account. It is a store if value.

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KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Fri Mar 15, 2019 9:29 am

gmaynardkrebs wrote:
Fri Mar 15, 2019 8:56 am
KlangFool wrote:
Fri Mar 15, 2019 8:08 am
gmaynardkrebs wrote:
Thu Mar 14, 2019 9:57 pm

If I thought hyper-inflatio was a threat, I'd own gold or possibly silver. For garden variety above-average inflation, TIPS would seem to be a much better choice.
gmaynardkrebs,

You believe that hyperinflation is not possible. So, you do not own any gold. I know that I know nothing. As a result, I am prepared for hyperinflation by owning a few thousand in gold.

KlangFool
I would say virtually impossible. However, as it happens, I do have a few thousand in junk silver (pre-1965 halves quarters, and dimes) which I bought in the 1980s. Gold doesn't make sense to me for practical reasons. Buying a loaf of bread or a dozen eggs with a gold bar, a gold Eagle or even a 1/10 Eagle would be hard. The denominations are too large IMO. Some friends of mine buy the really slim gold "wafers" for that reason, but I could see those being rejected by some sellers. So while I think it is borderline nutty to protect yourself against hyperinflation in the USA, I still have my coins, so I must be borderline nutty still. :D
gmaynardkrebs,

<<I do have a few thousand in junk silver (pre-1965 halves quarters, and dimes) >>

Silver = $15 per ounce. $1,500 worth of Silver = 100 ounces = 6.25 pounds. How feasible is it to carry that much weight around?

Gold = $1,300 per ounce.

<<Gold doesn't make sense to me for practical reasons. Buying a loaf of bread or a dozen eggs with a gold bar, a gold Eagle or even a 1/10 Eagle would be hard.>>

If you read the book that I provided, you will get the point of buying Gold Jewelry makes a lot more sense for this reason.

<<Some friends of mine buy the really slim gold "wafers" for that reason, but I could see those being rejected by some sellers.>>

1) That is why you buy Asian Gold Jewelry. They are certified by the goldsmith. The Asian gold jewelry had been around for 10,000 years.

2) Your friend should buy gold chains instead of wafers.

https://medium.com/@roysebag/the-gold-j ... e16fb63522

<<So while I think it is borderline nutty to protect yourself against hyperinflation in the USA, I still have my coins, so I must be borderline nutty still.>>

The modern USA had been around for at most 500 years. My family goes back at least 2,000+ years.

KlangFool
Last edited by KlangFool on Fri Mar 15, 2019 9:34 am, edited 3 times in total.

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KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Fri Mar 15, 2019 9:30 am

Jags4186 wrote:
Fri Mar 15, 2019 9:28 am

I’m not arguing that gold isn’t valuable or over very long periods of time maintains its purchasing power. I’m saying it is not money. Countries buy gold because countries have always held gold—it’s a relic of the past. If you already have a system where you hold gold reserves and it is universally desired for its value then there would be no reason to throw it out the window and start hoarding staplers or fishhooks. It is a form of reserve.

It is not a means of exchange, it is not a unit of account. It is a store if value.
Jags4186,

In the time of hyperinflation, folks use gold instead of money as a means of exchange.

KlangFool

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gmaynardkrebs
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Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Fri Mar 15, 2019 9:38 am

pward wrote:
Fri Mar 15, 2019 9:06 am
gmaynardkrebs wrote:
Fri Mar 15, 2019 8:56 am
KlangFool wrote:
Fri Mar 15, 2019 8:08 am
gmaynardkrebs wrote:
Thu Mar 14, 2019 9:57 pm

If I thought hyper-inflatio was a threat, I'd own gold or possibly silver. For garden variety above-average inflation, TIPS would seem to be a much better choice.
gmaynardkrebs,

You believe that hyperinflation is not possible. So, you do not own any gold. I know that I know nothing. As a result, I am prepared for hyperinflation by owning a few thousand in gold.

KlangFool
I would say virtually impossible. However, as it happens, I do have a few thousand in junk silver (pre-1965 halves quarters, and dimes) which I bought in the 1980s. Gold doesn't make sense to me for practical reasons. Buying a loaf of bread or a dozen eggs with a gold bar, a gold Eagle or even a 1/10 Eagle would be hard. The denominations are too large IMO. Some friends of mine buy the really slim gold "wafers" for that reason, but I could see those being rejected by some sellers. So while I think it is borderline nutty to protect yourself against hyperinflation in the USA, I still have my coins, so I must be borderline nutty still. :D
Improbable, yes. Impossible, no. Most developed country hyper-inflations (i.e. Weimar Germany) come as a result of losing a war and owing substantial amounts of reparations in foreign currency. It's something that could happen to the U.S. Unlikely, sure. But not impossible. Also, if we were to lose world reserve currency status, it could generate very high inflation though massive foreign selling of the dollar. It think this is much more likely, and is inevitable to happen at some point in time (whether that's in our lifetimes or not, who knows?). But even a brief run of the mill spike up to 5%+ inflation would be very painful for our country that has grown all too comfortable with non-existent inflation. I think that just that small jump in inflation would cause a lot of people to panic and send the price of gold way up.

That being said, in a hyper-inflation people don't always pay directly for things with gold or silver. They generally exchange some gold for the failing currency (or, if available, foreign currency), then spend that money on the goods they need ASAP before it loses too much value. I've posted this earlier in the thread, but this is a free pdf from Ray Dalio on debt crisis. They have a case study on Weimar Germany that is absolutely fascinating. To think that the amount of currency it took to buy a loaf of bread in 1923 was more than the entire amount of currency that existed 10 years earlier in 1913 is simply astounding. It just doesn't seem possible, especially in a developed country. It's definitely worth a read: https://www.bridgewater.com/big-debt-crises/
There's also a great Bergman(?) movie on hyperinflation (IIRC, Serpent's Egg?).
The question I have for you is what event would precipitate Weimar-type inflation in the US? Inflation is a purely monetary phenomenon, and if a central bank wants to stop hyperinflation, it can. Who do you think was printing all those Weimar DMs? "Massive" selling of the dollar could happen, but it would be hyper-inflationary only if the US central bank allowed it to be hyper-inflationary. Why would it ever do that? I may not always agree with our central bank, but I think they are, at the very least, competent.

Jags4186
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Re: Why diversification is not a viable strategy?

Post by Jags4186 » Fri Mar 15, 2019 9:44 am

KlangFool wrote:
Fri Mar 15, 2019 9:30 am
Jags4186 wrote:
Fri Mar 15, 2019 9:28 am

I’m not arguing that gold isn’t valuable or over very long periods of time maintains its purchasing power. I’m saying it is not money. Countries buy gold because countries have always held gold—it’s a relic of the past. If you already have a system where you hold gold reserves and it is universally desired for its value then there would be no reason to throw it out the window and start hoarding staplers or fishhooks. It is a form of reserve.

It is not a means of exchange, it is not a unit of account. It is a store if value.
Jags4186,

In the time of hyperinflation, folks use gold instead of money as a means of exchange.

KlangFool
Okay. It’s not money.

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KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Fri Mar 15, 2019 9:50 am

gmaynardkrebs wrote:
Fri Mar 15, 2019 9:38 am

but it would be hyper-inflationary only if the US central bank allowed it to be hyper-inflationary. Why would it ever do that? I may not always agree with our central bank, but I think they are, at the very least, competent.
gmaynardkrebs,

You are assuming that the US central bank can control hyperinflation. I know that I know nothing. I would rather keep a few thousand in gold jewelry without relying on that assumption. It is a small price to pay for me.

KlangFool

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gmaynardkrebs
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Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Fri Mar 15, 2019 10:05 am

KlangFool wrote:
Fri Mar 15, 2019 9:29 am

Silver = $15 per ounce. $1,500 worth of Silver = 100 ounces = 6.25 pounds. How feasible is it to carry that much weight around? Gold = $1,300 per ounce.

<<Gold doesn't make sense to me for practical reasons. Buying a loaf of bread or a dozen eggs with a gold bar, a gold Eagle or even a 1/10 Eagle would be hard.>>

1) That is why you buy Asian Gold Jewelry. They are certified by the goldsmith. The Asian gold jewelry had been around for 10,000 years.

KlangFool
If you are talking about fleeing the US, government certified gold coins or well-known private mint certified ingots makes sense. As far as Asian certified gold, I believe you, but since I have never heard of it, I'd be concerned that the guy I'm trying to give it to wouldn't have heard of it either. That's in the USA. I ain't making no plans to leave.
Last edited by gmaynardkrebs on Fri Mar 15, 2019 10:12 am, edited 2 times in total.

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Vulcan
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Re: Why diversification is not a viable strategy?

Post by Vulcan » Fri Mar 15, 2019 10:08 am

KlangFool wrote:
Fri Mar 15, 2019 9:30 am
Jags4186 wrote:
Fri Mar 15, 2019 9:28 am

I’m not arguing that gold isn’t valuable or over very long periods of time maintains its purchasing power. I’m saying it is not money. Countries buy gold because countries have always held gold—it’s a relic of the past. If you already have a system where you hold gold reserves and it is universally desired for its value then there would be no reason to throw it out the window and start hoarding staplers or fishhooks. It is a form of reserve.

It is not a means of exchange, it is not a unit of account. It is a store if value.
In the time of hyperinflation, folks use gold instead of money as a means of exchange.
I lived through actual hyperinflation.
Nobody used gold.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

Topic Author
KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Fri Mar 15, 2019 10:11 am

gmaynardkrebs wrote:
Fri Mar 15, 2019 10:05 am
KlangFool wrote:
Fri Mar 15, 2019 9:29 am

Silver = $15 per ounce. $1,500 worth of Silver = 100 ounces = 6.25 pounds. How feasible is it to carry that much weight around? Gold = $1,300 per ounce.

<<Gold doesn't make sense to me for practical reasons. Buying a loaf of bread or a dozen eggs with a gold bar, a gold Eagle or even a 1/10 Eagle would be hard.>>

1) That is why you buy Asian Gold Jewelry. They are certified by the goldsmith. The Asian gold jewelry had been around for 10,000 years.

KlangFool
If you are talking about fleeing the US, government certified gold coins or well-known private mint certified ingots makes sense. As far as Asian certified gold, I believe you, but since I have never heard of it, I'd be concerned that the guy I'm trying to give it to wouldn't have heard of it either. That's in the USA. I ain't making no plans to leave.
gmaynardkrebs,

You should check out Asian Jewelry store in the USA. Asian gives out gold jewelry during wedding and childbirth as part of the tradition. So, in any place with a fairly large Asian community, you should be able to find Asian Goldsmith selling Asian gold jewelry.

KlangFool

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KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Fri Mar 15, 2019 10:14 am

Vulcan wrote:
Fri Mar 15, 2019 10:08 am
KlangFool wrote:
Fri Mar 15, 2019 9:30 am
Jags4186 wrote:
Fri Mar 15, 2019 9:28 am

I’m not arguing that gold isn’t valuable or over very long periods of time maintains its purchasing power. I’m saying it is not money. Countries buy gold because countries have always held gold—it’s a relic of the past. If you already have a system where you hold gold reserves and it is universally desired for its value then there would be no reason to throw it out the window and start hoarding staplers or fishhooks. It is a form of reserve.

It is not a means of exchange, it is not a unit of account. It is a store if value.
In the time of hyperinflation, folks use gold instead of money as a means of exchange.
I lived through actual hyperinflation.
Nobody used gold.
Vulcan,

And, you assume that the next hyperinflation will be the same as the one that you went through. I know that I know nothing.

KlangFool

pward
Posts: 393
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Re: Why diversification is not a viable strategy?

Post by pward » Fri Mar 15, 2019 10:18 am

gmaynardkrebs wrote:
Fri Mar 15, 2019 9:38 am
pward wrote:
Fri Mar 15, 2019 9:06 am
gmaynardkrebs wrote:
Fri Mar 15, 2019 8:56 am
KlangFool wrote:
Fri Mar 15, 2019 8:08 am
gmaynardkrebs wrote:
Thu Mar 14, 2019 9:57 pm

If I thought hyper-inflatio was a threat, I'd own gold or possibly silver. For garden variety above-average inflation, TIPS would seem to be a much better choice.
gmaynardkrebs,

You believe that hyperinflation is not possible. So, you do not own any gold. I know that I know nothing. As a result, I am prepared for hyperinflation by owning a few thousand in gold.

KlangFool
I would say virtually impossible. However, as it happens, I do have a few thousand in junk silver (pre-1965 halves quarters, and dimes) which I bought in the 1980s. Gold doesn't make sense to me for practical reasons. Buying a loaf of bread or a dozen eggs with a gold bar, a gold Eagle or even a 1/10 Eagle would be hard. The denominations are too large IMO. Some friends of mine buy the really slim gold "wafers" for that reason, but I could see those being rejected by some sellers. So while I think it is borderline nutty to protect yourself against hyperinflation in the USA, I still have my coins, so I must be borderline nutty still. :D
Improbable, yes. Impossible, no. Most developed country hyper-inflations (i.e. Weimar Germany) come as a result of losing a war and owing substantial amounts of reparations in foreign currency. It's something that could happen to the U.S. Unlikely, sure. But not impossible. Also, if we were to lose world reserve currency status, it could generate very high inflation though massive foreign selling of the dollar. It think this is much more likely, and is inevitable to happen at some point in time (whether that's in our lifetimes or not, who knows?). But even a brief run of the mill spike up to 5%+ inflation would be very painful for our country that has grown all too comfortable with non-existent inflation. I think that just that small jump in inflation would cause a lot of people to panic and send the price of gold way up.

That being said, in a hyper-inflation people don't always pay directly for things with gold or silver. They generally exchange some gold for the failing currency (or, if available, foreign currency), then spend that money on the goods they need ASAP before it loses too much value. I've posted this earlier in the thread, but this is a free pdf from Ray Dalio on debt crisis. They have a case study on Weimar Germany that is absolutely fascinating. To think that the amount of currency it took to buy a loaf of bread in 1923 was more than the entire amount of currency that existed 10 years earlier in 1913 is simply astounding. It just doesn't seem possible, especially in a developed country. It's definitely worth a read: https://www.bridgewater.com/big-debt-crises/
There's also a great Bergman(?) movie on hyperinflation (IIRC, Serpent's Egg?).
The question I have for you is what event would precipitate Weimar-type inflation in the US? Inflation is a purely monetary phenomenon, and if a central bank wants to stop hyperinflation, it can. Who do you think was printing all those Weimar DMs? "Massive" selling of the dollar could happen, but it would be hyper-inflationary only if the US central bank allowed it to be hyper-inflationary. Why would it ever do that? I may not always agree with our central bank, but I think they are, at the very least, competent.
Well, if you read the Bridgewater book I liked above you'll see what causes hyperinflation. The sad thing is it gets to a point where printing more money simply becomes the lesser of the evils. It becomes that or letting their society starve...

There are two cases I see where hyper, or at least very high, inflation could happen in the U.S. I'm going to try to say this as apolitically as possible so Lady doesn't yell at me, haha.

1) a case similar to Weimar Germany (very in depth case study in the Bridgewater book linked multiple times in my past comments), where we lose a war and wind up with a massive reparation bill that is denominated in a foreign currency. Since the debt is owed in a foreign currency, it can suffocate a country.

2) would be if the U.S. lost it's status as world reserve currency. Traditionally world reserve currencies have lasted ~50-100 years, so this is a real possibility. Also, there is growing populism worldwide, and part of that is a growing contention with the U.S. and our currency. Having reserve currency status is a great privilege, it means that we benefit from massive foreign investment inflows that no other country does. A lot of other countries don't see this as fair. If we lose world reserve currency status then there will be massive selling of dollars that already exist by foreign countries, which like any asset if there is mass selling of the dollar it will lose a substantial amount of value (i.e. inflation) and there would be limited things the Fed could do to fight it because the dollars are already in existence. And any way they could fight it would be very painful and could possibly be seen as the greater of the evils.

Now I'm not saying either of those things will happen, and I do not want to start a political debate on the subject, just want to highlight a couple possibilities that could happen, since you asked. Personally, I sleep well at night knowing I have some "insurance" in a gold allocation in my portfolio. Like any insurance the best possible scenario is that I pay my premium and never have to file a claim. But just in case, I have my insurance policy to protect my portfolio.
Last edited by pward on Fri Mar 15, 2019 10:27 am, edited 2 times in total.

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gmaynardkrebs
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Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Fri Mar 15, 2019 10:23 am

KlangFool wrote:
Fri Mar 15, 2019 10:11 am

gmaynardkrebs,

You should check out Asian Jewelry store in the USA. Asian gives out gold jewelry during wedding and childbirth as part of the tradition. So, in any place with a fairly large Asian community, you should be able to find Asian Goldsmith selling Asian gold jewelry.

KlangFool
Thanks I will check that out, more because I happen to love the whole world of precious metals.
You are assuming that the US central bank can control hyperinflation.

There is no doubt that it can. The question is whether there are scenarios where it would decide it would be better not to do so. I can think of no plausible scenario. As I noted the whole concept of precious metals, coinage, and gold as money has been a lifelong fascination of mine. I've thought and read all I can on the subject. I don't know everything about hyperinflation, but I sure don't know "nothing." I think you know plenty too, but your family history, background, and experience has led you to a different place. We all chose what we feel we can trust. In a crisis, all of us will revert to what we know and trust the most. So it's good to plan based on that, not what others tell us, right or wrong.

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Vulcan
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Re: Why diversification is not a viable strategy?

Post by Vulcan » Fri Mar 15, 2019 10:27 am

KlangFool wrote:
Fri Mar 15, 2019 10:14 am
Vulcan wrote:
Fri Mar 15, 2019 10:08 am
KlangFool wrote:
Fri Mar 15, 2019 9:30 am
Jags4186 wrote:
Fri Mar 15, 2019 9:28 am

I’m not arguing that gold isn’t valuable or over very long periods of time maintains its purchasing power. I’m saying it is not money. Countries buy gold because countries have always held gold—it’s a relic of the past. If you already have a system where you hold gold reserves and it is universally desired for its value then there would be no reason to throw it out the window and start hoarding staplers or fishhooks. It is a form of reserve.

It is not a means of exchange, it is not a unit of account. It is a store if value.
In the time of hyperinflation, folks use gold instead of money as a means of exchange.
I lived through actual hyperinflation.
Nobody used gold.
And, you assume that the next hyperinflation will be the same as the one that you went through. I know that I know nothing.
It sounds like you know that in the time of hyperinflation, folks use gold instead of money as a means of exchange.
How many hyperinflations have you lived through? Have you used gold to buy plane tickets?
If you torture the data long enough, it will confess to anything. ~Ronald Coase

pward
Posts: 393
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Re: Why diversification is not a viable strategy?

Post by pward » Fri Mar 15, 2019 10:30 am

Vulcan wrote:
Fri Mar 15, 2019 10:27 am
KlangFool wrote:
Fri Mar 15, 2019 10:14 am
Vulcan wrote:
Fri Mar 15, 2019 10:08 am
KlangFool wrote:
Fri Mar 15, 2019 9:30 am
Jags4186 wrote:
Fri Mar 15, 2019 9:28 am

I’m not arguing that gold isn’t valuable or over very long periods of time maintains its purchasing power. I’m saying it is not money. Countries buy gold because countries have always held gold—it’s a relic of the past. If you already have a system where you hold gold reserves and it is universally desired for its value then there would be no reason to throw it out the window and start hoarding staplers or fishhooks. It is a form of reserve.

It is not a means of exchange, it is not a unit of account. It is a store if value.
In the time of hyperinflation, folks use gold instead of money as a means of exchange.
I lived through actual hyperinflation.
Nobody used gold.
And, you assume that the next hyperinflation will be the same as the one that you went through. I know that I know nothing.
It sounds like you know that in the time of hyperinflation, folks use gold instead of money as a means of exchange.
How many hyperinflations have you lived through? Have you used gold to buy plane tickets?
What is going to be worth more in a hyper inflation, gold, bonds or stocks? Gold. Whether one can use gold for plane tickets is beside the point. Gold would have held value enough that it at the very least could be exchanged for some form of currency (the failing domestic currency, or a more stable foreign currency) that could then be used to buy plane tickets. In a hyper-inflation, he would be much better off for having a gold allocation as opposed to just stocks and bonds.

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Vulcan
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Re: Why diversification is not a viable strategy?

Post by Vulcan » Fri Mar 15, 2019 10:33 am

pward wrote:
Fri Mar 15, 2019 10:30 am
Vulcan wrote:
Fri Mar 15, 2019 10:27 am
KlangFool wrote:
Fri Mar 15, 2019 10:14 am
Vulcan wrote:
Fri Mar 15, 2019 10:08 am
KlangFool wrote:
Fri Mar 15, 2019 9:30 am

In the time of hyperinflation, folks use gold instead of money as a means of exchange.
I lived through actual hyperinflation.
Nobody used gold.
And, you assume that the next hyperinflation will be the same as the one that you went through. I know that I know nothing.
It sounds like you know that in the time of hyperinflation, folks use gold instead of money as a means of exchange.
How many hyperinflations have you lived through? Have you used gold to buy plane tickets?
What is going to be worth more in a hyper inflation, gold, bonds or stocks? Gold. Whether one can use gold for plane tickets is beside the point. Gold would have held value enough that it at the very least could be exchanged for some form of currency (the failing domestic currency, or a more stable foreign currency) that could then be used to buy plane tickets. In a hyper-inflation, he would be much better off for having a gold allocation as opposed to just stocks and bonds.
If gold comprises 1% of your portfolio, and stocks comprise 50%, I can tell you with a very high degree of certainty that your stocks will be worth a lot more than your gold in any imaginable scenario short of a global war and complete societal collapse.

Stocks actually happen to be one of the better inflation hedges.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

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gmaynardkrebs
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Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Fri Mar 15, 2019 10:37 am

pward wrote:
Fri Mar 15, 2019 10:18 am
If we lose world reserve currency status then there will be massive selling of dollars that already exist by foreign countries, which would devalue the dollar and there would be limited things the Fed could do to fight it because the dollars are already in existence.
That is not true. All it has to do is raise interest rates; there is no limit to that. Moreover, the Federal government could impose price controls. I suspect even the threat to raise interest rates would be enough.

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KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Fri Mar 15, 2019 10:43 am

Vulcan wrote:
Fri Mar 15, 2019 10:27 am

It sounds like you know that in the time of hyperinflation, folks use gold instead of money as a means of exchange.
How many hyperinflations have you lived through? Have you used gold to buy plane tickets?
Vulcan,

My family history goes back 2,000+ years. We know that it is useful to keep some physical gold jewelry around.

KlangFool

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Vulcan
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Re: Why diversification is not a viable strategy?

Post by Vulcan » Fri Mar 15, 2019 10:46 am

KlangFool wrote:
Fri Mar 15, 2019 10:43 am
Vulcan wrote:
Fri Mar 15, 2019 10:27 am

It sounds like you know that in the time of hyperinflation, folks use gold instead of money as a means of exchange.
How many hyperinflations have you lived through? Have you used gold to buy plane tickets?
My family history goes back 2,000+ years. We know that it is useful to keep some physical gold jewelry around.
Sounds like you don't know nothing after all.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

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Vulcan
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Re: Why diversification is not a viable strategy?

Post by Vulcan » Fri Mar 15, 2019 10:49 am

gmaynardkrebs wrote:
Fri Mar 15, 2019 10:37 am
pward wrote:
Fri Mar 15, 2019 10:18 am
If we lose world reserve currency status then there will be massive selling of dollars that already exist by foreign countries, which would devalue the dollar and there would be limited things the Fed could do to fight it because the dollars are already in existence.
That is not true. All it has to do is raise interest rates; there is no limit to that. Moreover, the Federal government could impose price controls. I suspect even the threat to raise interest rates would be enough.
More importantly, in an event of hyperinflation one should be more worried about bonds (even TIPS and I Bonds, which are subject to taxflation) than stocks, which are themselves a good inflation hedge.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

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KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Fri Mar 15, 2019 10:49 am

Vulcan wrote:
Fri Mar 15, 2019 10:33 am

If gold comprises 1% of your portfolio, and stocks comprise 50%, I can tell you with a very high degree of certainty that your stocks will be worth a lot more than your gold in any imaginable scenario short of a global war and complete societal collapse.

Stocks actually happen to be one of the better inflation hedges.
Vulcan,

Let's assume that you are correct. You have 2 choices:

A) Do not buy any Gold. Assume that anything that you cannot imagine would not happen.

B) Spend 1% of your portfolio in physical gold as insurance. Then, you are protected even for the scenario that you cannot imagine.

I choose (B). I sleep better at night.

KlangFool

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Vulcan
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Re: Why diversification is not a viable strategy?

Post by Vulcan » Fri Mar 15, 2019 10:51 am

KlangFool wrote:
Fri Mar 15, 2019 10:49 am
Let's assume that you are correct. You have 2 choices:

A) Do not buy any Gold. Assume that anything that you cannot imagine would not happen.

B) Spend 1% of your portfolio in physical gold as insurance. Then, you are protected even for the scenario that you cannot imagine.

I choose (B). I sleep better at night.
You are not protected from the scenario you can not imagine.
You are only (maybe) protected form the scenario you just imagined.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

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KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Fri Mar 15, 2019 10:54 am

Vulcan wrote:
Fri Mar 15, 2019 10:51 am
KlangFool wrote:
Fri Mar 15, 2019 10:49 am
Let's assume that you are correct. You have 2 choices:

A) Do not buy any Gold. Assume that anything that you cannot imagine would not happen.

B) Spend 1% of your portfolio in physical gold as insurance. Then, you are protected even for the scenario that you cannot imagine.

I choose (B). I sleep better at night.
You are not protected from the scenario you can not imagine.
You are only (maybe) protected form the scenario you just imagined.
Versus doing nothing. Just to optimize 1% of your portfolio.

KlangFool

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Vulcan
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Re: Why diversification is not a viable strategy?

Post by Vulcan » Fri Mar 15, 2019 10:57 am

KlangFool wrote:
Fri Mar 15, 2019 10:54 am
Vulcan wrote:
Fri Mar 15, 2019 10:51 am
KlangFool wrote:
Fri Mar 15, 2019 10:49 am
Let's assume that you are correct. You have 2 choices:

A) Do not buy any Gold. Assume that anything that you cannot imagine would not happen.

B) Spend 1% of your portfolio in physical gold as insurance. Then, you are protected even for the scenario that you cannot imagine.

I choose (B). I sleep better at night.
You are not protected from the scenario you can not imagine.
You are only (maybe) protected form the scenario you just imagined.
Versus doing nothing. Just to optimize 1% of your portfolio.

KlangFool
There are many ways to chip away at portfolio to "buy insurance". I know people who are buying out of the money puts.
They, too, feel pretty good about their choices.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

dknightd
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Re: Why diversification is not a viable strategy?

Post by dknightd » Fri Mar 15, 2019 10:58 am

I think I might buy a gold pan. Then if then if things go bonkers Move near to a creek that might contain gold ;)
Could be a good hobby, just like fishing ;)
Last edited by dknightd on Fri Mar 15, 2019 11:02 am, edited 1 time in total.

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KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Fri Mar 15, 2019 11:01 am

Vulcan wrote:
Fri Mar 15, 2019 10:57 am
KlangFool wrote:
Fri Mar 15, 2019 10:54 am
Vulcan wrote:
Fri Mar 15, 2019 10:51 am
KlangFool wrote:
Fri Mar 15, 2019 10:49 am
Let's assume that you are correct. You have 2 choices:

A) Do not buy any Gold. Assume that anything that you cannot imagine would not happen.

B) Spend 1% of your portfolio in physical gold as insurance. Then, you are protected even for the scenario that you cannot imagine.

I choose (B). I sleep better at night.
You are not protected from the scenario you can not imagine.
You are only (maybe) protected form the scenario you just imagined.
Versus doing nothing. Just to optimize 1% of your portfolio.

KlangFool
There are many ways to chip away at portfolio to "buy insurance". I know people who are buying out of the money puts.
They, too, feel pretty good about their choices.
Vulcan,

That is based on the financial system working. I have enough assets that need the financial system working in order to be useful. In order to hedge my bets, I need something that works even when the system failed.

KlangFool

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Vulcan
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Re: Why diversification is not a viable strategy?

Post by Vulcan » Fri Mar 15, 2019 11:04 am

KlangFool wrote:
Fri Mar 15, 2019 11:01 am
That is based on the financial system working. I have enough assets that need the financial system working in order to be useful. In order to hedge my bets, I need something that works even when the system failed.
Guns and ammo.
Are you good with guns?
I sold mine.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

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gmaynardkrebs
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Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Fri Mar 15, 2019 11:06 am

Vulcan wrote:
Fri Mar 15, 2019 10:49 am
gmaynardkrebs wrote:
Fri Mar 15, 2019 10:37 am
pward wrote:
Fri Mar 15, 2019 10:18 am
If we lose world reserve currency status then there will be massive selling of dollars that already exist by foreign countries, which would devalue the dollar and there would be limited things the Fed could do to fight it because the dollars are already in existence.
That is not true. All it has to do is raise interest rates; there is no limit to that. Moreover, the Federal government could impose price controls. I suspect even the threat to raise interest rates would be enough.
More importantly, in an event of hyperinflation one should be more worried about bonds (even TIPS and I Bonds, which are subject to taxflation) than stocks, which are themselves a good inflation hedge.
TIPS are no more subject to "taxflation" than any other investment. That includes stocks. The basis of stocks is not indexed to inflation, which means you are taxed on gains that that are purely the result of inflation.
Stocks do not perform well during inflationary periods.
Last edited by gmaynardkrebs on Fri Mar 15, 2019 11:08 am, edited 1 time in total.

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Vulcan
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Re: Why diversification is not a viable strategy?

Post by Vulcan » Fri Mar 15, 2019 11:08 am

gmaynardkrebs wrote:
Fri Mar 15, 2019 11:06 am
Vulcan wrote:
Fri Mar 15, 2019 10:49 am
gmaynardkrebs wrote:
Fri Mar 15, 2019 10:37 am
pward wrote:
Fri Mar 15, 2019 10:18 am
If we lose world reserve currency status then there will be massive selling of dollars that already exist by foreign countries, which would devalue the dollar and there would be limited things the Fed could do to fight it because the dollars are already in existence.
That is not true. All it has to do is raise interest rates; there is no limit to that. Moreover, the Federal government could impose price controls. I suspect even the threat to raise interest rates would be enough.
More importantly, in an event of hyperinflation one should be more worried about bonds (even TIPS and I Bonds, which are subject to taxflation) than stocks, which are themselves a good inflation hedge.
TIPS are no more subject to "taxflation" than any other investment. That includes stocks. The basis of stocks is not indexed to inflation, which means you are taxed on gains that that are purely the result of inflation.
True. But the upside of TIPS is pretty well limited by inflation itself (withing a very narrow range). So that adds insult to injury.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

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KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Fri Mar 15, 2019 11:10 am

Vulcan wrote:
Fri Mar 15, 2019 11:04 am
KlangFool wrote:
Fri Mar 15, 2019 11:01 am
That is based on the financial system working. I have enough assets that need the financial system working in order to be useful. In order to hedge my bets, I need something that works even when the system failed.
Guns and ammo.
Are you good with guns?
I sold mine.
Vulcan,

It is very simple.

1) If you do not think that there is a problem, don't worry about it.

2) If you are confident with your assumptions, don't worry about it.

3) If you are confident with your knowledge, don't worry about it.

I come from a culture and family history background where we choose to be prepared. It had served us well over our thousands of years of history.

KlangFool

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Vulcan
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Re: Why diversification is not a viable strategy?

Post by Vulcan » Fri Mar 15, 2019 11:14 am

KlangFool wrote:
Fri Mar 15, 2019 11:10 am
Vulcan wrote:
Fri Mar 15, 2019 11:04 am
KlangFool wrote:
Fri Mar 15, 2019 11:01 am
That is based on the financial system working. I have enough assets that need the financial system working in order to be useful. In order to hedge my bets, I need something that works even when the system failed.
Guns and ammo.
Are you good with guns?
I sold mine.
Vulcan,

It is very simple.

1) If you do not think that there is a problem, don't worry about it.

2) If you are confident with your assumptions, don't worry about it.

3) If you are confident with your knowledge, don't worry about it.

I come from a culture and family history background where we choose to be prepared. It had served us well over our thousands of years of history.

KlangFool
And I come from a no less ancient culture and history that just very recently was reminded that no matter how many gold watches you sew into your coat, you may still end up in a gas chamber.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

pward
Posts: 393
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Re: Why diversification is not a viable strategy?

Post by pward » Fri Mar 15, 2019 11:27 am

gmaynardkrebs wrote:
Fri Mar 15, 2019 10:37 am
pward wrote:
Fri Mar 15, 2019 10:18 am
If we lose world reserve currency status then there will be massive selling of dollars that already exist by foreign countries, which would devalue the dollar and there would be limited things the Fed could do to fight it because the dollars are already in existence.
That is not true. All it has to do is raise interest rates; there is no limit to that. Moreover, the Federal government could impose price controls. I suspect even the threat to raise interest rates would be enough.
If you read my full comment in context you will see that I said that there are ways they could fight it, but just like the Weimar Germany case, it may be seen as the greater of the two evils. Don't forget that in the early 80's Volcker had threats against his life and congress was trying to impeach him. Thankfully he had enough integrity to do what was necessary. Just look at all the public heat that Powell took last year, just increasing rates to 2.5%. Tightening is not an easy or popular decision, even a period of inflation. Not all fed chairs can be relied upon to make that same very, very tough decision. It took a decade of pain for the Fed to finally take the steps necessary to put out inflation in the 70s. Who's to say they would act any quicker or more decisively this time? I think they would personally choose to do the same thing, drag their feet and try to implement small changes that do nothing.
Last edited by pward on Fri Mar 15, 2019 11:53 am, edited 2 times in total.

pward
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Re: Why diversification is not a viable strategy?

Post by pward » Fri Mar 15, 2019 11:29 am

Vulcan wrote:
Fri Mar 15, 2019 10:49 am
gmaynardkrebs wrote:
Fri Mar 15, 2019 10:37 am
pward wrote:
Fri Mar 15, 2019 10:18 am
If we lose world reserve currency status then there will be massive selling of dollars that already exist by foreign countries, which would devalue the dollar and there would be limited things the Fed could do to fight it because the dollars are already in existence.
That is not true. All it has to do is raise interest rates; there is no limit to that. Moreover, the Federal government could impose price controls. I suspect even the threat to raise interest rates would be enough.
More importantly, in an event of hyperinflation one should be more worried about bonds (even TIPS and I Bonds, which are subject to taxflation) than stocks, which are themselves a good inflation hedge.
I agree that bonds are worse than stocks in inflation. Stocks to go up nominally during inflation, but they go down substantially in real after inflation terms. Stocks are not a good inflation hedge in the short term (which is when you would need them in a crisis). One only has to look at the U.S. stock market on an inflation adjusted chart in the 70s to see the real pummeling stocks took, and that was only high inflation, nothing like a hyper-inflation. They are much more reliable than bonds though. Bonds are less useful than toilet paper in a hyper-inflation.

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KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Fri Mar 15, 2019 11:43 am

Vulcan wrote:
Fri Mar 15, 2019 11:14 am
KlangFool wrote:
Fri Mar 15, 2019 11:10 am
Vulcan wrote:
Fri Mar 15, 2019 11:04 am
KlangFool wrote:
Fri Mar 15, 2019 11:01 am
That is based on the financial system working. I have enough assets that need the financial system working in order to be useful. In order to hedge my bets, I need something that works even when the system failed.
Guns and ammo.
Are you good with guns?
I sold mine.
Vulcan,

It is very simple.

1) If you do not think that there is a problem, don't worry about it.

2) If you are confident with your assumptions, don't worry about it.

3) If you are confident with your knowledge, don't worry about it.

I come from a culture and family history background where we choose to be prepared. It had served us well over our thousands of years of history.

KlangFool
And I come from a no less ancient culture and history that just very recently was reminded that no matter how many gold watches you sew into your coat, you may still end up in a gas chamber.
Vulcan,

1) 50% of my parent and grandparent generation were massacred during WWII.

2) When you are a minority, gun and ammo are not going to help you. Getting out was the only option in some cases.

KlangFool

abc132
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Re: Why diversification is not a viable strategy?

Post by abc132 » Fri Mar 15, 2019 11:55 am

Some sort of diversification is believed to be beneficial over no diversification. Like any good thing, its possible to take a good idea and ruin it.

Q) When is diversification not a viable strategy?
A) When a good idea is taken too far and it causes poor investment decisions.
Last edited by abc132 on Fri Mar 15, 2019 12:30 pm, edited 1 time in total.

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Vulcan
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Re: Why diversification is not a viable strategy?

Post by Vulcan » Fri Mar 15, 2019 12:20 pm

KlangFool wrote:
Fri Mar 15, 2019 11:43 am

1) 50% of my parent and grandparent generation were massacred during WWII.

2) When you are a minority, gun and ammo are not going to help you. Getting out was the only option in some cases.
So, like mine, your own history demonstrates that there are some scenarios you just can't diversify your way out of with a few gold rings.

I know people who never put their entire family on the same flight. Yet they seem to be ok riding the same car, a much more dangerous undertaking, statistically.

I guess everyone tries to create an illusion of safety for themselves in whatever way works for them.
Last edited by Vulcan on Fri Mar 15, 2019 12:20 pm, edited 2 times in total.
If you torture the data long enough, it will confess to anything. ~Ronald Coase

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gmaynardkrebs
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Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Fri Mar 15, 2019 12:20 pm

pward wrote:
Fri Mar 15, 2019 11:27 am
gmaynardkrebs wrote:
Fri Mar 15, 2019 10:37 am
pward wrote:
Fri Mar 15, 2019 10:18 am
If we lose world reserve currency status then there will be massive selling of dollars that already exist by foreign countries, which would devalue the dollar and there would be limited things the Fed could do to fight it because the dollars are already in existence.
That is not true. All it has to do is raise interest rates; there is no limit to that. Moreover, the Federal government could impose price controls. I suspect even the threat to raise interest rates would be enough.
If you read my full comment in context you will see that I said that there are ways they could fight it, but just like the Weimar Germany case, it may be seen as the greater of the two evils. Don't forget that in the early 80's Volcker had threats against his life and congress was trying to impeach him. Thankfully he had enough integrity to do what was necessary. Just look at all the public heat that Powell took last year, just increasing rates to 2.5%. Tightening is not an easy or popular decision, even a period of inflation. Not all fed chairs can be relied upon to make that same very, very tough decision. It took a decade of pain for the Fed to finally take the steps necessary to put out inflation in the 70s. Who's to say they would act any quicker or more decisively this time? I think they would personally choose to do the same thing, drag their feet and try to implement small changes that do nothing.
I did read your comment fully. However, you keep switching back and forth between inflation and hyperinflation. They are completely different things.

pward
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Re: Why diversification is not a viable strategy?

Post by pward » Fri Mar 15, 2019 12:41 pm

gmaynardkrebs wrote:
Fri Mar 15, 2019 12:20 pm
pward wrote:
Fri Mar 15, 2019 11:27 am
gmaynardkrebs wrote:
Fri Mar 15, 2019 10:37 am
pward wrote:
Fri Mar 15, 2019 10:18 am
If we lose world reserve currency status then there will be massive selling of dollars that already exist by foreign countries, which would devalue the dollar and there would be limited things the Fed could do to fight it because the dollars are already in existence.
That is not true. All it has to do is raise interest rates; there is no limit to that. Moreover, the Federal government could impose price controls. I suspect even the threat to raise interest rates would be enough.
If you read my full comment in context you will see that I said that there are ways they could fight it, but just like the Weimar Germany case, it may be seen as the greater of the two evils. Don't forget that in the early 80's Volcker had threats against his life and congress was trying to impeach him. Thankfully he had enough integrity to do what was necessary. Just look at all the public heat that Powell took last year, just increasing rates to 2.5%. Tightening is not an easy or popular decision, even a period of inflation. Not all fed chairs can be relied upon to make that same very, very tough decision. It took a decade of pain for the Fed to finally take the steps necessary to put out inflation in the 70s. Who's to say they would act any quicker or more decisively this time? I think they would personally choose to do the same thing, drag their feet and try to implement small changes that do nothing.
I did read your comment fully. However, you keep switching back and forth between inflation and hyperinflation. They are completely different things.
That's fair. I switched to regular inflation to show the history of inflation in the U.S. in recent history, and how it played out because you were baking in assumptions on the way the Fed would act, and I wanted to show how the Fed did actually act. History doesn't always repeat, but it usually rhymes. The decision to tighten is never an easy or popular one, that's in regular inflation, high inflation, and even hyper-inflation environments. There are real consequences to tightening, even in a hyper-inflation. In a hyper-inflation money becomes both worthless and scarce at the same time. They feel they have simply no choice but to print.

Tightening not an easy decision to make and the general public and politicians have a history of being opposed to the idea, until it reaches extremes to the point where the pain of the inflation makes the pain of the tightening seem worthwhile. This does not happen over night. History has shown, a lot of pain has always needed to happen before the government was willing to respond adequately to extinguish the inflation. Even in the 70's and 80's here in the U.S. tightening was very unpopular. Both politicians and the general public would have rather lived with the inflation than to go through the tightening at the time. Thankfully, Volcker had enough integrity to go against the grain and do what needed to be done. Men like him are a rare breed.

You really should read that Dalio book, it's free, and the case study on Weimar Germany is very in depth and shows not only what the government did, but why they saw no other choice at the time. It is quite the eye opener. Sure, one can look back and say "bah, that could never happen here", but if you went back to Germany 1913 and asked people if what happened to Germany in the following 10 years was even possible they also would have also said no. Nobody could have predicted that.

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Re: Why diversification is not a viable strategy?

Post by FrankLUSMC » Fri Mar 15, 2019 3:29 pm

KlangFool wrote:
Fri Mar 08, 2019 9:51 am
Folks,

There have been many threads about the US Stock market is overvalued and so on. And, most asset classes are overvalued. I had proposed a simple answer: diversification. So, I would like folks to explain why that is not a viable option.

Q) The US stock market is overvalued and the US economy may crash.
A) Buy the whole world instead.

Q) The whole world stock market is overvalued.
A) Do not be 100% stock, buy fixed income too.

Q) The stock market is not efficient
A) Then, use some active management like Wellington Fund or BRK.A or BRK.B

Q) The interest rate is going up. The bond will lose money.
A) If you believe that the interest rate is going up, keep your 30-years fixed rate mortgage.

Q) We may have short-term deflation.
A) Keep a bigger emergency fund in cash to hedge against deflation.

Q) We may have hyper-inflation.
A) Buy some physical gold jewelry or gold coins

So, please explain to me why someone with diversification across multiple assets classes is not using a viable strategy against future uncertainty? This is a know-nothing strategy. I know nothing. Hence, I have enough asset diversification to prepare any possibility.

KlangFool
I think you have everything covered except guns and ammo.. I kid, I kid!! Maybe not.

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KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Fri Mar 15, 2019 3:33 pm

FrankLUSMC wrote:
Fri Mar 15, 2019 3:29 pm
KlangFool wrote:
Fri Mar 08, 2019 9:51 am
Folks,

There have been many threads about the US Stock market is overvalued and so on. And, most asset classes are overvalued. I had proposed a simple answer: diversification. So, I would like folks to explain why that is not a viable option.

Q) The US stock market is overvalued and the US economy may crash.
A) Buy the whole world instead.

Q) The whole world stock market is overvalued.
A) Do not be 100% stock, buy fixed income too.

Q) The stock market is not efficient
A) Then, use some active management like Wellington Fund or BRK.A or BRK.B

Q) The interest rate is going up. The bond will lose money.
A) If you believe that the interest rate is going up, keep your 30-years fixed rate mortgage.

Q) We may have short-term deflation.
A) Keep a bigger emergency fund in cash to hedge against deflation.

Q) We may have hyper-inflation.
A) Buy some physical gold jewelry or gold coins

So, please explain to me why someone with diversification across multiple assets classes is not using a viable strategy against future uncertainty? This is a know-nothing strategy. I know nothing. Hence, I have enough asset diversification to prepare any possibility.

KlangFool
I think you have everything covered except guns and ammo.. I kid, I kid!! Maybe not.
FrankLUSMC,

Gun and ammo do not help when you are a minority.

KlangFool

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fortyofforty
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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Fri Mar 15, 2019 6:43 pm

KlangFool wrote:
Fri Mar 15, 2019 3:33 pm
FrankLUSMC wrote:
Fri Mar 15, 2019 3:29 pm
KlangFool wrote:
Fri Mar 08, 2019 9:51 am
Folks,

There have been many threads about the US Stock market is overvalued and so on. And, most asset classes are overvalued. I had proposed a simple answer: diversification. So, I would like folks to explain why that is not a viable option.

Q) The US stock market is overvalued and the US economy may crash.
A) Buy the whole world instead.

Q) The whole world stock market is overvalued.
A) Do not be 100% stock, buy fixed income too.

Q) The stock market is not efficient
A) Then, use some active management like Wellington Fund or BRK.A or BRK.B

Q) The interest rate is going up. The bond will lose money.
A) If you believe that the interest rate is going up, keep your 30-years fixed rate mortgage.

Q) We may have short-term deflation.
A) Keep a bigger emergency fund in cash to hedge against deflation.

Q) We may have hyper-inflation.
A) Buy some physical gold jewelry or gold coins

So, please explain to me why someone with diversification across multiple assets classes is not using a viable strategy against future uncertainty? This is a know-nothing strategy. I know nothing. Hence, I have enough asset diversification to prepare any possibility.

KlangFool
I think you have everything covered except guns and ammo.. I kid, I kid!! Maybe not.
FrankLUSMC,

Gun and ammo do not help when you are a minority.

KlangFool
They always help. It's about diversification of your options and choices.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

halfnine
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Re: Why diversification is not a viable strategy?

Post by halfnine » Sun Mar 17, 2019 3:57 pm

While small amounts of gold could get one out of a country it is unlikely to do much about getting one into a country for an extended basis. Not today. Not without existing citizenship or residency rights. The world has become way too crowded and migration controls more and more strict. An American refugee without a lot of foreign assets isn't going to be anywhere near the top of the list when it comes to desired migrants. Gold will be better suited to help one through the crisis but, probably more importantly, to restart afterwards.

wrongfunds
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Re: Why diversification is not a viable strategy?

Post by wrongfunds » Fri Apr 19, 2019 11:33 am

I can't help but laugh at some of the stuff mentioned here. 25% in gold? Where do you keep it? I mean assuming you have total assets at one million, the $250,000 worth of gold is stored under your mattress? Are you keeping it in a bank safe deposit locker? If so, you think you will be able to get access to it when things really go bad or if the banks get blown up or locked up in so called bad times? The better option would be to bury it somewhere in the backyard so in case your house burns down, you still have your gold.

Now that I have replied to this topic, it is going to be locked in 1 2 3

DB2
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Re: Why diversification is not a viable strategy?

Post by DB2 » Fri Apr 19, 2019 12:16 pm

wrongfunds wrote:
Fri Apr 19, 2019 11:33 am
I can't help but laugh at some of the stuff mentioned here. 25% in gold? Where do you keep it? I mean assuming you have total assets at one million, the $250,000 worth of gold is stored under your mattress? Are you keeping it in a bank safe deposit locker? If so, you think you will be able to get access to it when things really go bad or if the banks get blown up or locked up in so called bad times? The better option would be to bury it somewhere in the backyard so in case your house burns down, you still have your gold.

Now that I have replied to this topic, it is going to be locked in 1 2 3
Gold will withstand fire, so in your house it's fine. It can always be melted and re-used if tarnished (say jewelry, etc.). The biggest issue is keeping it the most inconspicuous location in or around your house for potential theft. In my opinion, coins are the best and easiest way to store (and will be easier to sell if needed).

hoops777
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Re: Why diversification is not a viable strategy?

Post by hoops777 » Sat Apr 20, 2019 12:41 pm

DB2 wrote:
Fri Apr 19, 2019 12:16 pm
wrongfunds wrote:
Fri Apr 19, 2019 11:33 am
I can't help but laugh at some of the stuff mentioned here. 25% in gold? Where do you keep it? I mean assuming you have total assets at one million, the $250,000 worth of gold is stored under your mattress? Are you keeping it in a bank safe deposit locker? If so, you think you will be able to get access to it when things really go bad or if the banks get blown up or locked up in so called bad times? The better option would be to bury it somewhere in the backyard so in case your house burns down, you still have your gold.

Now that I have replied to this topic, it is going to be locked in 1 2 3
Gold will withstand fire, so in your house it's fine. It can always be melted and re-used if tarnished (say jewelry, etc.). The biggest issue is keeping it the most inconspicuous location in or around your house for potential theft. In my opinion, coins are the best and easiest way to store (and will be easier to sell if needed).
Good luck selling that gold if we gave a major black swan event.I can just not think of any reason an American in 2019 would have any use for it.
K.I.S.S........so easy to say so difficult to do.

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fortyofforty
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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Sat Apr 20, 2019 1:04 pm

hoops777 wrote:
Sat Apr 20, 2019 12:41 pm
DB2 wrote:
Fri Apr 19, 2019 12:16 pm
wrongfunds wrote:
Fri Apr 19, 2019 11:33 am
I can't help but laugh at some of the stuff mentioned here. 25% in gold? Where do you keep it? I mean assuming you have total assets at one million, the $250,000 worth of gold is stored under your mattress? Are you keeping it in a bank safe deposit locker? If so, you think you will be able to get access to it when things really go bad or if the banks get blown up or locked up in so called bad times? The better option would be to bury it somewhere in the backyard so in case your house burns down, you still have your gold.

Now that I have replied to this topic, it is going to be locked in 1 2 3
Gold will withstand fire, so in your house it's fine. It can always be melted and re-used if tarnished (say jewelry, etc.). The biggest issue is keeping it the most inconspicuous location in or around your house for potential theft. In my opinion, coins are the best and easiest way to store (and will be easier to sell if needed).
Good luck selling that gold if we gave a major black swan event.I can just not think of any reason an American in 2019 would have any use for it.
That is really the key to value in a TEOTWAWKI event. Gold--like paper currency--has only the value people instill in it; neither has any intrinsic value (beyond the slight uses for gold in certain electronics, which is of no relevance in a true crisis). In a major black swan event, lead will be far more valuable than gold.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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gmaynardkrebs
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Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Sat Apr 20, 2019 3:05 pm

fortyofforty wrote:
Sat Apr 20, 2019 1:04 pm
Gold--like paper currency--has only the value people instill in it; neither has any intrinsic value...
Sure...it's just been in a bubble for the last 6000 years. :)

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fortyofforty
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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Sat Apr 20, 2019 4:57 pm

gmaynardkrebs wrote:
Sat Apr 20, 2019 3:05 pm
fortyofforty wrote:
Sat Apr 20, 2019 1:04 pm
Gold--like paper currency--has only the value people instill in it; neither has any intrinsic value...
Sure...it's just been in a bubble for the last 6000 years. :)
I never said it's been in a bubble, just that it has no intrinsic value. It's relatively rare. There are plenty of things that are rare but not valuable. There are plenty of things that are valuable, but that I wouldn't buy for even a fraction of the current price.

From Smithsonian:
Other than the human tendency for imitating magpies (why else would we think the common diamond is so extraordinary?), gold really isn’t all that special. There are far more useful elements out there. And several are even rarer than gold.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

DB2
Posts: 365
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Re: Why diversification is not a viable strategy?

Post by DB2 » Sat Apr 20, 2019 5:07 pm

hoops777 wrote:
Sat Apr 20, 2019 12:41 pm
DB2 wrote:
Fri Apr 19, 2019 12:16 pm
wrongfunds wrote:
Fri Apr 19, 2019 11:33 am
I can't help but laugh at some of the stuff mentioned here. 25% in gold? Where do you keep it? I mean assuming you have total assets at one million, the $250,000 worth of gold is stored under your mattress? Are you keeping it in a bank safe deposit locker? If so, you think you will be able to get access to it when things really go bad or if the banks get blown up or locked up in so called bad times? The better option would be to bury it somewhere in the backyard so in case your house burns down, you still have your gold.

Now that I have replied to this topic, it is going to be locked in 1 2 3
Gold will withstand fire, so in your house it's fine. It can always be melted and re-used if tarnished (say jewelry, etc.). The biggest issue is keeping it the most inconspicuous location in or around your house for potential theft. In my opinion, coins are the best and easiest way to store (and will be easier to sell if needed).
Good luck selling that gold if we gave a major black swan event.I can just not think of any reason an American in 2019 would have any use for it.
Of course it would. Gold has ALWAYS had value in severe situations throughout history. Gold would be used for bargaining, trading, etc. among other things. Why do you think Venezuela is trying to get their gold right now? Perfect Black Swan scenario happening today. If it was as worthless as you think it is, they wouldn't be after it. Nor would Russia and China be adding significantly more gold as of late (while dumping U.S. dollars interestingly enough). Even Jack Bogle recommended 5% gold (in case of a major situation) in one of his later videos that has been posted.

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