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Thinking of selling shares and going into gold and cash

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
TopOfDaMornin
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Re: Thinking of selling shares and going into gold and cash

#345399

Postby TopOfDaMornin » October 5th, 2020, 4:32 pm

Bubblesofearth wrote:
TopOfDaMornin wrote:For those reasons I am considering selling the above 7 funds/trackers and moving into to safer alternatives like cash.

What are your views? Anyone else moving into cash until this ‘big crash’ happens?

TDM


Isn't the time to rebalance when the asset you are moving out of has risen and the one you are moving into has fallen? Rather than the other way round?

BoE


I would say yes, usually. That assumes that the original investment has risen. Off course, events can occur that make the original investment now not seem like a good idea e.g. impending doom. Like I mentioned, my guess work in the past has been fairly poor. For those reasons and for the fact that the original investments are balances and diverse, I have decided to leave them all in place and not sell any.

TDM

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Re: Thinking of selling shares and going into gold and cash

#394961

Postby 1nvest » March 12th, 2021, 3:21 pm

TopOfDaMornin wrote:For those reasons I am considering selling the above 7 funds/trackers and moving into to safer alternatives like cash.

What are your views? Anyone else moving into cash until this ‘big crash’ happens?

Stocks tend to see prices rise broadly with inflation (in a volatile manner) and pay dividends, profits out of business activities.

A home tends to (again broadly) see prices rise with inflation and avoids having to find/pay rent.

Gold tends to see prices broadly rise with inflation (again in a very volatile manner) and pays interest or benefits from volatility capture/trading.

Diversification reduces concentration risk, one of the greatest risk factors.

In the light of the above, transitioning from a diversified portfolio to a concentrated portfolio such as all-cash scales up risk, potentially significantly.

Of the above three many have most difficulty in understanding the value of holding gold within a diverse portfolio.

Pre 1972 US and gold/money were pegged at a fixed rate. Made more sense to hold cash deposited and earning interest that could be swapped for fixed priced gold at any time, and were the interest meant you ended up with more ounces of gold than at the start. Since 1972 that policy has been dropped and gold free-floats, varies relative to cash. To earn the 'interest' element you can either trade it (volatility capture) or use gold-lending type practices.

Cash at times can see its purchase power of each/any of the above vary considerably, in some years cash may buy 50% more shares than a year earlier for instance. At other times however cash can see large declines in its stock purchase power.

When you target a fixed % weighting to gold in your portfolio you can provide liquidity to others in return for some interest that broadly compares to cash interest rates. Similar broad rewards to the pre-1972 era, but different.

1.

A trader who own no gold but opines that gold prices are headed lower may look to short gold, sell gold to use the proceeds to buy another asset that they opine will rise more in value/price. In not owning any gold to short gold they in effect have to borrow gold in return for payment of interest for that 'debt' sell that borrowed gold, use the proceeds to buy whatever. Later they liquidate the position, buy back gold and then return the borrowed gold. Alternatively they might borrow cash to buy what they though might rise, but the potential rewards from doing that is the cash/asset spread, not the gold/asset spread that if gold did decline as they expected would be greater than the cash/asset spread.

2.

A investor who own gold as part of their portfolio might opine that gold is expected to yield little, better opportunities lay elsewhere but where their investment policy depicts that they keep gold on their books. They lend their gold in exchange for cash, and pay a cash type interest rate for that. A cash loan using gold as collateral. They invest the cash elsewhere and later liquidate back to cash and repay the cash in exchange for getting their gold back again.

For both the above cases the holder of gold who wasn't a speculator, was just content to maintain a target weighting/exposure but that accepted providing others with liquidity in return for interest can enhance their overall gold gains by amounts comparable to cash interest rates. Similar to when on the gold standard. Barriers to that are for 1. above you can't sell that gold whilst it had been lent to another, and the other barrier is that it involves counter party risks, so cash interest rates are more reflective of the counter-party being very trustworthy. For less trustworthy the interest rates you'd expect would be higher for taking on the additional risk.

Rather than lending/borrowing gold, you can alternatively opt to trade gold, work its volatility. In 1980 for instance a little over a ounce of gold bought the Dow. In 1999 it took around 40 ounces of gold to buy the Dow. A simple 50/50 of Dow and gold periodically rebalanced is like trading the volatility of the two using a fixed mechanical trading method with a tendency to add-low/reduce-high and capture volatility trading gains.

You'll find that many opt for concentration of their focus/investments. Some may opt primarily/largely for properties/rentals, others may be all into stocks, yet others may solely trade futures/options/swaps/gold. Diversifying across all broadly tends to see comparable rewards as if any one alone was consistently the best then investors would tend to all concentrate into that 'optimal'. Diversifying helps lower overall volatility, so broadly the same reward, with less volatility = better risk adjusted reward (Sharpe Ratio). Its also more diverse to have some of gains arising out of each of price appreciation, income and volatility trading. Big firms for instance might do that by having a stock desk, a bond desk and a Options/Futures desk. Each year one of those will prove to have been the most profitable, another the worst. The broader average across all three over a number of years will tend to be 'satisfactory'. A director of such a firm who made one or even two of the desks redundant would be seen to be speculating and might even be handed a bonus if that paid off, or fired if deemed to have been a poor decision. Or just straight up fired straight away in having exposed the firm to greater (concentration) risk. Given that stocks are broadly up since the OP date ... moving to cash, and/or gold (that is down since then) ... you're sacked!

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Re: Thinking of selling shares and going into gold and cash

#395969

Postby 1nvest » March 15th, 2021, 11:53 pm

BT63 wrote:I don't hold bonds because I am concerned about their low/negative yields in what might eventually become an inflationary environment.

Many have said similar since the 2009 financial crisis, yet 20 year Gilt total returns have been pretty good since then. And when inflation/rates do rise many may be surprised how things again don't pan out as bad as they anticipated.

Inflation rising to a peak of 12%, T-Bill yields rising from 0.5% to 5%, devastating for 20 year Gilts?


+50% nominal total return gain, -10% after inflation total loss over those 'unlucky' 13 years. Not good, but not as bad as some might have expected either.

If 20 year gilts were say 25% of your total portfolio, then a weighted -2.5% real portfolio wide hit/loss ... in total over 13 years - not annualised. Other assets, stocks, precious metals ...etc. broadly provided more than enough to offset that - but also had their bad years as well.

A feature of multiple volatile assets is that even at 0% compounded a individual asset might transition through a -25% loss and then rise +33% to get back to break-even. A combined +4% positive simple average. With multiples of such assets that have no/inverse correlations then rebalancing back to target weights is comparable to 'trading', adding low/reducing high.

Wouldn't be surprised to see a repeat of those types of moves in interest rates/inflation/yields. Remember that whilst inflation might hit 12%/whatever high levels long dated treasury/gilt yields most likely wont rise anywhere near that as they're priced to what is expected to occur over 20 years, and likely 12% inflation would be seen as just a localised situation, for maybe a year, two or three, not the rate that would persist for the entire 20 years. In turn that induces the likes of gold prices to increase. When real yields on 20 year gilts are considerably negative, 12% inflation when 20 year gilts priced to perhaps 5% = -7% real yields, and T-Bill yields might still be down at 0.5% levels (near -12% real) - then the tendency is for investors to buy gold. When later inflation starts falling and real yields turn positive again, then typically investors flight from gold and stocks tend to do well.

The Permanent Portfolio, 25% in each of stocks, gold, 20 year gilt and cash was specifically designed to have assets to match two economic (prosperity/recession) and two monetary (inflation/deflation) conditions such that more often one of the assets will be doing well/ok whilst other assets may be suffering, but where the gains from the 'good' asset tends to more than compensate/offset the 'bad' asset. A factor however is that typically investors might accept which of the asset(s) they opine will do well, but have strong opinion against the asset(s) they opine will do poorly. And where often their predictions don't pan out as expected.

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Re: Thinking of selling shares and going into gold and cash

#396282

Postby BT63 » March 16th, 2021, 8:20 pm

1nvest wrote:
BT63 wrote:I don't hold bonds because I am concerned about their low/negative yields in what might eventually become an inflationary environment.

Many have said similar since the 2009 financial crisis, yet 20 year Gilt total returns have been pretty good since then......


What really troubles me is that we don't know what bond rates/prices would be without governments buying their own bonds to keep rates down.

Bonds look like they will depend far more on capital gains than yield, which I think is a dangerous situation; bond holders must look for a bigger fool to pay an even higher price, while earning very little income.
It used to be that most of the return from a bond was the yield.

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Re: Thinking of selling shares and going into gold and cash

#396361

Postby moorfield » March 17th, 2021, 9:20 am

I remember reading a Moneyweek article years ago on trading gold/equities - took me a while to find here it is

https://moneyweek.com/356406/bill-bonne ... trade-gold

The premise of the strategy was this:

When you can buy the Dow for five ounces of gold or less buy. When the Dow is worth more than 20 ounces sell.

... although I never quite understood what was meant exactly by "buy the Dow", that was never explained.

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Re: Thinking of selling shares and going into gold and cash

#396368

Postby dspp » March 17th, 2021, 9:34 am

(prompted by an Alert from a fellow Fool)

The original post on this thread was Sep 2020. It is now March 2021, half a year on.

At what point do the thoughts of Fools change ?

regards, dspp

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Re: Thinking of selling shares and going into gold and cash

#396369

Postby dspp » March 17th, 2021, 9:36 am

moorfield wrote:I remember reading a Moneyweek article years ago on trading gold/equities - took me a while to find here it is

https://moneyweek.com/356406/bill-bonne ... trade-gold

The premise of the strategy was this:

When you can buy the Dow for five ounces of gold or less buy. When the Dow is worth more than 20 ounces sell.

... although I never quite understood what was meant exactly by "buy the Dow", that was never explained.


= this means to buy a broad basket of equities, i.e. back then to buy everything in the DJIA. Now any number of index trackers would fit the bill, e.g. VUKE, VWRL, etc. Basically they are trying to describe the point to switch backwards/forwards between gold and equities.

regards, dspp

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Re: Thinking of selling shares and going into gold and cash

#396420

Postby Spet0789 » March 17th, 2021, 12:48 pm

Just as a further comment a helpful way to think about gold is a a currency with ounces as the unit of account.

When we say that the S&P 500 is at 4,000, we mean that a given basket of shares costs $4,000.

If at the same time Gold is priced at $2,000 then the basket of shares costs 2 oz. That is then what you keep track of.

In this same vein, one way to consider the long-run inflation protection of Gold is that over pretty much the whole of recorded history, 1 oz of Gold has bought around 1 week of skilled labour.
Last edited by Spet0789 on March 17th, 2021, 12:50 pm, edited 1 time in total.

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Re: Thinking of selling shares and going into gold and cash

#396421

Postby 1nvest » March 17th, 2021, 12:49 pm

dspp wrote:
moorfield wrote:I remember reading a Moneyweek article years ago on trading gold/equities - took me a while to find here it is

https://moneyweek.com/356406/bill-bonne ... trade-gold

The premise of the strategy was this:

When you can buy the Dow for five ounces of gold or less buy. When the Dow is worth more than 20 ounces sell.

... although I never quite understood what was meant exactly by "buy the Dow", that was never explained.


= this means to buy a broad basket of equities, i.e. back then to buy everything in the DJIA. Now any number of index trackers would fit the bill, e.g. VUKE, VWRL, etc. Basically they are trying to describe the point to switch backwards/forwards between gold and equities.

regards, dspp

Yes the Dow/Gold ratio is simply the Dow Jones Industrial Average index value divided by the spot price for a ounce of gold. Buying the Dow is in effect to buy a DJIA index tracker fund. But equally might be another Index such as a S&P500 index tracker fund, or whatever ... basically 'stocks'.

I wouldn't go with all or nothing in either, just rather use it as a over/under weight indicator. Maybe 33/67 or 50/50 or 67/33 gold/stock according to the Dow Gold 'bands' for below 5/between 5 and 20/above 20 Dow/Gold bands/levels. What seems expensive today can become even more expensive tomorrow. 1980 for instance had Dow/Gold at near one ounce to buy the Dow, stocks cheap/gold expensive. 1999 and Dow/Gold was up at 40 ounces to buy the Dow, stocks expensive/gold cheap. Great if you could have timed those points, but in reality you can't, so scaling up/down weightings as valuations extend into cheap/expensive territories is about the best you can do.

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Re: Thinking of selling shares and going into gold and cash

#396438

Postby 1nvest » March 17th, 2021, 1:50 pm

BT63 wrote:
1nvest wrote:
BT63 wrote:I don't hold bonds because I am concerned about their low/negative yields in what might eventually become an inflationary environment.

Many have said similar since the 2009 financial crisis, yet 20 year Gilt total returns have been pretty good since then......


What really troubles me is that we don't know what bond rates/prices would be without governments buying their own bonds to keep rates down.

Bonds look like they will depend far more on capital gains than yield, which I think is a dangerous situation; bond holders must look for a bigger fool to pay an even higher price, while earning very little income.
It used to be that most of the return from a bond was the yield.

Low bond yields are a reflection of low interest/low growth as projected for decades out. The best present day prediction for the future. If that current projection becomes the reality then other assets might equally suffer low/negative returns. We've just been through multi decades of progressively declining interest rates, which is great for stocks and bonds. From here things will either remain flat, or could see inflation/interest rates rise (bad for both stocks and bonds). With bonds the return of capital is pretty much guaranteed, the state can always print more money or raise taxes rather than default on their debts/bonds, has full deposit protection cover (more recently bank deposits are being increasingly pushed towards being included in any liabilities i.e. loss of depositor protections) and at the offset you know exactly how much will be returned and when - assuming the bond is held to maturity. In the case of inflation bonds that is also adjusted for inflation. Safe. Where stocks in contrast are a risk, could for instance see 33% declines in real total return terms. But where under present valuations typically you have to pay more now for a fixed amount of inflation adjusted income in 5, 10, whatever years time. Pay £12,000 now for £10,000 of inflation adjusted value in 10 years time (or whatever, I haven't calculated the actual figure).

The government buying its own bonds is no different to the government changing interest rates. More usually interest rates would be revised up/down but when at near zero QE has to be used as a alternative to using negative interest rates. Lowering interest rates has the effect of pushing longer dated bond prices upward, as does QE. Raising interest rates has the effect of pushing longer dated bond prices down, as does QT. Typically rates are lowered to promote growth, whilst increasing rates is to calm overheating. As try as Japan might, it failed to induce inflation for decades. The US and UK are now heading along a similar path and despite throwing trillions at the printing presses (paramount to lowering interest rates by a lot) inflation continues to remain relatively low. But where there may still be swings/volatility within that, maybe one year there might be 5% or more inflation, only to see adjacent years with low/no inflation, that averages out at a overall low annualised inflation rate.

Fundamentally supply capacity dwarfs demand, and with robotics/tech its difficult to see how that might be narrowed/reversed. Much of the West is also seeing demographics working against it, a ageing population. Again similar to what Japan has been enduring for the last few decades.

You could load 2% into each of 1 to 10 year gilts, for 2%/year guaranteed maturity amounts. Or perhaps 25% in total into inflation bonds (index linked gilts) spanning the same amount of years. Guaranteed inflation adjusted maturity amounts of perhaps 2%/year of the start date portfolio value. The remainder 75% into stocks - for ideally growth. Your income risk might then be zero risk, pretty much guaranteed for 10 years. If a bad 10 years when total stock with dividends reinvested ends up after 10 years worth just 66% of its inflation adjusted start date amount then the 75% initial allocation has dropped to 50% of the inflation adjusted start date value. Ouch! Or alternatively you might 100% load into stocks and draw the same amount of income each year, over a time when stock total returns were negative - which could be even worse. This is a real world example and if you click the 'inflation adjusted' tickbox in the chart you'll see that starting in 2000 with a 2% SWR applied to all-stock the portfolio value had halved by September 2003, less than three years into retirement. 75/25 stock/bond was in contrast a third down, so had a third more value than all-stock at that time. In Feb 2009 all stock was down to around a third of its value, whilst 75/25 had near 60% of its value remaining. And that's with a relative low withdrawal rate (2% SWR).

Increase the SWR to 4% and compare 50/50 stock/bonds compared to all stock and 50/50 will pretty much still have its inflation adjusted start date value still intact to recent (2020). All stock in contrast dipped down and levelled off at around -60% down. Stocks have done well since 2009 but in effect 4% SWR rose to being a 8% SWR against a halved value (rounding), i.e. is very 'pushing the boundaries'. Over other periods all-stocks will roar ahead, however 50/50 will still tend to do OK. Primarily 'missed opportunity' regret risk. 50/50 tends to do OK over periods of both economic contraction and expansion, stocks are more volatile, do very well during expansion, can do very poorly over contraction. And where the bond markets are in effect prediction contraction out for the mid/longer term, decades.

Personally I see 50/50 stock/gold barbell as a form of bond, FT250/US stock/Gold for small and large cap, but where that's a form of 33/67 stock/bond holding. US investors in already being based in the primary reserve currency (US$) might hold a third each in large cap, small cap and gold to similar effect That link has a 4% SWR being applied and again its best to click the inflation adjusted tickbox in the chart. Widen the period out further, to better include 'full cycles' which in that case is limited to starting from 1972 i.e. prior to including interest rates/inflation rising. And comparing without any withdrawals, just looking at total returns and all-stock had worse rewards with higher volatility (risk). I pretty much track FT250, US stock and gold, a third each, and broadly see similar rewards to that of Terry's TJH HYP accumulation, but with lower volatility. Same reward, with less risk (better risk adjusted reward). Very much like 67 stock/commodity reward, with 33/67 stock/bond risk (i.e. when 50/50 stock/gold barbell is considered as being a volatile bond bullet)

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Re: Thinking of selling shares and going into gold and cash

#396452

Postby 1nvest » March 17th, 2021, 2:39 pm

What the bond market is in effect predicting is a collapse in Western capitalism at some point between now and 50 years out. A 50 year inflation bond is priced to a -2% real yield, would return a third of the inflation adjusted amount. The likes of Ray Dalio are suggesting to look East. As in the West at some point partial defaults are anticipated to occur.

Historically defaults have occurred via the likes of mixing copper into legal tender coins that otherwise were commonly considered as being worth their weight in gold; Or interest rates have been kept low, taxes raised, inflation allowed to rage; Or bonds that 'never default' where "revised" ...etc.

After a default its more often easy to make money, as investors seek compensation for the default. Mid 1970's when the UK was bailed out by the IMF has seen such compensation since via good bond and stock gains. But at recent levels that might be considered as being way over-extended now, and where interest rates etc. are suggesting another 'correction' is pretty much imminent, just the timing remains unknown. Countries are in effect playing a pass the parcel bomb game, where for one that will blow up and as such impact the others less.
It's not return on my money I'm interested in, it's return of my money
Mark Twain 1835 to 1910.

In such eras as ever its diversification that helps, but rather macro diversification not just a bunch of stocks diversification. Pound, primary reserve currency (US$), global currency (gold) is a good start point because if it is the £ that dives then losing two thirds equates to around a overall 10% portfolio hit. If £ is invested in land (a home), US$ invested in stocks, and as gold is a commodity then again if any one of those loses two-thirds that's a 10% portfolio hit. Stock index funds often have 10% weighting into a single stock i.e. 10% is considered a 'acceptable loss risk'. One that might be recouped relatively quickly, perhaps even within a year or two. The benefits of diversification - the reduction of concentration risk, which is one if not the greatest of risks, has been well understood for millennia, for instance the ancient Talmud documented their advice of dividing ones wealth equally between land, commerce and reserves.

Selling out of one diversifier to overweight others is a bet that could backfire. More so the greater the weighting one asset/investment becomes relative to the whole. Bet all on stocks, or properties or bonds or cash or gold ... and you may do very well, or very poorly.

For me, the collapse of UK stock values I suspect may also hit home prices equally as harshly. So rather than £'s in land, $ in stocks, along with gold, I'm OK with £'s also being in (UK) stocks. So if 66 in both UK and US stocks take a two thirds haircut and drops to 22 then alongside 33 gold = 55. However I opine that whatever pushed stocks down that much would be good for gold, that might double, such that 100 dropped to 88, near a 10% 'acceptable' loss level. In practice that may very well see gold more than double, perhaps treble such that no losses may be evident.

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Re: Thinking of selling shares and going into gold and cash

#396474

Postby mc2fool » March 17th, 2021, 4:15 pm

Spet0789 wrote:In this same vein, one way to consider the long-run inflation protection of Gold is that over pretty much the whole of recorded history, 1 oz of Gold has bought around 1 week of skilled labour.

Maybe, maybe not, but either way people aren't investing for such long runs, they're generally doing so for at the most just one lifetime (and usually a lot less), and that purported relationship has clearly broken down over current lifetimes, as has already been shown by the charts previously posted.

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Re: Thinking of selling shares and going into gold and cash

#396503

Postby 1nvest » March 17th, 2021, 6:07 pm

mc2fool wrote:
Spet0789 wrote:In this same vein, one way to consider the long-run inflation protection of Gold is that over pretty much the whole of recorded history, 1 oz of Gold has bought around 1 week of skilled labour.

Maybe, maybe not, but either way people aren't investing for such long runs, they're generally doing so for at the most just one lifetime (and usually a lot less), and that purported relationship has clearly broken down over current lifetimes, as has already been shown by the charts previously posted.

Those charts fail to reflect two distinctly different paradigms. Up until 1971 when President Nixon ended gold convertibility, a fixed price at which US$ could be converted to gold, it made more sense to hold Dollars deposited and earning interest, so that a year/whatever later that money could be swapped back at a fixed $/gold price into more ounces of gold than at the start of the year. The price of gold was very stable. Ending that resulted in the price of gold becoming very volatile. With a volatile asset the preference is to partner it with a equally volatile asset but one that tends to move in the opposite direction, which in the case of gold is stocks.

Fundamentally gold as a investment has transitioned to being cash deposited earning interest (in effect the state paying you for it to securely store your gold, redeemable as gold at any time), to holding a stock/gold barbell instead of deposited cash, fully redeemable into gold at any time.

Those charts also fail to include gold interest. In India for instance savers who hold gold can secure cash for 70% of the spot gold value in return for a 0.75%/month interest rate when that gold is left as collateral. For the lender, they might count that gold as being on their books for the duration of that loan, such that their gold is earning a 10% interest rate. Of course when the loan is repaid and the gold returned they either have to strike another loan deal, or buy some gold to fill that hole assuming they still want the same allocation to gold.

If you look at stocks excluding dividends, you'd see similar swings around inflation pacing. You could buy a farm and leave it idle and again see similar. Work the farm to yield produce/dividends, include stock dividends, include gold interest ... is the fairer comparison. Or just look at price only comparisons.

Compare 50/50 stock/gold since 1972 to present against 100% stock and near-as total accumulation gains are the exact same.

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Re: Thinking of selling shares and going into gold and cash

#396505

Postby ReformedCharacter » March 17th, 2021, 6:16 pm

1nvest wrote:With a volatile asset the preference is to partner it with a equally volatile asset but one that tends to move in the opposite direction, which in the case of gold is stocks.


Thanks for an interesting series of posts. I haven't, I admit, looked at it in detail but my impression is that gold has not been particularly (negatively) correlated with stocks in recent years. Am I mistaken?

RC

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Re: Thinking of selling shares and going into gold and cash

#396509

Postby 1nvest » March 17th, 2021, 6:30 pm

Ben Graham suggested

• Never hold more than 75% of a portfolio in bonds or stocks. Always balance between 25% on the low end and 75% on the high-end.
• Stocks are usually attractive if the earnings yield is twice the Aa corporate bond yield.

To put some perspective on that a year ago or so and US stock PE's were around the 20 to 24 mark, so the inverse of that is the earning yield = 4% to 5% region, more recently PE has risen to 40 levels, so a 2.5% earnings yield. A year ago Corporate bond yields were down at 2% levels (June/July 2020), they've recently risen to 3%

Graham said little about cash, but Buffett provides some indicators. His company was holding around 15% cash, but that recently has expanded to around 30%

Using a very simplistic model of corporate bond yield divided by the sum of corporate bond yield and stock earnings yield we recently have 3 / ( 3 + 2.5 ) = 0.55, or 55% bonds. Using Buffett's cash level as a indicator that has 30% cash, and with the remainder 70% split 55% bonds/45% stock, so overall quite close to a 30/30/40 cash/stock/bond recent level asset allocation. Compared to a year ago when the corporate bond / ( corporate bond + stock earnings yield ) was around 2 / (2 + 4.5) = 0.3 ... so a 70/30 stock/bond split. So with Buffett's indicated 15% cash back then and the remainder split 70/30 stock/bonds = 15/60/25 cash/stock/bonds.

Noteworthy is that whilst corporate bonds tend to pay more interest that is a reflection of default rates, you can substitute in Treasury bonds for Corporate bonds for broadly the same/similar overall outcome after failures/defaults are factored in. Graham did prefer the greater security of Treasury bonds.

So yes the OP's desire to sell stocks looks to be in alignment, however rather than totally dumping all of stock the indications are that stock should be halved down from 60% to 30% weighting, whilst bonds increased from 25% to 40% weighting and cash doubled from 15% to 30% weighting. Or at least that's along the lines of what Graham/Buffett indicate.

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Re: Thinking of selling shares and going into gold and cash

#396511

Postby 1nvest » March 17th, 2021, 6:40 pm

ReformedCharacter wrote:
1nvest wrote:With a volatile asset the preference is to partner it with a equally volatile asset but one that tends to move in the opposite direction, which in the case of gold is stocks.


Thanks for an interesting series of posts. I haven't, I admit, looked at it in detail but my impression is that gold has not been particularly (negatively) correlated with stocks in recent years. Am I mistaken?

RC

It's a multi-year inverse correlation of variable length. Basically if stocks are in the mire and perform poorly over a decade/whatever length of time, where total returns with dividends reinvested don't even keep up with inflation, then typically gold will have performed well. Swings the other way around also and over periods when gold doesn't even keep up with inflation for a decade or more, typically stocks will have done very well. Along the lines of one loses half, the other more than doubles type mental image. Have a look at the chart in this link

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Re: Thinking of selling shares and going into gold and cash

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Postby BT63 » March 17th, 2021, 7:13 pm

1nvest wrote:.......So yes the OP's desire to sell stocks looks to be in alignment, however rather than totally dumping all of stock the indications are that stock should be halved down from 60% to 30% weighting, whilst bonds increased from 25% to 40% weighting and cash doubled from 15% to 30% weighting. Or at least that's along the lines of what Graham/Buffett indicate.


Well, although I've never been a fan of bonds (and don't expect I ever will be) I'm currently also not a fan of US shares.

In fact, at the moment I'm not keen on buying much at all, although that doesn't mean I'm a seller. Any dividends are simply being retained as cash, waiting for something worth buying to come along at some point.

If you pointed a gun at me and made me choose something to buy, I'd add some more gold at this time.


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