05 September 2013

'Hedge Fund Market Wizards' debunks Permanent Portfolio Myths & Bill Gates about Bitcoin

16 comments:

  1. Hi Marc,

    I don't know how bitcoins work but in the strategie you discibe, do you take into account the spreads and margin calls ?

    Did you try forex ?

    Gil

    ReplyDelete
    Replies
    1. Hi Gil,

      I have no experience with forex. I don't invest with margin and hence have no margin calls. Whenever I talk about my returns it is always after deducting all my costs, transaction and spread costs also.

      Spreads (1%-3%) are huge on bitcoin exchanges due to the small market. Therefore I buy mostly by putting a new ask or bid, close to the trading price and waiting for it to be filled. This way I actually earn the spread instead of paying it, and I actually add liquidity instead of taking it. The problem with this is that the price can run away from you and your order does not get filled. But that is not a big problem for my strategy since I only buy when it goes down, so when it went down enough I put up a new bid, if price then goes up and it is not filled, worst case it goes up so much that I don't need to buy anymore.

      Delete
  2. Hi Marc,


    If you use this strategy on speculative markets as forex, futures etc you will then have margin calls. If your positions loose too much then they will be liquidated. You may have no time to wait for the stuff to go up and sell what you bought on the way down.

    Many funds managers don't have the same access to the market as we have it. Having real time on future market for let say the CAC 40 can cost you up to over 2000 euros a month.

    Regarding companies you also have to take in account that some companies run with proprietary formulas of products or very high sweetching costs (ie imagine changing windows and office suite in all the industry very difficult to push microsoft out isn't it ?)

    Many things to look at and take in consideration.

    Gil

    ReplyDelete
    Replies
    1. Hi Gil,

      I don't understand what the relation is with my video above or my reply to your message?

      Could you elaborate?

      Delete
  3. Hi

    As you were talking about strategy of buying on the way down and selling by part on the way up using bitcoins market, i was wondering if you had some experience of this on other markets.


    Gil

    ReplyDelete
    Replies
    1. Ok, makes sense. I copied that strategy from the Permanent Portfolio that also forces you to buy more if something drops and sell off if it goes up. So I've been doing that with gold (bullionvault), stocks (etf's) and german bonds too. However this only every few weeks and only if market moved. The Permanent Portfolio makes on average around 1% per year more than the individual assets combined thanks to this strategy.

      I have to admit I'm not an experienced trader as you seem to be. I'm curious what kind of portfolio/strategy do you maintain? Have you succeeded in outperforming the Permanent Portfolio?

      Delete
  4. You also where talking about companies having to change model continously. This is why i ponted out what i said about companies.



    Gil

    ReplyDelete
  5. Marc,


    I hold a small PP in euro but my main portfolio is dividend based and invested using cost averaging. I have only few lines in my stocks portfolio (only 16).

    I have not been trying to out perform the PP or any indice, my portfolio grows because my dividends are reinveted monthly in it. I have only one or 2 trades a month.


    Gil

    ReplyDelete
  6. Choosing stocks is the hardest part ;)


    Gil

    ReplyDelete
  7. Forgot to point out that i don't sell part of the PP when it goes up or down. Instead, I inject a sum of money in it to re-equilibrate all assets. I use 2 assets giving also dividends.


    Gil

    ReplyDelete
  8. What Harry Browne said is that nobody can predict the future, so is not possible to consistently outperform the market making bettings on market predictions. And no matter how smart you are or how many time you waste investing, because if bitcoins finally colapse (and you must admit that is a real possibility) you will lost lots of money. That's why he recomended to speculate only with money you can afford to lose.

    And I'm sure all that examples of market wizards are awesome, but there are many more anonymous examples of people who beleived they were so smart, or even they were, but got ruin due to wrong speculations. That's why you don't have to speculate with the money that is precious to you, and I think you will agree that the PP is the better way to safely invest those savings.

    ReplyDelete
    Replies
    1. You are not addressing my critiques. I agree that bitcoin can go wrong completely and that the PP is much safer. And indeed you should only speculate with what you can afford (or are willing) to lose.

      However, my critique is that speculation is NOT about predicting the future. That is just misrepresenting or even ridiculing the profession! :( Speculation is about estimating the risk/rewards and sizing your bets appropriately! And this in an UNCERTAIN future.

      What Harry Browne did was throwing away the baby out with the badwater. Sure most people fail in speculation and those that succeed have failed mostly several times before. But isn't that true for entrepreneurship also?

      My other critique is that the returns of the PP are dropping every decade and like any investment system will fail due to too many people using it!

      How high do - you - think true inflation is today?

      Delete
    2. Hi Marc,
      I think you cannot size the bets appropriately because most important variables are unknow. Then, you use your own views about the future to make those bets, like thinking that bitcoin price movement are going to repeat past movements or inflation is going to rise so precious metal prices will rise too. That's the base of your speulation and it's pure predictions. Another thing is that you can use strategies to try to maximize your returns if your views about the future are right, but only with that strategies you cannot win if the future turns different.

      About the PP profits dropping, I don't see that. According to your tables PP returns are quite stable around ~4.5% above (official) infation, just as Harry Browne estimated 30 yeas ago. I agree that we cannot count on the fist years of the 70's, but I'm pretty sure a couple of years are enough to arbitrage gold prices. And I don't know how true inflation is today or was 10 or 20 years before. I know oil and food are more expensive but the rest of imports are cheaper, and houses are also cheaper too, definitely cost of living may be cheaper today in my country (Spain), wages also but PP gave a nice 8% last year.

      Oh I forgot... Nice hair cut ;)

      Delete
  9. Hi MARC,

    I agree with you.

    I am now 100% EUPP and I am affraid of a failure on it.

    I tried to educate myself and have a lot of experience during 10 years in the market with technical analysis only. But, I think I couldn't find an edge...

    I am still trying, not so hard as previously, because I think it is possible.

    What do you recommend?

    With my best regards!

    ReplyDelete
    Replies
    1. Hi Frugal,

      Thanks for your recognition and validation of my work! :)

      I would recommend the same as Jack Schwager recommends:
      Continue to work hard to find an edge. Continue to learn/copy from others what you like but develop your own style that works for you and makes sense for you.

      I would also recommend what I would say to any entrepreneur that had a failed project:

      I'm sorry it didn't work out. I can imagine that must have been frustrating for you. I hope you succeed in finding something you love doing. Because that will allow you to work hard, stand up again and again and become better. If you love doing it, you will become very good at it and will be able to make $$$ :)

      Delete
  10. We shall know what we can do to establish a good Property Investment Mackay. Its important that we know that we are capable of doing what is necessary for our business. Our business is important that is why we have to learn new things to ensure the stability of our business.

    http://www.positivepropertyinvestments.com.au/properties/property-investment-mackay/

    ReplyDelete

Disclaimer

This website is for informational purposes only and does not constitute an offer or solicitation to buy or sell any security discussed herein or in any jurisdiction where such would be prohibited. The author of this website, Marc De Mesel, as well as the commentators, together the authors, are expressing their own opinion on various subjects including those relating to economics, finance and investing. The authors are not registered financial advisors, brokers or securities dealers and do not take responsibility for the decisions you take with your money. All investments contain elements of risk. You should understand what these risks are before buying any investment. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. The authors will not accept liability for any loss or damage, including without limitation to any losses which may arise directly or indirectly from use of or reliance on such information.