Why diversification is not a viable strategy?

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halfnine
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Re: Why diversification is not a viable strategy?

Post by halfnine » Wed Mar 13, 2019 4:19 pm

KlangFool,

I have a similar approach. The reality of the approach is that it tends to eliminate both the left and right tails. I think, inherently, it is difficult for an American investor to take this approach as historically the left tail hasn't shown up but the right tail (from a global perspective) has. Personally, I am not convinced the last 100 years is going to look like the next 100 years. Now, if I was in my 70s I'd probably not much be bothered and would be fine accepting country risk, but I cold have another 40 years and my children another 80 years.

gmaynardkrebs
Posts: 1384
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Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Wed Mar 13, 2019 5:36 pm

halfnine wrote:
Wed Mar 13, 2019 4:19 pm
KlangFool,

I have a similar approach. The reality of the approach is that it tends to eliminate both the left and right tails. I think, inherently, it is difficult for an American investor to take this approach as historically the left tail hasn't shown up but the right tail (from a global perspective) has. Personally, I am not convinced the last 100 years is going to look like the next 100 years. Now, if I was in my 70s I'd probably not much be bothered and would be fine accepting country risk, but I cold have another 40 years and my children another 80 years.
In what sense does it eliminate the left tail? By that I mean the 401k left tail, not the dinosaur extinction left tail.

columbia
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Re: Why diversification is not a viable strategy?

Post by columbia » Wed Mar 13, 2019 5:41 pm

It seems that it comes to down to following:

Do you have a greater fear of missing out or of getting wiped out (in the many possible variations on that)?

I know which one I fear more.

BJJ_GUY
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Re: Why diversification is not a viable strategy?

Post by BJJ_GUY » Wed Mar 13, 2019 5:48 pm

What was actually posed as the question? The OP and title kind of argued against himself for reasons to diversify, but to no end.

If not diversify, then what is the preferred choice? (And did you say it was due to being outside the US)? Now I'm actually curious in the actual topic you asked.

hoops777
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Re: Why diversification is not a viable strategy?

Post by hoops777 » Wed Mar 13, 2019 8:39 pm

Too many tales about tails.Probably 99.5 % of the investing public do not know or care about left and right tails,nor should they.
K.I.S.S........so easy to say so difficult to do.

gmaynardkrebs
Posts: 1384
Joined: Sun Feb 10, 2008 11:48 am

Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Wed Mar 13, 2019 9:30 pm

hoops777 wrote:
Wed Mar 13, 2019 8:39 pm
Too many tales about tails.Probably 99.5 % of the investing public do not know or care about left and right tails,nor should they.
Only because they don't have enough money to know or care about it. That is not my situation, thankfully.

DarkHelmetII
Posts: 254
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Re: Why diversification is not a viable strategy?

Post by DarkHelmetII » Thu Mar 14, 2019 5:50 am

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.
This was my initial reaction too. Key premise in my view is that there is arguably a lot of 'faux' diversification. For example, mid / small cap US equities largely correlated with large cap. US equities still have a fairly strong correlation to international, at least developed markets.

The 25% x 4 split of Harry Browne's portfolio is meant to hold 4 assets classes, that in concept, leave you always holding at least one "winner". Now there are criticisms of the portfolio, which are fair though I won't get into in depth there, but the foundational theory to the permanent portfolio is holding 4 assets classes that operate differently under different fundamental economic scenarios.

A final comment .... my understanding is that the "bonds" portion of the permanent portfolio is meant to be a) highest credit quality (e.g. US treasury), and b) long duration (e.g. 20+ years). I call this out because often the default interpretation of "bonds" here within bogleheads would mean something like the Vanguard total bond index which is not quite what is meant for Harry Browne's permanent portfolio.

Jeff Albertson
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Location: Springfield

The Twenty Craziest Investing Facts Ever

Post by Jeff Albertson » Thu Mar 14, 2019 10:56 am

This short article by Michael Batnick shows why you need to diversify.
"The Twenty Craziest Investing Facts Ever"
https://theirrelevantinvestor.com/2019/ ... acts-ever/

halfnine
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Re: Why diversification is not a viable strategy?

Post by halfnine » Thu Mar 14, 2019 3:58 pm

gmaynardkrebs wrote:
Wed Mar 13, 2019 5:36 pm
halfnine wrote:
Wed Mar 13, 2019 4:19 pm
KlangFool,

I have a similar approach. The reality of the approach is that it tends to eliminate both the left and right tails. I think, inherently, it is difficult for an American investor to take this approach as historically the left tail hasn't shown up but the right tail (from a global perspective) has. Personally, I am not convinced the last 100 years is going to look like the next 100 years. Now, if I was in my 70s I'd probably not much be bothered and would be fine accepting country risk, but I cold have another 40 years and my children another 80 years.
In what sense does it eliminate the left tail? By that I mean the 401k left tail, not the dinosaur extinction left tail.
I am not quite following you. The 401k left tail is easy to mitigate...don't have all your assets in a 401k. Now, the dinosaur extinction left tail not so easy.

gmaynardkrebs
Posts: 1384
Joined: Sun Feb 10, 2008 11:48 am

Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Thu Mar 14, 2019 4:15 pm

halfnine wrote:
Thu Mar 14, 2019 3:58 pm
gmaynardkrebs wrote:
Wed Mar 13, 2019 5:36 pm
halfnine wrote:
Wed Mar 13, 2019 4:19 pm
KlangFool,

I have a similar approach. The reality of the approach is that it tends to eliminate both the left and right tails. I think, inherently, it is difficult for an American investor to take this approach as historically the left tail hasn't shown up but the right tail (from a global perspective) has. Personally, I am not convinced the last 100 years is going to look like the next 100 years. Now, if I was in my 70s I'd probably not much be bothered and would be fine accepting country risk, but I cold have another 40 years and my children another 80 years.
In what sense does it eliminate the left tail? By that I mean the 401k left tail, not the dinosaur extinction left tail.
I am not quite following you. The 401k left tail is easy to mitigate...don't have all your assets in a 401k. Now, the dinosaur extinction left tail not so easy.
I think you make little joke? :happy I mean for people saving for retirement. You can eliminate the left tail almost entirely with TIPS, but that is not a viable strategy for most people. I don't know of a retirement saving strategy that relies to a significant extent on equities that will eliminate the left tail. Which for me, is a problem, apparently less so for others here.

bck63
Posts: 180
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Re: Why diversification is not a viable strategy?

Post by bck63 » Thu Mar 14, 2019 4:30 pm

This kind of discussion seems to be a waste of time. The best I can do is diversify among asset classes, with no choice but to use history as some kind of guide, without any expectations of future results. If the whole world goes down the toilet, we're all going down with it, including our portfolios. So who cares anyway? Fortunately I believe in a higher power. This is smoke, temporary, at the end of the day it's nothing. We're all gonna die. So relax and enjoy the ride while you can.

hoops777
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Re: Why diversification is not a viable strategy?

Post by hoops777 » Thu Mar 14, 2019 4:41 pm

gmaynardkrebs wrote:
Wed Mar 13, 2019 9:30 pm
hoops777 wrote:
Wed Mar 13, 2019 8:39 pm
Too many tales about tails.Probably 99.5 % of the investing public do not know or care about left and right tails,nor should they.
Only because they don't have enough money to know or care about it. That is not my situation, thankfully.
I would say they know about risk but not that particular terminology.I would wager the percentage of people with at least 1 million dollars in savings/investments that are familiar with that terminology is very low.Sometimes I forget that this site is very sophisticated and is far removed from the general public in terms of financial knowledge and terminology. Sorry for even bringing it up.
K.I.S.S........so easy to say so difficult to do.

Jags4186
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Re: Why diversification is not a viable strategy?

Post by Jags4186 » Thu Mar 14, 2019 4:50 pm

Gold may have a place in a diversified portfolio, but holding physical gold in case of hyperinflation in order to purchase goods and services seems a little odd to me.

How would you propose to hold this gold and how much? In bars? Gold coins? Gold jewelry? A months worth of spending? A year’s worth of spending?

How would you spend this gold? A gold coin weighs roughly 1 ounce. Gold is currently approximately $1300/ounce. How do you take this coin and turn it into food for your family to eat? Are you going to buy $1300 worth of canned beans and dry rice in exchange for 1 coin? What about if you choose to hold it as jewelry? Trade 1 earring or cufflink for a new mattress?

Gold isn’t money.

hoops777
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Re: Why diversification is not a viable strategy?

Post by hoops777 » Thu Mar 14, 2019 4:51 pm

bck63 wrote:
Thu Mar 14, 2019 4:30 pm
This kind of discussion seems to be a waste of time. The best I can do is diversify among asset classes, with no choice but to use history as some kind of guide, without any expectations of future results. If the whole world goes down the toilet, we're all going down with it, including our portfolios. So who cares anyway? Fortunately I believe in a higher power. This is smoke, temporary, at the end of the day it's nothing. We're all gonna die. So relax and enjoy the ride while you can.
That is what is so great about it all.So many smart people designing complex portfolios that are suppose to zig and zag based on past history,but truth be told no one can possibly know what they will do in the future.It just seems like the more clever you get by adding more and more things that do not have a fixed return,the more uncertain you are of the outcome.The famous Perm Portfolio is only 25 pct stocks which tells you something.
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 » Thu Mar 14, 2019 5:06 pm

Jags4186 wrote:
Thu Mar 14, 2019 4:50 pm
Gold may have a place in a diversified portfolio, but holding physical gold in case of hyperinflation in order to purchase goods and services seems a little odd to me.

How would you propose to hold this gold and how much? In bars? Gold coins? Gold jewelry? A months worth of spending? A year’s worth of spending?

How would you spend this gold? A gold coin weighs roughly 1 ounce. Gold is currently approximately $1300/ounce. How do you take this coin and turn it into food for your family to eat? Are you going to buy $1300 worth of canned beans and dry rice in exchange for 1 coin? What about if you choose to hold it as jewelry? Trade 1 earring or cufflink for a new mattress?

Gold isn’t money.
Jags4186,

I am assuming that you are not asking a rhetorical question. If you are interested, you can read the following. This is the real-life account of how someone survived in an economic collapse.

https://www.amazon.com/Modern-Survival- ... =8-1-fkmr0

KlangFool
Last edited by KlangFool on Thu Mar 14, 2019 5:23 pm, edited 1 time in total.

pward
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Re: Why diversification is not a viable strategy?

Post by pward » Thu Mar 14, 2019 5:16 pm

Jags4186 wrote:
Thu Mar 14, 2019 4:50 pm
Gold may have a place in a diversified portfolio, but holding physical gold in case of hyperinflation in order to purchase goods and services seems a little odd to me.

How would you propose to hold this gold and how much? In bars? Gold coins? Gold jewelry? A months worth of spending? A year’s worth of spending?

How would you spend this gold? A gold coin weighs roughly 1 ounce. Gold is currently approximately $1300/ounce. How do you take this coin and turn it into food for your family to eat? Are you going to buy $1300 worth of canned beans and dry rice in exchange for 1 coin? What about if you choose to hold it as jewelry? Trade 1 earring or cufflink for a new mattress?

Gold isn’t money.
While I personally use gold mainly as part of a diversified portfolio like you mentioned, I do hold a large chunk of that as physical gold to hedge against hyperinflation (or at least very high inflation) exactly as you mentioned. It's not necessarily to be used as money should we enter a high inflationary environment, but to be a stable store of value. One wouldn't go to the grocery store and pay in gold, they would exchange gold a little bit at a time for the hyperinflating currency, and use the currency to buy whatever. I don't trust that paper gold would provide the same protection in a hyperinflation. I think that the ETF's gold would either get confiscated or they would cash the shareholders out and hold the gold for themselves, so I choose to hold mostly physical with just enough in ETF's to easily do my yearly rebalancing.

I would highly recommend reading the free book that Ray Dalio and Bridgewater put out on Navigating Debt Crisis. Especially, see the case study in the text about Weimar Germany. You'll understand once you read that real account of what happened. It is quite scary. You can download the PDF free from the Bridgewater site here: https://www.bridgewater.com/big-debt-crises/

Also, gold is money. Next to the American dollar it is the second most popular form of currency in the world. It can be exchanged and used worldwide.
Last edited by pward on Thu Mar 14, 2019 5:30 pm, edited 1 time in total.

Thesaints
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Re: Why diversification is not a viable strategy?

Post by Thesaints » Thu Mar 14, 2019 5:28 pm

pward wrote:
Thu Mar 14, 2019 5:16 pm
Also, gold is money. Next to the American dollar it is the second most popular form of currency in the world. It can be exchanged and used worldwide.
Last time I checked there is no country that presently uses gold as a form of money.

pward
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Re: Why diversification is not a viable strategy?

Post by pward » Thu Mar 14, 2019 5:31 pm

Thesaints wrote:
Thu Mar 14, 2019 5:28 pm
pward wrote:
Thu Mar 14, 2019 5:16 pm
Also, gold is money. Next to the American dollar it is the second most popular form of currency in the world. It can be exchanged and used worldwide.
Last time I checked there is no country that presently uses gold as a form of money.
You can take gold to any country in the world and exchange it for local currency. It is a store of value regardless of where you are. And unlike a paper currency, it cannot be devalued by the government.

Thesaints
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Re: Why diversification is not a viable strategy?

Post by Thesaints » Thu Mar 14, 2019 5:36 pm

pward wrote:
Thu Mar 14, 2019 5:31 pm
You can take gold to any country in the world and exchange it for local currency. It is a store of value regardless of where you are. And unlike a paper currency, it cannot be devalued by the government.
That's also true for iPhones and diamonds
Also gold was certainly devalued a couple of times in 2013, for instance. Though, not by a government; you got that much right.

pward
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Re: Why diversification is not a viable strategy?

Post by pward » Thu Mar 14, 2019 5:43 pm

Thesaints wrote:
Thu Mar 14, 2019 5:36 pm
pward wrote:
Thu Mar 14, 2019 5:31 pm
You can take gold to any country in the world and exchange it for local currency. It is a store of value regardless of where you are. And unlike a paper currency, it cannot be devalued by the government.
That's also true for iPhones and diamonds
Also gold was certainly devalued a couple of times in 2013, for instance. Though, not by a government; you got that much right.
Gold was not devalued in 2013.

And yes you could sell diamonds or iPhones, but there isn't an official exchange for it like there is for gold. They also are not as liquid as gold, one would have to search out a buyer willing to pay your price, and you would have a hard time unloading large quantities of iPhones or diamonds. No matter where you are you will be able to liquidate as much gold as you want. Central banks around the world hoard gold (and in recent years they have actually been net sellers of the dollar and net buyers of gold for their reserves). I would highly recommend reading the Ray Dalio book I linked above. It's free. Just because you don't personally like gold does not mean that it's not a valuable asset that is worth including in a portfolio.
Last edited by pward on Thu Mar 14, 2019 5:48 pm, edited 1 time in total.

hoops777
Posts: 2500
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Re: Why diversification is not a viable strategy?

Post by hoops777 » Thu Mar 14, 2019 5:48 pm

Thesaints wrote:
Thu Mar 14, 2019 5:36 pm
pward wrote:
Thu Mar 14, 2019 5:31 pm
You can take gold to any country in the world and exchange it for local currency. It is a store of value regardless of where you are. And unlike a paper currency, it cannot be devalued by the government.
That's also true for iPhones and diamonds
Also gold was certainly devalued a couple of times in 2013, for instance. Though, not by a government; you got that much right.
If there is a crisis in the world and economies are collapsing,gold will not save the day.People are living in the past in regards to gold.This is not the Game of Thrones.
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 » Thu Mar 14, 2019 5:50 pm

hoops777 wrote:
Thu Mar 14, 2019 5:48 pm
Thesaints wrote:
Thu Mar 14, 2019 5:36 pm
pward wrote:
Thu Mar 14, 2019 5:31 pm
You can take gold to any country in the world and exchange it for local currency. It is a store of value regardless of where you are. And unlike a paper currency, it cannot be devalued by the government.
That's also true for iPhones and diamonds
Also gold was certainly devalued a couple of times in 2013, for instance. Though, not by a government; you got that much right.
If there is a crisis in the world and economies are collapsing,gold will not save the day.People are living in the past in regards to gold.This is not the Game of Thrones.
If that were the case, then why do countries hoard gold in their reserves? Why have countries increased the amount of gold they hold since the financial crisis in 2008? Why year after year have central banks been the biggest purchasers of gold? Why do countries hold massive quantities of gold for themselves while issuing money that they intentionally slowly devalue every day to their citizens? You really need to do some research on the subject, and reading the book I posted above is a good place to start. It's clear that you do not understand the full scope of the matter.
Last edited by pward on Thu Mar 14, 2019 5:55 pm, edited 1 time in total.

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

Post by KlangFool » Thu Mar 14, 2019 5:55 pm

Thesaints wrote:
Thu Mar 14, 2019 5:28 pm
pward wrote:
Thu Mar 14, 2019 5:16 pm
Also, gold is money. Next to the American dollar it is the second most popular form of currency in the world. It can be exchanged and used worldwide.
Last time I checked there is no country that presently uses gold as a form of money.
Thesaints,

1) There is no bank in every village in India. But, you can find a goldsmith that will buy your gold in every village in India.

2) In many other parts of Asia, you get the same story. You can exchange your standardized gold jewelry with the Goldsmith.

In summary, for many parts of Asia, you can use Gold as money.

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

KlangFool

hoops777
Posts: 2500
Joined: Sun Apr 10, 2011 12:23 pm

Re: Why diversification is not a viable strategy?

Post by hoops777 » Thu Mar 14, 2019 7:30 pm

pward wrote:
Thu Mar 14, 2019 5:50 pm
hoops777 wrote:
Thu Mar 14, 2019 5:48 pm
Thesaints wrote:
Thu Mar 14, 2019 5:36 pm
pward wrote:
Thu Mar 14, 2019 5:31 pm
You can take gold to any country in the world and exchange it for local currency. It is a store of value regardless of where you are. And unlike a paper currency, it cannot be devalued by the government.
That's also true for iPhones and diamonds
Also gold was certainly devalued a couple of times in 2013, for instance. Though, not by a government; you got that much right.
If there is a crisis in the world and economies are collapsing,gold will not save the day.People are living in the past in regards to gold.This is not the Game of Thrones.
If that were the case, then why do countries hoard gold in their reserves? Why have countries increased the amount of gold they hold since the financial crisis in 2008? Why year after year have central banks been the biggest purchasers of gold? Why do countries hold massive quantities of gold for themselves while issuing money that they intentionally slowly devalue every day to their citizens? You really need to do some research on the subject, and reading the book I posted above is a good place to start. It's clear that you do not understand the full scope of the matter.
[/quote

I understand that if the U.S.economy is collapsing my neighbor will not give me a can of beans for a handful of gold coins.Keep and buy all the gold you want and the best of luck with that.Just my uninformed but realistic opinion on what gold is really worth in a real crisis.
K.I.S.S........so easy to say so difficult to do.

Thesaints
Posts: 2198
Joined: Tue Jun 20, 2017 12:25 am

Re: Why diversification is not a viable strategy?

Post by Thesaints » Thu Mar 14, 2019 7:57 pm

pward wrote:
Thu Mar 14, 2019 5:43 pm
Gold was not devalued in 2013.
No, it simply lost almost 13% in April and then again another 14% in June. For a total of a cool quarter of its value in the arc of less than 3 months.
And yes you could sell diamonds or iPhones, but there isn't an official exchange for it like there is for gold. They also are not as liquid as gold, one would have to search out a buyer willing to pay your price, and you would have a hard time unloading large quantities of iPhones or diamonds. No matter where you are you will be able to liquidate as much gold as you want. Central banks around the world hoard gold (and in recent years they have actually been net sellers of the dollar and net buyers of gold for their reserves). I would highly recommend reading the Ray Dalio book I linked above. It's free. Just because you don't personally like gold does not mean that it's not a valuable asset that is worth including in a portfolio.
A lot easier to carry around diamonds than gold, if you know what I mean...

Thesaints
Posts: 2198
Joined: Tue Jun 20, 2017 12:25 am

Re: Why diversification is not a viable strategy?

Post by Thesaints » Thu Mar 14, 2019 7:59 pm

KlangFool wrote:
Thu Mar 14, 2019 5:55 pm
Thesaints,

1) There is no bank in every village in India. But, you can find a goldsmith that will buy your gold in every village in India.

2) In many other parts of Asia, you get the same story. You can exchange your standardized gold jewelry with the Goldsmith.

In summary, for many parts of Asia, you can use Gold as money.

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

KlangFool
I understand it is a matter of personal taste, but in a pinch I'd seek refuge in Vancouver, or Geneva rather than in Mumbai, or Saigon.

Thesaints
Posts: 2198
Joined: Tue Jun 20, 2017 12:25 am

Re: Why diversification is not a viable strategy?

Post by Thesaints » Thu Mar 14, 2019 8:05 pm

pward wrote:
Thu Mar 14, 2019 5:50 pm
Why year after year have central banks been the biggest purchasers of gold? Why do countries hold massive quantities of gold for themselves while issuing money that they intentionally slowly devalue every day to their citizens?
I'm sorry, but this is pure ignorance. You don't seem able to tell money from salami.
What's next ? The federal reserve is a private company that we can find on the phone directory right after fedex ?

pward
Posts: 241
Joined: Fri Dec 21, 2018 8:18 pm

Re: Why diversification is not a viable strategy?

Post by pward » Thu Mar 14, 2019 8:18 pm

Thesaints wrote:
Thu Mar 14, 2019 7:57 pm
pward wrote:
Thu Mar 14, 2019 5:43 pm
Gold was not devalued in 2013.
No, it simply lost almost 13% in April and then again another 14% in June. For a total of a cool quarter of its value in the arc of less than 3 months.
An investment that went up 4-5x in value over the previous 10 years having a pull-back is not a "devaluation". Gold is indeed a volatile asset. And that volatility served it's purpose when it was needed in and after the financial crisis. This volatility is exactly what makes it a good asset in a portfolio that is rebalanced regularly. The financial crisis was a deflationary recession to boot, which on paper should not have favored gold. And it still performed well.
Last edited by pward on Thu Mar 14, 2019 8:23 pm, edited 1 time in total.

halfnine
Posts: 889
Joined: Tue Dec 21, 2010 1:48 pm

Re: Why diversification is not a viable strategy?

Post by halfnine » Thu Mar 14, 2019 8:19 pm

Thesaints wrote:
Thu Mar 14, 2019 7:59 pm
KlangFool wrote:
Thu Mar 14, 2019 5:55 pm
Thesaints,

1) There is no bank in every village in India. But, you can find a goldsmith that will buy your gold in every village in India.

2) In many other parts of Asia, you get the same story. You can exchange your standardized gold jewelry with the Goldsmith.

In summary, for many parts of Asia, you can use Gold as money.

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

KlangFool
I understand it is a matter of personal taste, but in a pinch I'd seek refuge in Vancouver, or Geneva rather than in Mumbai, or Saigon.
There is a large Asian population in Vancouver and wherever there is a large Asian population there will be somewhere to exchange gold.

It won't matter much anyway. If you don't already have residency or citizenship status in a country outside of the US right now you aren't going to get in a time of crisis.

pward
Posts: 241
Joined: Fri Dec 21, 2018 8:18 pm

Re: Why diversification is not a viable strategy?

Post by pward » Thu Mar 14, 2019 8:19 pm

Thesaints wrote:
Thu Mar 14, 2019 8:05 pm
pward wrote:
Thu Mar 14, 2019 5:50 pm
Why year after year have central banks been the biggest purchasers of gold? Why do countries hold massive quantities of gold for themselves while issuing money that they intentionally slowly devalue every day to their citizens?
I'm sorry, but this is pure ignorance. You don't seem able to tell money from salami.
What's next ? The federal reserve is a private company that we can find on the phone directory right after fedex ?
I just stated a bunch of FACTS, facts that you can go out and verify yourself. And your only response is an opinionated insult. I think that your troll reply shows who the ignorant one is in this conversation. I don't have time to debate your opinion, if you want to bring me some facts we can continue this debate. If you don't have any facts to bring to the table to refute me, then I consider the case closed.

Thesaints
Posts: 2198
Joined: Tue Jun 20, 2017 12:25 am

Re: Why diversification is not a viable strategy?

Post by Thesaints » Thu Mar 14, 2019 8:26 pm

pward wrote:
Thu Mar 14, 2019 8:18 pm
Thesaints wrote:
Thu Mar 14, 2019 7:57 pm
pward wrote:
Thu Mar 14, 2019 5:43 pm
Gold was not devalued in 2013.
No, it simply lost almost 13% in April and then again another 14% in June. For a total of a cool quarter of its value in the arc of less than 3 months.
An investment that went up 4-5x in value over the previous 10 years having a pull-back is not a "devaluation". Gold is indeed a volatile asset. And that volatility served it's purpose when it was needed in and after the financial crisis. This volatility is exactly what makes it a good asset in a portfolio that is rebalanced regularly.
How about when it lost 50% of its value over the first 2 years of the 80's ? In nominal terms, of course, because in real terms we have to add another 20% loss on top of it. Was gold a good currency then ? Incidentally, gold has never reached again its January 1980 price peak in real terms; we are now not much higher than 50%, almost 40 years later.
The truth is that gold is as likely to protect one from inflation as it is not. Holding it as an investment is a crapshoot and an expensive one, due to spread and commissions being perhaps 10 times higher than with stocks.
Last edited by Thesaints on Thu Mar 14, 2019 8:35 pm, edited 2 times in total.

Thesaints
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Joined: Tue Jun 20, 2017 12:25 am

Re: Why diversification is not a viable strategy?

Post by Thesaints » Thu Mar 14, 2019 8:29 pm

pward wrote:
Thu Mar 14, 2019 8:19 pm
I just stated a bunch of FACTS, facts that you can go out and verify yourself. And your only response is an opinionated insult. I think that your troll reply shows who the ignorant one is in this conversation. I don't have time to debate your opinion, if you want to bring me some facts we can continue this debate. If you don't have any facts to bring to the table to refute me, then I consider the case closed.
The main fact you've got to understand is that gold is not "currency" (just like bitcoins are not, incidentally). The first property of currency is being recognized as legal tender by a national government. You can't pay taxes with gold in no country of the world.
How about this as a refutation of your theory ?

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Re: Why diversification is not a viable strategy?

Post by Thesaints » Thu Mar 14, 2019 8:32 pm

halfnine wrote:
Thu Mar 14, 2019 8:19 pm
There is a large Asian population in Vancouver and wherever there is a large Asian population there will be somewhere to exchange gold.
Again, a matter of personal taste. I'm partial to Nordic folks, especially as the female half of the population is concerned. Foodwise, I'm for Italian, French, or Californian.
I can't see myself roaming some chinatown streets, trying to peddle my gold scraps.

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Re: Why diversification is not a viable strategy?

Post by pward » Thu Mar 14, 2019 8:34 pm

Thesaints wrote:
Thu Mar 14, 2019 8:26 pm
pward wrote:
Thu Mar 14, 2019 8:18 pm
Thesaints wrote:
Thu Mar 14, 2019 7:57 pm
pward wrote:
Thu Mar 14, 2019 5:43 pm
Gold was not devalued in 2013.
No, it simply lost almost 13% in April and then again another 14% in June. For a total of a cool quarter of its value in the arc of less than 3 months.
An investment that went up 4-5x in value over the previous 10 years having a pull-back is not a "devaluation". Gold is indeed a volatile asset. And that volatility served it's purpose when it was needed in and after the financial crisis. This volatility is exactly what makes it a good asset in a portfolio that is rebalanced regularly.
How about when it lost 50% of its value over the first 2 years of the 80's ? In nominal terms, of course, because in real terms we have to add another 20% loss on top of it. Was gold a good currency then ?
The truth is that gold is as likely to protect one from inflation as it is not. Holding it as an investment is a crapshoot and an expensive one, due to spread and commissions being perhaps 10 times higher than with stocks.
Once again, gold went up over 10x it's value in the decade prior. It did it's job when it was needed to in the 70s. If someone held it and rebalanced they made a killing. They sold gold when it was high in the 70s and bought stocks and bonds when they were low, just before the biggest stock and bond bull market in history. A rebalanced portfolio that contained stocks, bonds, and gold did very well in both the 70s and 80s. The gains in gold made more than made up for the losses in stocks and bonds in the 70's and the gains in stocks and bonds more than made up for the losses in gold in the 80s. Gold did it's job when it was needed. That's why I hold gold. I don't expect it to go up every year, no investment goes up every year, and it's nonsense to even imply that it should. Every investment has it's up and down years.

halfnine
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Re: Why diversification is not a viable strategy?

Post by halfnine » Thu Mar 14, 2019 8:35 pm

gmaynardkrebs wrote:
Thu Mar 14, 2019 4:15 pm
halfnine wrote:
Thu Mar 14, 2019 3:58 pm
gmaynardkrebs wrote:
Wed Mar 13, 2019 5:36 pm
halfnine wrote:
Wed Mar 13, 2019 4:19 pm
KlangFool,

I have a similar approach. The reality of the approach is that it tends to eliminate both the left and right tails. I think, inherently, it is difficult for an American investor to take this approach as historically the left tail hasn't shown up but the right tail (from a global perspective) has. Personally, I am not convinced the last 100 years is going to look like the next 100 years. Now, if I was in my 70s I'd probably not much be bothered and would be fine accepting country risk, but I cold have another 40 years and my children another 80 years.
In what sense does it eliminate the left tail? By that I mean the 401k left tail, not the dinosaur extinction left tail.
I am not quite following you. The 401k left tail is easy to mitigate...don't have all your assets in a 401k. Now, the dinosaur extinction left tail not so easy.
I think you make little joke? :happy I mean for people saving for retirement. You can eliminate the left tail almost entirely with TIPS, but that is not a viable strategy for most people. I don't know of a retirement saving strategy that relies to a significant extent on equities that will eliminate the left tail. Which for me, is a problem, apparently less so for others here.
Even if one's saving rate was high enough to make TIPS a viable strategy there are other left tails apart from equity risk that it would not reduce (country risk, geographical risk, longevity risk, taxflation, income tax rate risk, concentration risk in one asset).

As to a strategy that relies to a significant extent on equities that eliminated the left tail. Well, I think that's a large part of KlangFool's point. One should diversify into property (home ownership), bonds, annuities (or Social Security), and some alternatives to cover some various known risks.

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Re: Why diversification is not a viable strategy?

Post by pward » Thu Mar 14, 2019 8:37 pm

Thesaints wrote:
Thu Mar 14, 2019 8:29 pm
pward wrote:
Thu Mar 14, 2019 8:19 pm
I just stated a bunch of FACTS, facts that you can go out and verify yourself. And your only response is an opinionated insult. I think that your troll reply shows who the ignorant one is in this conversation. I don't have time to debate your opinion, if you want to bring me some facts we can continue this debate. If you don't have any facts to bring to the table to refute me, then I consider the case closed.
The main fact you've got to understand is that gold is not "currency" (just like bitcoins are not, incidentally). The first property of currency is being recognized as legal tender by a national government. You can't pay taxes with gold in no country of the world.
How about this as a refutation of your theory ?
Did you not read my earlier post where I said that you can exchange gold for local currency everywhere you go? No matter what country you go to banks, gold dealers, etc will at a minimum exchange gold for local paper money. I insinuated that every government in the word acknowledges the value of gold, because they do. I said that the most powerful countries in the world hoard gold, because they do (none more so than the U.S.). Where did I mention anything about paying taxes in gold? You're putting words in my mouth.

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Re: Why diversification is not a viable strategy?

Post by Thesaints » Thu Mar 14, 2019 8:41 pm

pward wrote:
Thu Mar 14, 2019 8:34 pm
Once again, gold went up over 10x it's value in the decade prior. It did it's job when it was needed to in the 70s. If someone held it and rebalanced they made a killing. They sold gold when it was high in the 70s and bought stocks and bonds when they were low, just before the biggest stock and bond bull market in history.
Anyone who buys anything low and sells it high always makes a killing !

Jan 1980 price: $737, which are equivalent to 2267 of our present dollars. Present gold price: $1295.
I don't compare that "return" to a 3-month treasury because I'm a gentle soul.

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Re: Why diversification is not a viable strategy?

Post by Thesaints » Thu Mar 14, 2019 8:43 pm

pward wrote:
Thu Mar 14, 2019 8:37 pm
Did you not read my earlier post where I said that you can exchange gold for local currency everywhere you go? No matter what country you go to banks, gold dealers, etc will at a minimum exchange gold for local paper money.
That is true for almost anything. You can "exchange" it for local currency. Although the proper verb would be "sell".
I insinuated that every government in the word acknowledges the value of gold, because they do.
Where ? How ?

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Re: Why diversification is not a viable strategy?

Post by pward » Thu Mar 14, 2019 8:45 pm

Thesaints wrote:
Thu Mar 14, 2019 8:41 pm
pward wrote:
Thu Mar 14, 2019 8:34 pm
Once again, gold went up over 10x it's value in the decade prior. It did it's job when it was needed to in the 70s. If someone held it and rebalanced they made a killing. They sold gold when it was high in the 70s and bought stocks and bonds when they were low, just before the biggest stock and bond bull market in history.
Anyone who buys anything low and sells it high always makes a killing !

Jan 1980 price: $737, which are equivalent to 2267 of our present dollars. Present gold price: $1295.
I don't compare that "return" to a 3-month treasury because I'm a gentle soul.
You're missing the forest for the trees by ignoring all the volatility up and down between those times when one was rebalancing and making profits. The price in 1980 was not sustainable, that was an over reaction to the inflation of the 70's. Of course when inflation comes down gold is going to drop back down. But the fact that mid teens inflation could make the asset go from $35 to $737 over the course of less than a decade is testament to it's power and why it is a valuable asset to include in any portfolio.

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Re: Why diversification is not a viable strategy?

Post by pward » Thu Mar 14, 2019 8:47 pm

Thesaints wrote:
Thu Mar 14, 2019 8:43 pm
pward wrote:
Thu Mar 14, 2019 8:37 pm
Did you not read my earlier post where I said that you can exchange gold for local currency everywhere you go? No matter what country you go to banks, gold dealers, etc will at a minimum exchange gold for local paper money.
That is true for almost anything. You can "exchange" it for local currency. Although the proper verb would be "sell".
I insinuated that every government in the word acknowledges the value of gold, because they do.
Where ? How ?

In most countries you can exchange gold for money at the bank. So no, it's not "selling" it is exchanging. And the most powerful countries on earth buy and hold gold, while giving away paper money. That is how they acknowledge the value. Matter of fact in the last 10 years central banks around the world have been on massive gold buying binges, particularly China. Why? Because gold provides international power. It's not a coincidence that the U.S. is the most powerful country in the world, and also has the largest gold reserves in the world. That is by design and the way it works. Gold legitimizes a country, and gold is a measure of power.
Last edited by pward on Thu Mar 14, 2019 8:50 pm, edited 1 time in total.

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Re: Why diversification is not a viable strategy?

Post by Thesaints » Thu Mar 14, 2019 8:50 pm

pward wrote:
Thu Mar 14, 2019 8:45 pm
But the fact that mid teens inflation could make the asset go from $35 to $737 over the course of less than a decade is testament to it's power and why it is a valuable asset to include in any portfolio.
You forget that much larger inflation made it go from $737 to $289 (again in nominal terms; I'm in my kindest mood).
Such a valuable asset!

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Re: Why diversification is not a viable strategy?

Post by pward » Thu Mar 14, 2019 8:53 pm

Thesaints wrote:
Thu Mar 14, 2019 8:50 pm
pward wrote:
Thu Mar 14, 2019 8:45 pm
But the fact that mid teens inflation could make the asset go from $35 to $737 over the course of less than a decade is testament to it's power and why it is a valuable asset to include in any portfolio.
You forget that much larger inflation made it go from $737 to $289 (again in nominal terms; I'm in my kindest mood).
Such a valuable asset!
No *declining* inflation made it go from $737 to 289. Gold generally tends to react to changes in inflation and the political climate, not the absolute level of inflation. Once again, you show that you do not understand it fundamentally as an asset. So we wind up full circle back where we started, that you severely need to do some research and educate yourself.
Last edited by pward on Thu Mar 14, 2019 8:55 pm, edited 1 time in total.

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Re: Why diversification is not a viable strategy?

Post by Thesaints » Thu Mar 14, 2019 8:55 pm

pward wrote:
Thu Mar 14, 2019 8:47 pm
In most countries you can exchange gold for money at the bank. So no, it's not "selling" it is exchanging.
When I go to the supermarket, I'm exchanging dollars for laundry soap and toothpaste.
And the most powerful countries on earth buy and hold gold, while giving away paper money.
Where is this country where they "give away" paper money ? I want to go there !
That is how they acknowledge the value. Matter of fact in the last 10 years central banks around the world have been on massive gold buying binges, particularly China. Why? Because gold provides international power. It's not a coincidence that the U.S. is the most powerful country in the world, and also has the largest gold reserves in the world. That is by design and the way it works. Gold legitimizes a country, and gold is a measure of power.
I thought it was "God" who legitimizes countries and confers power...
But if it is gold, as you say, it means that Italy is more powerful than France, Russia, or China. In fact, it is more powerful than China and the UK put together.
Does it sound about right to you ?

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Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » Thu Mar 14, 2019 9:57 pm

Thesaints wrote:
Thu Mar 14, 2019 8:55 pm
pward wrote:
Thu Mar 14, 2019 8:47 pm
In most countries you can exchange gold for money at the bank. So no, it's not "selling" it is exchanging.
When I go to the supermarket, I'm exchanging dollars for laundry soap and toothpaste.
And the most powerful countries on earth buy and hold gold, while giving away paper money.
Where is this country where they "give away" paper money ? I want to go there !
That is how they acknowledge the value. Matter of fact in the last 10 years central banks around the world have been on massive gold buying binges, particularly China. Why? Because gold provides international power. It's not a coincidence that the U.S. is the most powerful country in the world, and also has the largest gold reserves in the world. That is by design and the way it works. Gold legitimizes a country, and gold is a measure of power.
I thought it was "God" who legitimizes countries and confers power...
But if it is gold, as you say, it means that Italy is more powerful than France, Russia, or China. In fact, it is more powerful than China and the UK put together.
Does it sound about right to you ?
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.

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Re: Why diversification is not a viable strategy?

Post by Jags4186 » Fri Mar 15, 2019 3:18 am

pward,

No one is arguing that gold isn’t an asset without its place in a portfolio for some people. But it isn’t money anymore than barrels of oil are money. If you have to change something into money in order to spend it then it isn’t money.

Perhaps you live in a country where banks buy gold but in the USA and the UK if you show up to your local bank with a bar of gold they might oh and ah over it but they won’t exchange it for money.

Countries hold gold because it is tradition and almost universally across all cultures gold has been desired.

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Re: Why diversification is not a viable strategy?

Post by fortyofforty » Fri Mar 15, 2019 6:15 am

halfnine wrote:
Thu Mar 14, 2019 8:19 pm
Thesaints wrote:
Thu Mar 14, 2019 7:59 pm
KlangFool wrote:
Thu Mar 14, 2019 5:55 pm
Thesaints,

1) There is no bank in every village in India. But, you can find a goldsmith that will buy your gold in every village in India.

2) In many other parts of Asia, you get the same story. You can exchange your standardized gold jewelry with the Goldsmith.

In summary, for many parts of Asia, you can use Gold as money.

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

KlangFool
I understand it is a matter of personal taste, but in a pinch I'd seek refuge in Vancouver, or Geneva rather than in Mumbai, or Saigon.
There is a large Asian population in Vancouver and wherever there is a large Asian population there will be somewhere to exchange gold.

It won't matter much anyway. If you don't already have residency or citizenship status in a country outside of the US right now you aren't going to get in a time of crisis.
I believe Canada does have a generous "refugee" policy, like the United States. That's as far as I've delve into politics here, but just wanted to point out there are some possible workarounds to such restrictions.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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Re: Why diversification is not a viable strategy?

Post by KlangFool » 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

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Re: Why diversification is not a viable strategy?

Post by gmaynardkrebs » 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

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Re: Why diversification is not a viable strategy?

Post by pward » 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.

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Re: Why diversification is not a viable strategy?

Post by Vulcan » 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?
If you torture the data long enough, it will confess to anything. ~Ronald Coase

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