Why diversification is not a viable strategy?

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sapphire96
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Re: Why diversification is not a viable strategy?

Post by sapphire96 » Sat Apr 20, 2019 5:23 pm

ComeSailAway wrote:
Tue Mar 12, 2019 10:14 am
Consider the "Permanent" portfolio strateg:

25% Stock, 25% Bonds, 25 %Cash and 25% Gold. It has performed well over long periods of time.
Some variations of it exist that perform differently.

Google it for mire info.
https://www.portfoliovisualizer.com/bac ... 0&total3=0

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gmaynardkrebs
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Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Sat Apr 20, 2019 6:10 pm

fortyofforty wrote:
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.
Things that are rare but not valuable are not in a bubble. Things that are valuable, but that you don't think are worth it, is your opinion. Your opinion is perfectly valid for you. Gold has intrinsic value for its beauty, rarity, and as a store of value to billions of people. There may come a time when that fact is useful.

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fortyofforty
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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Sat Apr 20, 2019 6:32 pm

gmaynardkrebs wrote:
Sat Apr 20, 2019 6:10 pm
fortyofforty wrote:
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.
Things that are rare but not valuable are not in a bubble. Things that are valuable, but that you don't think are worth it, is your opinion. Your opinion is perfectly valid for you. Gold has intrinsic value for its beauty, rarity, and as a store of value to billions of people. There may come a time when that fact is useful.
I won't be holding my breath. I have much more productive uses for my money. I am curious as to what, in your opinion, gives gold its "intrinsic value". Rarity isn't enough, since, as I've proven, rare does not equate to valuable. So, I am truly curious.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

dbr
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Re: Why diversification is not a viable strategy?

Post by dbr » Sat Apr 20, 2019 6:47 pm

fortyofforty wrote:
Sat Apr 20, 2019 6:32 pm


I won't be holding my breath. I have much more productive uses for my money. I am curious as to what, in your opinion, gives gold its "intrinsic value". Rarity isn't enough, since, as I've proven, rare does not equate to valuable. So, I am truly curious.
I have no dog in this fight, but as an example: (Well, here was going to be posted a credible academic article on how, why, and what the intrinsic value of gold is, but I could not very easily find one, other than specious arguments by gold dealers and some political positions. Historically there is "You shall not crucify mankind upon a cross of gold.")

On first glance this was the most thoughtful seeming article I could find and it is in the camp that gold does not have intrinsic value: http://www.marketoracle.co.uk/Article26704.html

You tell me.

3504PIR
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Re: Why diversification is not a viable strategy?

Post by 3504PIR » Sat Apr 20, 2019 7:14 pm

Diversity in investing is much more about correlation than it is about being “different.” One person my think bonds are diversified vs stocks (and they may be), but unless they behave differently in similar situations, it really has nothing to do with diversity.

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fortyofforty
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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Sat Apr 20, 2019 8:45 pm

dbr wrote:
Sat Apr 20, 2019 6:47 pm
fortyofforty wrote:
Sat Apr 20, 2019 6:32 pm


I won't be holding my breath. I have much more productive uses for my money. I am curious as to what, in your opinion, gives gold its "intrinsic value". Rarity isn't enough, since, as I've proven, rare does not equate to valuable. So, I am truly curious.
I have no dog in this fight, but as an example: (Well, here was going to be posted a credible academic article on how, why, and what the intrinsic value of gold is, but I could not very easily find one, other than specious arguments by gold dealers and some political positions. Historically there is "You shall not crucify mankind upon a cross of gold.")

On first glance this was the most thoughtful seeming article I could find and it is in the camp that gold does not have intrinsic value: http://www.marketoracle.co.uk/Article26704.html

You tell me.
I don't think it does have much more than a very slight intrinsic value (electronics, maybe). But, then again, I don't think Bitcoin has any intrinsic value, either, and plenty of investors speculators made fortunes in that virtual gold currency.
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 10:16 pm

fortyofforty wrote:
Sat Apr 20, 2019 6:32 pm
gmaynardkrebs wrote:
Sat Apr 20, 2019 6:10 pm
fortyofforty wrote:
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.
Things that are rare but not valuable are not in a bubble. Things that are valuable, but that you don't think are worth it, is your opinion. Your opinion is perfectly valid for you. Gold has intrinsic value for its beauty, rarity, and as a store of value to billions of people. There may come a time when that fact is useful.
... Rarity isn't enough, since, as I've proven, rare does not equate to valuable. So, I am truly curious.
Why do you want to argue about a point I've already agreed with? I said: "Things that are rare but not valuable are not in a bubble." Clearly, rarity is not enough. The answer is this familiar phrase: supply and [dem**d]. You may question why there is dem**d, but it won't get you very far. It's what people want. I gave you the exact reasons in the post you quoted. Why do you ask me again? Because you don’t think much of gold? If everyone felt like you gold would be worthless. Apparently, they feel otherwise.

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fortyofforty
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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Sun Apr 21, 2019 6:26 am

gmaynardkrebs wrote:
Sat Apr 20, 2019 10:16 pm
fortyofforty wrote:
Sat Apr 20, 2019 6:32 pm
gmaynardkrebs wrote:
Sat Apr 20, 2019 6:10 pm
fortyofforty wrote:
Sat Apr 20, 2019 4:57 pm
gmaynardkrebs wrote:
Sat Apr 20, 2019 3:05 pm
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.
Things that are rare but not valuable are not in a bubble. Things that are valuable, but that you don't think are worth it, is your opinion. Your opinion is perfectly valid for you. Gold has intrinsic value for its beauty, rarity, and as a store of value to billions of people. There may come a time when that fact is useful.
... Rarity isn't enough, since, as I've proven, rare does not equate to valuable. So, I am truly curious.
Why do you want to argue about a point I've already agreed with? I said: "Things that are rare but not valuable are not in a bubble." Clearly, rarity is not enough. The answer is this familiar phrase: supply and [dem**d]. You may question why there is dem**d, but it won't get you very far. It's what people want. I gave you the exact reasons in the post you quoted. Why do you ask me again? Because you don’t think much of gold? If everyone felt like you gold would be worthless. Apparently, they feel otherwise.
Obviously. I don't know why posting the obvious is of such importance to you, but you feel that it is so have at it. Once again, I never stated gold is in a "bubble". That is your phrase, not mine. I am simply curious as to why gold-lovers think gold is in a different category than other objects that were highly valued at one time or another. If you don't have a real answer, that's fine. Move on, and let somebody who has an answer jump in. Meanwhile, I remain curious.
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 » Sun Apr 21, 2019 7:43 am

@fortyofforty
Gold has intrinsic value for its beauty, rarity, and as a store of value. With regard to "store of value," it advantages include relative portability, and most importantly, near-universal acceptance as a store of value. The latter, is to a large extent a social and cultural convention. For example, the Incas could not understand why the Spanish prized gold as they did. To the Incas, it was primarily a decorative metal IIRC. Other physical commodities have also served as stores as value and a medium of exchange, including cigarettes and large stones. You can find a complete explanation in Milton Friedman's book, Money Mischief.

FWIW, I own no gold/bullion and am not a gold-lover.

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Re: Why diversification is not a viable strategy?

Post by abuss368 » Sun Apr 21, 2019 7:56 am

Bogleheads -

Diversification has often been called the only free lunch in investing.

Best.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success." || Buy Total Stock until it hurts. Then find a way to buy even more!

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fortyofforty
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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Sun Apr 21, 2019 7:57 am

@gmaynardkrebs
You already wrote that. Breaking it down. (Do I really need to do this? Apparently so.)

Rarity: as I've already proven (and you agreed), rarity does not equate to value. Rarity and value are not by any necessity linked. Just because something is rare does not mean it's valuable. Plenty of rare tulip bulbs exist, but I wouldn't buy them.

Intrinsic value: your first "explanation" listed the reason why gold has intrinsic value because gold has intrinsic value. That is no argument. It is merely a description of what exists, and the same could easily be said for Bitcoin or tulip bulbs, in the right time.

Now, it's "store of value", a modification of the above "explanation": well, it's a "store of value" because it's accepted as a "store of value". Otherwise, it's a lump of metal in your pocket, far less useful than a survival knife, PFAK, or extra magazine. Again, it has value because it has value is no real argument.

Beauty: are you claiming that beauty, the only remaining factor in your argument for gold's intrinsic value, explains why people assign a value to gold far above that dictated by any objective measure of rarity or industrial use? Apparently so. But come out and say it, then. That's the one remaining factor undergirding your entire argument. So, there it is.

I was trying to find out what makes gold so special. Based on all your explanations, it seems to fall to beauty. Maybe that's it. People like it. People enjoy it. It makes people feel good. Of course, I was trying to find out if I was missing something, but based on this discussion, it's clear I'm not.
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 » Sun Apr 21, 2019 8:45 am

fortyofforty wrote:
Sun Apr 21, 2019 7:57 am
@gmaynardkrebs
You already wrote that. Breaking it down. (Do I really need to do this? Apparently so.)

Rarity: as I've already proven (and you agreed), rarity does not equate to value. Rarity and value are not by any necessity linked. Just because something is rare does not mean it's valuable. Plenty of rare tulip bulbs exist, but I wouldn't buy them.

Intrinsic value: your first "explanation" listed the reason why gold has intrinsic value because gold has intrinsic value. That is no argument. It is merely a description of what exists, and the same could easily be said for Bitcoin or tulip bulbs, in the right time.

Now, it's "store of value", a modification of the above "explanation": well, it's a "store of value" because it's accepted as a "store of value". Otherwise, it's a lump of metal in your pocket, far less useful than a survival knife, PFAK, or extra magazine. Again, it has value because it has value is no real argument.

Beauty: are you claiming that beauty, the only remaining factor in your argument for gold's intrinsic value, explains why people assign a value to gold far above that dictated by any objective measure of rarity or industrial use? Apparently so. But come out and say it, then. That's the one remaining factor undergirding your entire argument. So, there it is.

I was trying to find out what makes gold so special. Based on all your explanations, it seems to fall to beauty. Maybe that's it. People like it. People enjoy it. It makes people feel good. Of course, I was trying to find out if I was missing something, but based on this discussion, it's clear I'm not.
Gold's value is a social/cultural convention. Why it, as opposed to other physical objects with similar properties, has become a near-universal store of value has has no definitive answer in the sense you appear to be looking for. Again, I would recommend the Milton Friedman book.

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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Sun Apr 21, 2019 10:24 am

gmaynardkrebs wrote:
Sun Apr 21, 2019 8:45 am
fortyofforty wrote:
Sun Apr 21, 2019 7:57 am
@gmaynardkrebs
You already wrote that. Breaking it down. (Do I really need to do this? Apparently so.)

Rarity: as I've already proven (and you agreed), rarity does not equate to value. Rarity and value are not by any necessity linked. Just because something is rare does not mean it's valuable. Plenty of rare tulip bulbs exist, but I wouldn't buy them.

Intrinsic value: your first "explanation" listed the reason why gold has intrinsic value because gold has intrinsic value. That is no argument. It is merely a description of what exists, and the same could easily be said for Bitcoin or tulip bulbs, in the right time.

Now, it's "store of value", a modification of the above "explanation": well, it's a "store of value" because it's accepted as a "store of value". Otherwise, it's a lump of metal in your pocket, far less useful than a survival knife, PFAK, or extra magazine. Again, it has value because it has value is no real argument.

Beauty: are you claiming that beauty, the only remaining factor in your argument for gold's intrinsic value, explains why people assign a value to gold far above that dictated by any objective measure of rarity or industrial use? Apparently so. But come out and say it, then. That's the one remaining factor undergirding your entire argument. So, there it is.

I was trying to find out what makes gold so special. Based on all your explanations, it seems to fall to beauty. Maybe that's it. People like it. People enjoy it. It makes people feel good. Of course, I was trying to find out if I was missing something, but based on this discussion, it's clear I'm not.
Gold's value is a social/cultural convention. Why it, as opposed to other physical objects with similar properties, has become a near-universal store of value has has no definitive answer in the sense you appear to be looking for. Again, I would recommend the Milton Friedman book.
I thank you for your attempt to provide a logical answer, when it obviously does not exist. If it's just a "custom" then there is no logic, which is fine. It has no definitive answer in any sense, not just in some nebulous sense that I am looking for, personally, which is clear from your numerous responses. If Friedman had a better answer, no doubt you'd have quoted it in one of your many posts here.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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nedsaid
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Re: Why diversification is not a viable strategy?

Post by nedsaid » Sun Apr 21, 2019 10:52 am

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
An investor has to be realistic about what diversification can and can't do for you. We want somehow to believe that if we have the right mix of assets that portfolio volatility will mostly go away and that we will be able to plot 8% steady returns on a graph. We also want a foolproof portfolio that will guard against whatever might happen. If a Doctor gave you a very grave medical report and gave you six months to live, how is portfolio diversification going to protect you from that? Most portfolios could not stand up to very rare, but possible financial disasters like hyperinflation on the one hand and an economic collapse on the other. Or if North Korea decided to nuke Seattle. There are limits to what even the best diversification can do for you.

If you have a well diversified portfolio, most things you own will do well and others will disappoint. Another frustration to overcome, we all like portfolios that are firing on all cylinders, everything working well at the same time. It makes you look really smart for one thing. If everything is doing well at the same time, you really are not properly diversified.

Also there is the old problem is that in panics and really bad markets that correlations tend to move towards one. In other words, everything or most everything goes down at the same time. What we hope for is that some things will go down less than others, we found that out during the 2008-2009 financial crisis and bear market. Many bonds were down 10-11% even as stocks were down 50%. Only US nominal treasuries and certain US agency bonds did well in that environment. Uncle Sam had to put a guarantee on money market accounts to stop what amounted to a run on the bank. Even Gold was down.

Another frustration is that each bear market is different and what worked in one downturn won't necessarily work in another. Long US Treasuries work most of the time as a hedge against US Stocks in a bear market but wouldn't have worked during the 1970's Stagflation. Commodities would have worked great during the stagflation seventies and the 2000's up until the financial crisis in 2008-2009. "Non-correlating" but volatile asset classes to US Stocks like US Small Value, Smaller US Stocks in general, REITs, and International Stocks did well compared to the broad US Stock Market in the aftermath of the late 1990's high tech and internet bubble.. US Large Value did well too. Such things as commodities and precious metals did well also. None of this worked in the 2008-2009 financial crisis and bear market. Most things fell and fell hard.

Portfolio insurance, such things as Gold and Commodities, that are there to protect against relatively rare events will most often cause a drag on portfolio performance. When such rare events occur, the portfolio insurance doesn't always work.

We can diversify risks away to some degree but sometimes we just have to outwait bad news and market volatility. Eventually the ship will right itself but we don't like to wait.
A fool and his money are good for business.

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gmaynardkrebs
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Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Sun Apr 21, 2019 10:55 am

fortyofforty wrote:
Sun Apr 21, 2019 10:24 am
I thank you for your attempt to provide a logical answer, when it obviously does not exist. If it's just a "custom" then there is no logic, which is fine. It has no definitive answer in any sense, not just in some nebulous sense that I am looking for, personally, which is clear from your numerous responses. If Friedman had a better answer, no doubt you'd have quoted it in one of your many posts here.
Basically, that's it. If gold didn't exist, silver, platinum, diamonds, or something else would be in its place. But just to be clear, gold has a number of non-subjective advantages over these others in the monetary context, which may explain why it holds the position it does: unlike silver, when gold coins wear, they don't lose weight (the metal gets pushed into the coin), and it doesn't tarnish/oxidize; unlike diamonds, gold can't be synthesized, and comes out of the ground looking pretty much the way it looks before being cut, polished or formed. I'm not sure why platinum, which is rarer than gold, hasn't achieved the same acceptance -- it could be that it looks too much like silver, which makes it less immediately obvious what it is. So while it is ultimately a cultural value, there are objective factors behind gold's preeminent position.

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Re: Why diversification is not a viable strategy?

Post by hoops777 » Sun Apr 21, 2019 12:45 pm

DB2 wrote:
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.
Good luck with that.I will look you up at the next black swan event and trade you my wife’s gold jewelry for a months worth of your food and water :D
K.I.S.S........so easy to say so difficult to do.

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Re: Why diversification is not a viable strategy?

Post by DB2 » Sun Apr 21, 2019 12:48 pm

hoops777 wrote:
Sun Apr 21, 2019 12:45 pm
DB2 wrote:
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.
Good luck with that.I will look you up at the next black swan event and trade you my wife’s gold jewelry for a months worth of your food and water :D
No, good luck to you! That's not even the way it would necessarily work, but it takes a fundamental understanding of these matters and how money actually works. I'm also bowing out of this conversation as it's becoming pointless.

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fortyofforty
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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Sun Apr 21, 2019 2:59 pm

gmaynardkrebs wrote:
Sun Apr 21, 2019 10:55 am
fortyofforty wrote:
Sun Apr 21, 2019 10:24 am
I thank you for your attempt to provide a logical answer, when it obviously does not exist. If it's just a "custom" then there is no logic, which is fine. It has no definitive answer in any sense, not just in some nebulous sense that I am looking for, personally, which is clear from your numerous responses. If Friedman had a better answer, no doubt you'd have quoted it in one of your many posts here.
Basically, that's it. If gold didn't exist, silver, platinum, diamonds, or something else would be in its place. But just to be clear, gold has a number of non-subjective advantages over these others in the monetary context, which may explain why it holds the position it does: unlike silver, when gold coins wear, they don't lose weight (the metal gets pushed into the coin), and it doesn't tarnish/oxidize; unlike diamonds, gold can't be synthesized, and comes out of the ground looking pretty much the way it looks before being cut, polished or formed. I'm not sure why platinum, which is rarer than gold, hasn't achieved the same acceptance -- it could be that it looks too much like silver, which makes it less immediately obvious what it is. So while it is ultimately a cultural value, there are objective factors behind gold's preeminent position.
It seems a little suspect that the argument basically boils down to "gold has value because gold has value". I can substitute any one of a number of things and the sentence is equally valid. Tulip bulbs. Bitcoins. Cabbage Patch dolls. You claim that "there are objective factors behind gold's preeminent position", but these are all pretty weak. But if that's it, then it is what it is. Personally, I will take my chances elsewhere.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Sun Apr 21, 2019 3:09 pm

fortyofforty wrote:
Sun Apr 21, 2019 2:59 pm

It seems a little suspect that the argument basically boils down to "gold has value because gold has value". I can substitute any one of a number of things and the sentence is equally valid. Tulip bulbs. Bitcoins. Cabbage Patch dolls. You claim that "there are objective factors behind gold's preeminent position", but these are all pretty weak. But if that's it, then it is what it is. Personally, I will take my chances elsewhere.
fortyofforty,

So, if we have hyperinflation, you would take

<<Tulip bulbs. Bitcoins. Cabbage Patch dolls>> instead of gold?

Or, your position is hyperinflation is not possible?

Or, you have something better for hyperinflation and you choose not to tell us.

I would like to understand your position better.

My position is Asian believe in Gold. And, that is good enough for me.

KlangFool

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nedsaid
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Re: Why diversification is not a viable strategy?

Post by nedsaid » Sun Apr 21, 2019 3:39 pm

fortyofforty wrote:
Sun Apr 21, 2019 2:59 pm
gmaynardkrebs wrote:
Sun Apr 21, 2019 10:55 am
fortyofforty wrote:
Sun Apr 21, 2019 10:24 am
I thank you for your attempt to provide a logical answer, when it obviously does not exist. If it's just a "custom" then there is no logic, which is fine. It has no definitive answer in any sense, not just in some nebulous sense that I am looking for, personally, which is clear from your numerous responses. If Friedman had a better answer, no doubt you'd have quoted it in one of your many posts here.
Basically, that's it. If gold didn't exist, silver, platinum, diamonds, or something else would be in its place. But just to be clear, gold has a number of non-subjective advantages over these others in the monetary context, which may explain why it holds the position it does: unlike silver, when gold coins wear, they don't lose weight (the metal gets pushed into the coin), and it doesn't tarnish/oxidize; unlike diamonds, gold can't be synthesized, and comes out of the ground looking pretty much the way it looks before being cut, polished or formed. I'm not sure why platinum, which is rarer than gold, hasn't achieved the same acceptance -- it could be that it looks too much like silver, which makes it less immediately obvious what it is. So while it is ultimately a cultural value, there are objective factors behind gold's preeminent position.
It seems a little suspect that the argument basically boils down to "gold has value because gold has value". I can substitute any one of a number of things and the sentence is equally valid. Tulip bulbs. Bitcoins. Cabbage Patch dolls. You claim that "there are objective factors behind gold's preeminent position", but these are all pretty weak. But if that's it, then it is what it is. Personally, I will take my chances elsewhere.
At this time, I do not own any Gold. I do argue that Gold has intrinsic value. Humans have always valued it from the earliest times of civilization. Just something about it that people like and value and this has always held true.
Genesis Chapter 2

9 And out of the ground made the LORD God to grow every tree that is pleasant to the sight, and good for food; the tree of life also in the midst of the garden, and the tree of knowledge of good and evil.

10 And a river went out of Eden to water the garden; and from thence it was parted, and became into four heads.

11 The name of the first is Pison: that is it which compasseth the whole land of Havilah, where there is gold;

12 And the gold of that land is good: there is bdellium and the onyx stone.
So if the good book says that Gold is good, that is good enough for me. Tulip bulbs, bitcoin, and cabbage patch dolls don't have the historical record of a universally accepted store of value that Gold has.

As for me, I don't see a need for owning Gold at this time, I haven't owned any since at least the early 1990's if not the late 1980's. I want my investments to generate cash flow. Were I a very wealthy person, I would own some Gold.
A fool and his money are good for business.

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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Sun Apr 21, 2019 5:45 pm

KlangFool wrote:
Sun Apr 21, 2019 3:09 pm
fortyofforty wrote:
Sun Apr 21, 2019 2:59 pm

It seems a little suspect that the argument basically boils down to "gold has value because gold has value". I can substitute any one of a number of things and the sentence is equally valid. Tulip bulbs. Bitcoins. Cabbage Patch dolls. You claim that "there are objective factors behind gold's preeminent position", but these are all pretty weak. But if that's it, then it is what it is. Personally, I will take my chances elsewhere.
fortyofforty,

So, if we have hyperinflation, you would take

<<Tulip bulbs. Bitcoins. Cabbage Patch dolls>> instead of gold?

Or, your position is hyperinflation is not possible?

Or, you have something better for hyperinflation and you choose not to tell us.

I would like to understand your position better.

My position is Asian believe in Gold. And, that is good enough for me.

KlangFool
Of course hyperinflation is possible. And it is also possible that gold drops in value in that environment, as the hoarders empty their coffers to buy food, until the farmers don't need any more gold. Of course, history says... Gold has always... People have always...

But nobody knows nothin'. So I wouldn't put all my eggs in the "gold is absolute protection against hyperinflation" basket. Unless you're sitting on a chest full of gold doubloons, you probably will not be able to retrieve enough gold from a storage facility to last very long, and it will probably be taken from you in any case.

The government can also outlaw the hoarding of gold. Or do you not believe it can ever happen. Again.

All I am trying to understand is what it is about gold that makes it somehow intrinsically valuable. I keep reading and reading, response after response, page after page. But, all I hear is that gold has value because gold has value. That's it.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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Re: Why diversification is not a viable strategy?

Post by Trader Joe » Sun Apr 21, 2019 5:50 pm

I agree. If you are an American, living in the U.S.A., global diversification is not a good investment strategy at all.

For example, avoid: Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)

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Re: Why diversification is not a viable strategy?

Post by columbia » Sun Apr 21, 2019 5:56 pm

Trader Joe wrote:
Sun Apr 21, 2019 5:50 pm
I agree. If you are an American, living in the U.S.A., global diversification is not a good investment strategy at all.

For example, avoid: Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)
I don’t think that it’s a bad strategy, but - if I had to bet - it’s probably suboptimal.

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Re: Why diversification is not a viable strategy?

Post by lostdog » Sun Apr 21, 2019 6:24 pm

columbia wrote:
Sun Apr 21, 2019 5:56 pm
Trader Joe wrote:
Sun Apr 21, 2019 5:50 pm
I agree. If you are an American, living in the U.S.A., global diversification is not a good investment strategy at all.

For example, avoid: Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)
I don’t think that it’s a bad strategy, but - if I had to bet - it’s probably suboptimal.
Going all VTSAX because of home bias, recency bias and American exceptionalism is not a good strategy at all. I bet you wouldn't stay the course if International outperforms. For example:avoid the quoted opinions.
World market cap equity.

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Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Sun Apr 21, 2019 6:29 pm

fortyofforty wrote:
Sun Apr 21, 2019 5:45 pm

All I am trying to understand is what it is about gold that makes it somehow intrinsically valuable. I keep reading and reading, response after response, page after page. But, all I hear is that gold has value because gold has value. That's it.
Gold has a price. In markets, the price = value.

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Re: Why diversification is not a viable strategy?

Post by KlangFool » Sun Apr 21, 2019 6:33 pm

fortyofforty wrote:
Sun Apr 21, 2019 5:45 pm

Of course hyperinflation is possible. And it is also possible that gold drops in value in that environment, as the hoarders empty their coffers to buy food, until the farmers don't need any more gold. Of course, history says... Gold has always... People have always...

But nobody knows nothin'. So I wouldn't put all my eggs in the "gold is absolute protection against hyperinflation" basket. Unless you're sitting on a chest full of gold doubloons, you probably will not be able to retrieve enough gold from a storage facility to last very long, and it will probably be taken from you in any case.

The government can also outlaw the hoarding of gold. Or do you not believe it can ever happen. Again.

All I am trying to understand is what it is about gold that makes it somehow intrinsically valuable. I keep reading and reading, response after response, page after page. But, all I hear is that gold has value because gold has value. That's it.
fortyofforty,

<< So I wouldn't put all my eggs in the "gold is absolute protection against hyperinflation" basket. >>

We are discussing diversification on this thread. So, putting all your eggs in any basket is not the goal. So, I am still trying to understand your position here. My position is I need enough gold to get my family to somewhere else. Aka, as a form of insurance.

And your position is

A) You would not buy enough gold to matter so don't bother.

B) Gold as insurance is not needed.

Or something else.

<< The government can also outlaw the hoarding of gold. Or do you not believe it can ever happen. Again.>>

Or, hoarding of food and water. That does not mean you would not keep some food and water in your pantry.

What is your position?

KlangFool

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Re: Why diversification is not a viable strategy?

Post by columbia » Sun Apr 21, 2019 6:40 pm

lostdog wrote:
Sun Apr 21, 2019 6:24 pm
columbia wrote:
Sun Apr 21, 2019 5:56 pm
Trader Joe wrote:
Sun Apr 21, 2019 5:50 pm
I agree. If you are an American, living in the U.S.A., global diversification is not a good investment strategy at all.

For example, avoid: Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)
I don’t think that it’s a bad strategy, but - if I had to bet - it’s probably suboptimal.
Going all VTSAX because of home bias, recency bias and American exceptionalism is not a good strategy at all. I bet you wouldn't stay the course if International outperforms. For example:avoid the quoted opinions.
It’s not a binary choice.

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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Sun Apr 21, 2019 6:43 pm

gmaynardkrebs wrote:
Sun Apr 21, 2019 6:29 pm
fortyofforty wrote:
Sun Apr 21, 2019 5:45 pm

All I am trying to understand is what it is about gold that makes it somehow intrinsically valuable. I keep reading and reading, response after response, page after page. But, all I hear is that gold has value because gold has value. That's it.
Gold has a price. In markets, the price = value.
Yep. Just like everything else. I think tulip bulbs have value, too, down at the local nursery. Tulip bulbs have a price and, as you said, "the price = value". Aside from looking pretty, only the value imparted to gold by buyers gives it more value than other rare items, and that imparted value is only based on historical trends. Nothing I've read here leads me to any other conclusion. Have at it! Buy up all you want. It worked for Scrooge McDuck: he never went hungry. :moneybag It didn't work out so well in "The Rip Van Winkle Caper" on the Twilight Zone, however. :(
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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Re: Why diversification is not a viable strategy?

Post by pward » Sun Apr 21, 2019 7:09 pm

Assets can have value without having Warren Buffet style "intrinsic" value. Whether or not something has "intrinsic value" means nothing. One can make money off of an investment because it has value; whether or not that value is "intrinsic" does not matter.

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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Sun Apr 21, 2019 8:20 pm

pward wrote:
Sun Apr 21, 2019 7:09 pm
Assets can have value without having Warren Buffet style "intrinsic" value. Whether or not something has "intrinsic value" means nothing. One can make money off of an investment because it has value; whether or not that value is "intrinsic" does not matter.
Absolutely true. A lot of fortunes were made investing in tulip bulbs*, even though they had no "intrinsic value". It means nothing. Whether or not that value is "Intrinsic" does not matter. Until it does.

* Substitute "crypto currency" if it helps make the point for you.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Sun Apr 21, 2019 9:35 pm

fortyofforty wrote:
Sun Apr 21, 2019 6:43 pm
gmaynardkrebs wrote:
Sun Apr 21, 2019 6:29 pm
fortyofforty wrote:
Sun Apr 21, 2019 5:45 pm

All I am trying to understand is what it is about gold that makes it somehow intrinsically valuable. I keep reading and reading, response after response, page after page. But, all I hear is that gold has value because gold has value. That's it.
Gold has a price. In markets, the price = value.
Yep. Just like everything else. I think tulip bulbs have value, too, down at the local nursery. Tulip bulbs have a price and, as you said, "the price = value". Aside from looking pretty, only the value imparted to gold by buyers gives it more value than other rare items, and that imparted value is only based on historical trends. Nothing I've read here leads me to any other conclusion. Have at it! Buy up all you want. It worked for Scrooge McDuck: he never went hungry. :moneybag It didn't work out so well in "The Rip Van Winkle Caper" on the Twilight Zone, however. :(
When tulips stay at a high price for 6000 years, let me know. I don't buy gold or tulips, but I understand the difference. Good luck buying your way out a bad situation with tulips. I am sure they will be impressed with your argument that tulips are no different from gold.
Last edited by gmaynardkrebs on Sun Apr 21, 2019 9:42 pm, edited 1 time in total.

hoops777
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Re: Why diversification is not a viable strategy?

Post by hoops777 » Sun Apr 21, 2019 9:42 pm

DB2 wrote:
Sun Apr 21, 2019 12:48 pm
hoops777 wrote:
Sun Apr 21, 2019 12:45 pm
DB2 wrote:
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


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.
Good luck with that.I will look you up at the next black swan event and trade you my wife’s gold jewelry for a months worth of your food and water :D
No, good luck to you! That's not even the way it would necessarily work, but it takes a fundamental understanding of these matters and how money actually works. I'm also bowing out of this conversation as it's becoming pointless.
I actually do understand and was being a bit sarcastic.I do have the belief that in California 2019,that gold is a thing of the past and will leave it at that.I understand certain cultures and countries value gold differently even to the point of obsession.The world is changing and it would be interesting to see what % of people under 50 own gold in the U.S.Under 40?
K.I.S.S........so easy to say so difficult to do.

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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Mon Apr 22, 2019 6:15 am

gmaynardkrebs wrote:
Sun Apr 21, 2019 9:35 pm
fortyofforty wrote:
Sun Apr 21, 2019 6:43 pm
gmaynardkrebs wrote:
Sun Apr 21, 2019 6:29 pm
fortyofforty wrote:
Sun Apr 21, 2019 5:45 pm

All I am trying to understand is what it is about gold that makes it somehow intrinsically valuable. I keep reading and reading, response after response, page after page. But, all I hear is that gold has value because gold has value. That's it.
Gold has a price. In markets, the price = value.
Yep. Just like everything else. I think tulip bulbs have value, too, down at the local nursery. Tulip bulbs have a price and, as you said, "the price = value". Aside from looking pretty, only the value imparted to gold by buyers gives it more value than other rare items, and that imparted value is only based on historical trends. Nothing I've read here leads me to any other conclusion. Have at it! Buy up all you want. It worked for Scrooge McDuck: he never went hungry. :moneybag It didn't work out so well in "The Rip Van Winkle Caper" on the Twilight Zone, however. :(
When tulips stay at a high price for 6000 years, let me know. I don't buy gold or tulips, but I understand the difference. Good luck buying your way out a bad situation with tulips. I am sure they will be impressed with your argument that tulips are no different from gold.
What is a "high price", exactly? Enjoy eating your gold, when things get serious. Let us know how that works out for you.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Mon Apr 22, 2019 6:41 am

KlangFool wrote:
Sun Apr 21, 2019 6:33 pm
fortyofforty wrote:
Sun Apr 21, 2019 5:45 pm

Of course hyperinflation is possible. And it is also possible that gold drops in value in that environment, as the hoarders empty their coffers to buy food, until the farmers don't need any more gold. Of course, history says... Gold has always... People have always...

But nobody knows nothin'. So I wouldn't put all my eggs in the "gold is absolute protection against hyperinflation" basket. Unless you're sitting on a chest full of gold doubloons, you probably will not be able to retrieve enough gold from a storage facility to last very long, and it will probably be taken from you in any case.

The government can also outlaw the hoarding of gold. Or do you not believe it can ever happen. Again.

All I am trying to understand is what it is about gold that makes it somehow intrinsically valuable. I keep reading and reading, response after response, page after page. But, all I hear is that gold has value because gold has value. That's it.
fortyofforty,

<< So I wouldn't put all my eggs in the "gold is absolute protection against hyperinflation" basket. >>

We are discussing diversification on this thread. So, putting all your eggs in any basket is not the goal. So, I am still trying to understand your position here. My position is I need enough gold to get my family to somewhere else. Aka, as a form of insurance.

And your position is

A) You would not buy enough gold to matter so don't bother.

B) Gold as insurance is not needed.

Or something else.

<< The government can also outlaw the hoarding of gold. Or do you not believe it can ever happen. Again.>>

Or, hoarding of food and water. That does not mean you would not keep some food and water in your pantry.

What is your position?

KlangFool
My position is trying to understand what makes gold so special? Gold has value because gold has value doesn't seem to cut it, does it? If it's a good enough explanation for you, then buy gold. Hoard gold. Store gold.

I haven't seen any explanation for advocating for gold that doesn't apply equally to any one of a number of collectible assets. I am still trying to figure out why gold is gold. The best anyone here can come up with is that gold is valuable because gold is valuable, gold has always been valuable because gold has always been valuable, and gold will always be valuable because gold will always be valuable. Logical? Not to me, and I try to find logic behind underlying assumptions.

I am not in a position of telling any other investor what is or isn't best for her. She has to make up her own mind. If she believes adding gold or cryptocurrency or art or classic cars provides diversification for her, she should buy and move on with her life.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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Re: Why diversification is not a viable strategy?

Post by bogledogle87 » Mon Apr 22, 2019 6:45 am

lostdog wrote:
Sun Apr 21, 2019 6:24 pm
columbia wrote:
Sun Apr 21, 2019 5:56 pm
Trader Joe wrote:
Sun Apr 21, 2019 5:50 pm
I agree. If you are an American, living in the U.S.A., global diversification is not a good investment strategy at all.

For example, avoid: Vanguard Total World Stock Index Fund Admiral Shares (VTWAX)
I don’t think that it’s a bad strategy, but - if I had to bet - it’s probably suboptimal.
Going all VTSAX because of home bias, recency bias and American exceptionalism is not a good strategy at all. I bet you wouldn't stay the course if International outperforms. For example:avoid the quoted opinions.
+1

The original argument is just plain silly. 100% VTSAX is probably fine, you could definitely do a lot worse, but may be taking on more risk at a higher price than one is willing to admit. Easy to make such claims after a historic US run of outperformance for 10 years, but may be hard to implement for another 50 years if/when all this eventually reveals itself to be a statistical outlier.

To argue that global investing is fundamentally a poor strategy is extremely misguided.
VTWAX and chill

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Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Mon Apr 22, 2019 7:16 am

fortyofforty wrote:
Mon Apr 22, 2019 6:15 am
gmaynardkrebs wrote:
Sun Apr 21, 2019 9:35 pm
fortyofforty wrote:
Sun Apr 21, 2019 6:43 pm
gmaynardkrebs wrote:
Sun Apr 21, 2019 6:29 pm
fortyofforty wrote:
Sun Apr 21, 2019 5:45 pm

All I am trying to understand is what it is about gold that makes it somehow intrinsically valuable. I keep reading and reading, response after response, page after page. But, all I hear is that gold has value because gold has value. That's it.
Gold has a price. In markets, the price = value.
Yep. Just like everything else. I think tulip bulbs have value, too, down at the local nursery. Tulip bulbs have a price and, as you said, "the price = value". Aside from looking pretty, only the value imparted to gold by buyers gives it more value than other rare items, and that imparted value is only based on historical trends. Nothing I've read here leads me to any other conclusion. Have at it! Buy up all you want. It worked for Scrooge McDuck: he never went hungry. :moneybag It didn't work out so well in "The Rip Van Winkle Caper" on the Twilight Zone, however. :(
When tulips stay at a high price for 6000 years, let me know. I don't buy gold or tulips, but I understand the difference. Good luck buying your way out a bad situation with tulips. I am sure they will be impressed with your argument that tulips are no different from gold.
What is a "high price", exactly? Enjoy eating your gold, when things get serious. Let us know how that works out for you.
It will work out fine, because I will buy food with the gold. In your world, the only store of value appears to be the banana. :oops:

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KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Mon Apr 22, 2019 7:35 am

fortyofforty wrote:
Mon Apr 22, 2019 6:41 am

My position is trying to understand what makes gold so special? Gold has value because gold has value doesn't seem to cut it, does it? If it's a good enough explanation for you, then buy gold. Hoard gold. Store gold.
fortyofforty,

<<My position is trying to understand what makes gold so special? >>

It is special because a fair amount of people believe that it is special over a very long period of time.

Now, back to the main topic. So, you do not believe gold is a good hedge against hyperinflation. Then, what would you use instead? Or, you do not believe insurance against hyperinflation is necessary.

What is your position?

KlangFool
Last edited by KlangFool on Mon Apr 22, 2019 8:25 am, edited 1 time in total.

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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Mon Apr 22, 2019 8:22 am

KlangFool wrote:
Mon Apr 22, 2019 7:35 am
fortyofforty wrote:
Mon Apr 22, 2019 6:41 am

My position is trying to understand what makes gold so special? Gold has value because gold has value doesn't seem to cut it, does it? If it's a good enough explanation for you, then buy gold. Hoard gold. Store gold.
fortyofforty,

<<My position is trying to understand what makes gold so special? >>

It is special because a fair amount of people believe that it is special over a very long period of time.

Now, back to the main topic. So, you do not believe gold is a good hedge against hyperinflation. Then, why would you use instead? Or, you do not believe insurance against hyperinflation is necessary.

What is your position?

KlangFool
I am not 100% convinced that gold will be a perfect hedge against hyperinflation. Are you? And if you are, how much gold do you think a person should have? I believe other items, like those who are living in Venezuela wish they had now, will be as useful as gold. I'll leave it at that.

Imparting value in an object like gold seems very much like those who impart value in the American dollar, from a logical perspective.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Mon Apr 22, 2019 8:24 am

gmaynardkrebs wrote:
Mon Apr 22, 2019 7:16 am
fortyofforty wrote:
Mon Apr 22, 2019 6:15 am
gmaynardkrebs wrote:
Sun Apr 21, 2019 9:35 pm
fortyofforty wrote:
Sun Apr 21, 2019 6:43 pm
gmaynardkrebs wrote:
Sun Apr 21, 2019 6:29 pm
Gold has a price. In markets, the price = value.
Yep. Just like everything else. I think tulip bulbs have value, too, down at the local nursery. Tulip bulbs have a price and, as you said, "the price = value". Aside from looking pretty, only the value imparted to gold by buyers gives it more value than other rare items, and that imparted value is only based on historical trends. Nothing I've read here leads me to any other conclusion. Have at it! Buy up all you want. It worked for Scrooge McDuck: he never went hungry. :moneybag It didn't work out so well in "The Rip Van Winkle Caper" on the Twilight Zone, however. :(
When tulips stay at a high price for 6000 years, let me know. I don't buy gold or tulips, but I understand the difference. Good luck buying your way out a bad situation with tulips. I am sure they will be impressed with your argument that tulips are no different from gold.
What is a "high price", exactly? Enjoy eating your gold, when things get serious. Let us know how that works out for you.
It will work out fine, because I will buy food with the gold. In your world, the only store of value appears to be the banana. :oops:
Good luck with that strategy. I'm sure your gold hoard will go far. :shock:
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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Re: Why diversification is not a viable strategy?

Post by KlangFool » Mon Apr 22, 2019 8:30 am

fortyofforty wrote:
Mon Apr 22, 2019 8:22 am
KlangFool wrote:
Mon Apr 22, 2019 7:35 am
fortyofforty wrote:
Mon Apr 22, 2019 6:41 am

My position is trying to understand what makes gold so special? Gold has value because gold has value doesn't seem to cut it, does it? If it's a good enough explanation for you, then buy gold. Hoard gold. Store gold.
fortyofforty,

<<My position is trying to understand what makes gold so special? >>

It is special because a fair amount of people believe that it is special over a very long period of time.

Now, back to the main topic. So, you do not believe gold is a good hedge against hyperinflation. Then, why would you use instead? Or, you do not believe insurance against hyperinflation is necessary.

What is your position?

KlangFool
I am not 100% convinced that gold will be a perfect hedge against hyperinflation. Are you? And if you are, how much gold do you think a person should have? I believe other items, like those who are living in Venezuela wish they had now, will be as useful as gold. I'll leave it at that.

Imparting value in an object like gold seems very much like those who impart value in the American dollar, from a logical perspective.
fortyofforty,

<<I am not 100% convinced that gold will be a perfect hedge against hyperinflation. Are you? >>

I do not believe that anything is a perfect hedge. I believe in diversification.

<<And if you are, how much gold do you think a person should have?>>

Enough to get out of the country.

<< I believe other items, like those who are living in Venezuela >>

Those that have gold had left the country.

<<I believe other items, like those who are living in Venezuela wish they had now, will be as useful as gold. I'll leave it at that. >>

Those that still are in Venezuela may not survive regardless of what they have now. It is too dangerous to stay in Venezuela.

https://www.washingtonpost.com/news/wor ... 9fe26299cc

This Venezuela doctor uses his gold class ring to get out of the country and start a new life in Peru.

KlangFool

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fortyofforty
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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Mon Apr 22, 2019 9:33 am

KlangFool wrote:
Mon Apr 22, 2019 8:30 am
fortyofforty wrote:
Mon Apr 22, 2019 8:22 am
KlangFool wrote:
Mon Apr 22, 2019 7:35 am
fortyofforty wrote:
Mon Apr 22, 2019 6:41 am

My position is trying to understand what makes gold so special? Gold has value because gold has value doesn't seem to cut it, does it? If it's a good enough explanation for you, then buy gold. Hoard gold. Store gold.
fortyofforty,

<<My position is trying to understand what makes gold so special? >>

It is special because a fair amount of people believe that it is special over a very long period of time.

Now, back to the main topic. So, you do not believe gold is a good hedge against hyperinflation. Then, why would you use instead? Or, you do not believe insurance against hyperinflation is necessary.

What is your position?

KlangFool
I am not 100% convinced that gold will be a perfect hedge against hyperinflation. Are you? And if you are, how much gold do you think a person should have? I believe other items, like those who are living in Venezuela wish they had now, will be as useful as gold. I'll leave it at that.

Imparting value in an object like gold seems very much like those who impart value in the American dollar, from a logical perspective.
fortyofforty,

<<I am not 100% convinced that gold will be a perfect hedge against hyperinflation. Are you? >>

I do not believe that anything is a perfect hedge. I believe in diversification.

<<And if you are, how much gold do you think a person should have?>>

Enough to get out of the country.

<< I believe other items, like those who are living in Venezuela >>

Those that have gold had left the country.

<<I believe other items, like those who are living in Venezuela wish they had now, will be as useful as gold. I'll leave it at that. >>

Those that still are in Venezuela may not survive regardless of what they have now. It is too dangerous to stay in Venezuela.

https://www.washingtonpost.com/news/wor ... 9fe26299cc

This Venezuela doctor uses his gold class ring to get out of the country and start a new life in Peru.

KlangFool
If that's how much gold you need, then I'll be more than fine. One gold ring. Out of the country. Done. No need to hoard more, then, if you're correct. Interesting perspective. Thanks for that.
Indexing works, not because of magic, but because of math. | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

hoops777
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Re: Why diversification is not a viable strategy?

Post by hoops777 » Mon Apr 22, 2019 9:48 am

KlangFool wrote:
Mon Apr 22, 2019 8:30 am
fortyofforty wrote:
Mon Apr 22, 2019 8:22 am
KlangFool wrote:
Mon Apr 22, 2019 7:35 am
fortyofforty wrote:
Mon Apr 22, 2019 6:41 am

My position is trying to understand what makes gold so special? Gold has value because gold has value doesn't seem to cut it, does it? If it's a good enough explanation for you, then buy gold. Hoard gold. Store gold.
fortyofforty,

<<My position is trying to understand what makes gold so special? >>

It is special because a fair amount of people believe that it is special over a very long period of time.

Now, back to the main topic. So, you do not believe gold is a good hedge against hyperinflation. Then, why would you use instead? Or, you do not believe insurance against hyperinflation is necessary.

What is your position?

KlangFool
I am not 100% convinced that gold will be a perfect hedge against hyperinflation. Are you? And if you are, how much gold do you think a person should have? I believe other items, like those who are living in Venezuela wish they had now, will be as useful as gold. I'll leave it at that.

Imparting value in an object like gold seems very much like those who impart value in the American dollar, from a logical perspective.
fortyofforty,

<<I am not 100% convinced that gold will be a perfect hedge against hyperinflation. Are you? >>

I do not believe that anything is a perfect hedge. I believe in diversification.

<<And if you are, how much gold do you think a person should have?>>

Enough to get out of the country.

<< I believe other items, like those who are living in Venezuela >>

Those that have gold had left the country.

<<I believe other items, like those who are living in Venezuela wish they had now, will be as useful as gold. I'll leave it at that. >>

Those that still are in Venezuela may not survive regardless of what they have now. It is too dangerous to stay in Venezuela.

https://www.washingtonpost.com/news/wor ... 9fe26299cc

This Venezuela doctor uses his gold class ring to get out of the country and start a new life in Peru.

KlangFool
So he sold his gold class ring for a whopping $70.How much could he had sold a nice watch for or an iPad?How about his leather jacket?
I would say that was not a convincing article.
Gold may or may not be a good investment if there is hyperinflation,it is not guaranteed.You pay your money and make your choice.
Last edited by hoops777 on Mon Apr 22, 2019 10:09 am, edited 1 time in total.
K.I.S.S........so easy to say so difficult to do.

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

Post by KlangFool » Mon Apr 22, 2019 10:04 am

hoops777 wrote:
Mon Apr 22, 2019 9:48 am

So he sold his gold class ring for a whopping $70.How much could he had sold a nice watch for or an iPad?How about his leather jacket?
I would say that was not a convincing article.
Gold may or may not be a good investment if there is hyperinflation,it is not guaranteed.You pay your money and make your choice
hoops777,

<<Gold may or may not be a good investment if there is hyperinflation,it is not guaranteed.>>

1) If you believe that you have a better alternative, please let us know.

2) In my case, it is not an investment. It is an insurance against hyperinflation.

KlangFool

hoops777
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Re: Why diversification is not a viable strategy?

Post by hoops777 » Mon Apr 22, 2019 10:16 am

I am of the belief that you can get a little carried away by trying to insure for everything to the point of obsession.If you can guarantee me that gold will protect me against hyperinflation,I might own a small amount.I get it but I am not worrying about hyperinflation anymore than I am worrying about a devastating earthquake striking the Bay Area.It could happen,but I am not buying a second home Iowa or somewhere.
K.I.S.S........so easy to say so difficult to do.

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KlangFool
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Re: Why diversification is not a viable strategy?

Post by KlangFool » Mon Apr 22, 2019 10:24 am

hoops777 wrote:
Mon Apr 22, 2019 10:16 am
I am of the belief that you can get a little carried away by trying to insure for everything to the point of obsession.If you can guarantee me that gold will protect me against hyperinflation,I might own a small amount.I get it but I am not worrying about hyperinflation anymore than I am worrying about a devastating earthquake striking the Bay Area.It could happen,but I am not buying a second home Iowa or somewhere.
hoops777,

<<If you can guarantee me that gold will protect me against hyperinflation,I might own a small amount.I get it but I am not worrying about hyperinflation >>

1) If you are not worried about hyperinflation, then, you do not need to do anything.

2) At my level of wealth, owning a few thousand in gold is not a big deal. And, culturally, I have to own some gold jewelry to be given away for family birth and wedding anyhow.

In summary, your argument against gold is that hyperinflation is impossible and/or unlikely.

KlangFool

hoops777
Posts: 2783
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Re: Why diversification is not a viable strategy?

Post by hoops777 » Mon Apr 22, 2019 10:37 am

KlangFool wrote:
Mon Apr 22, 2019 10:24 am
hoops777 wrote:
Mon Apr 22, 2019 10:16 am
I am of the belief that you can get a little carried away by trying to insure for everything to the point of obsession.If you can guarantee me that gold will protect me against hyperinflation,I might own a small amount.I get it but I am not worrying about hyperinflation anymore than I am worrying about a devastating earthquake striking the Bay Area.It could happen,but I am not buying a second home Iowa or somewhere.
hoops777,

<<If you can guarantee me that gold will protect me against hyperinflation,I might own a small amount.I get it but I am not worrying about hyperinflation >>

1) If you are not worried about hyperinflation, then, you do not need to do anything.

2) At my level of wealth, owning a few thousand in gold is not a big deal. And, culturally, I have to own some gold jewelry to be given away for family birth and wedding anyhow.

In summary, your argument against gold is that hyperinflation is impossible and/or unlikely.

KlangFool
My opinion is that hyperinflation is extremely unlikely and I have no need for gold.I also believe you cannot live your life trying to insure against every possible bad thing that might happen.I have LTC insurance,auto and home,health and an umbrella policy.My investments are conservative and meet my needs.I have no debt.That is enough for me.
Owning a few thousand in gold is not a big deal.Investing 10,15,20 25 pct of your wealth can be.Ironically,my wife has gold jewelry and diamond jewelry worth more than a few bucks. :D :moneybag
K.I.S.S........so easy to say so difficult to do.

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

Post by KlangFool » Mon Apr 22, 2019 10:41 am

hoops777 wrote:
Mon Apr 22, 2019 10:37 am

Owning a few thousand in gold is not a big deal.Investing 10,15,20 25 pct of your wealth can be.Ironically,my wife has gold jewelry and diamond jewelry worth more than a few bucks. :D :moneybag
hoops777,

1) I am not investing in Gold.

<<.Ironically,my wife has gold jewelry and diamond jewelry worth more than a few bucks. :D :moneybag>>

2) Gold jewelry -> Unless it is based on Asian standard, it may not worth any money.

2) Diamond jewelry -> I do not believe in Diamond.

KlangFool

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jainn
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Re: Why diversification is not a viable strategy?

Post by jainn » Mon Apr 22, 2019 12:14 pm

. . . .
Last edited by jainn on Tue Jan 14, 2020 4:59 pm, edited 1 time in total.

hoops777
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Re: Why diversification is not a viable strategy?

Post by hoops777 » Mon Apr 22, 2019 12:25 pm

KlangFool wrote:
Mon Apr 22, 2019 10:41 am
hoops777 wrote:
Mon Apr 22, 2019 10:37 am

Owning a few thousand in gold is not a big deal.Investing 10,15,20 25 pct of your wealth can be.Ironically,my wife has gold jewelry and diamond jewelry worth more than a few bucks. :D :moneybag
hoops777,

1) I am not investing in Gold.

<<.Ironically,my wife has gold jewelry and diamond jewelry worth more than a few bucks. :D :moneybag>>

2) Gold jewelry -> Unless it is based on Asian standard, it may not worth any money.

2) Diamond jewelry -> I do not believe in Diamond.

KlangFool
[/quote

Diamonds are a girls best friend.Trust me,most women strongly believe in the value of diamonds.Anyway I think we are done.May we never actually have hyperinflation to test your beliefs. :sharebeer
K.I.S.S........so easy to say so difficult to do.

pward
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Re: Why diversification is not a viable strategy?

Post by pward » Mon Apr 22, 2019 12:28 pm

fortyofforty wrote:
Mon Apr 22, 2019 6:41 am
My position is trying to understand what makes gold so special? Gold has value because gold has value doesn't seem to cut it, does it? If it's a good enough explanation for you, then buy gold. Hoard gold. Store gold.

I haven't seen any explanation for advocating for gold that doesn't apply equally to any one of a number of collectible assets. I am still trying to figure out why gold is gold. The best anyone here can come up with is that gold is valuable because gold is valuable, gold has always been valuable because gold has always been valuable, and gold will always be valuable because gold will always be valuable. Logical? Not to me, and I try to find logic behind underlying assumptions.

I am not in a position of telling any other investor what is or isn't best for her. She has to make up her own mind. If she believes adding gold or cryptocurrency or art or classic cars provides diversification for her, she should buy and move on with her life.
You are correct in that gold does indeed share a lot of the same benefits of other collectable assets. Any hard asset is going to be an uncorrelated asset which if implemented properly will yield to higher risk adjusted returns, lower drawdowns, and quicker time to recover.

Now, gold has a couple advantages that the other hard assets don't have. First it is small enough that one can actually physically hold it. These days people no longer have physical stock or bond certificates, there's always some form of counter-party risk between them and their assets (usually multiple layers of counter-party risk). I personally think there is benefit to having some of your assets held in physical form. It's pretty hard to hold a barrel of oil physically. Gold is also super liquid no matter where you are in the world. Something like real estate (which is another fine form of physical asset) is very illiquid, especially in a crisis when you may need to sell. In a crisis, gold actually increases in liquidity if you need to sell. Lastly gold requires no knowledge and a bullion allocation can be implemented in a passive manner. I think someone can achieve a lot of the MPT benefits of gold with "collectables", since collectable items are typically a physical asset that is uncorrelated to stocks and bonds. However, collectables in the traditional sense require a lot of knowledge in what to buy, they take a lot of time in research, they are pretty illiquid, and are nowhere near a passive investment. If someone really gets a lot of joy out of collecting stamps, I think it's ok to allocate part of their portfolio to collectable stamps. There's absolutely nothing wrong with that. But, the average person is not going to get enough joy out of stamps to justify the time and effort needed to include that as an asset in a portfolio. Gold is a better blanket recommendation to the average Joe that just wants to simply buy, rebalance, and forget it.

There's also the added benefit that gold tends to respond to fear in a way that other physical assets do not. Gold tends to spike in times of economic or political crisis and general uncertainty, and this unique upside volatility in a crisis really compliments a portfolio of stocks and bonds really well. I have not seen another asset that reliably responds to crisis so violently to the upside. If you can find me another asset that will do the same with equal reliability I would be willing to consider it as well, as that is a very valuable and attractive trait to have in an asset to balance out the innate weaknesses of stocks and bonds respectively.

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