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GenghisKhan

Selling gold at these levels

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"I sold 20% of my gold yesterday."

=================================

 

Unlike many members of GEI I am not an active trader nor do I have any idea on whether markets are going to go up or down. I tried trading in the past and very quickly proved I was terrible at it. Therefore I built a very different investing strategy to most GEI members meaning I don't post here very often. I do however read a lot of the content and it was this site that in 2008 convinced me to hold gold (previously trying to hold commodity ETF's) as part of my strategy.

 

So what is my investing strategy?. It is very mechanical and consists of the following:

 

1. Firstly, it is built around minimising fees and taxes. I buy whole markets as I've proven I can't spot individual winners. Therefore I buy index funds rather than actively managed funds to keep my fees low. For example I can buy the FTSE All Share Index for 0.15% per annum. I also maximise the use of NS&I tax free products, ISA's and pensions allong with occasionally using the UK CGT tax free allowance. I hope this method will maximise the miracle of compound interest for me rather than give it to HMRC or the City Boys.

 

2. I hold a broad range of assets which includes developed equities (AUS, UK, EU, US and Japan), emerging equities (China, India, Brazil etc), REIT's (UK and EU), index linked gilts, cash and gold. I have set percentages that I want to hold of each asset type. This is my strategic asset allocation.

 

3. I then flex my strategic asset allocation with a tactical twist based on developed equity cyclically adjusted PE ratios (PE10). I look at the PE10 for the UK, US and Aus. If I see overvaluation I am underweight the asset class and vice versa.

 

4. I am investing new money like crazy. I regularly invest 60% or so of my gross earnings. This money goes into buying the asset class that has performed the worst. This is my attempt to buy low which means I have bought no gold since April 2010. It also means I don;t have to do point 5 very often.

 

5. I have then set rebalance bands for each of these asset classes. If an asset class percentage holding moves by 25% or 5% in total then I sell it to rebalance back to my target. For example say I want to hold 50% UK equities and 10% EU equities. Say both weightings move upwards by 10% to 55% and 11%. This would mean I rebalance the UK equities to 50% (the 5% rule) but not the EU equities. Then say the weightings move upwards by 15% to 57.5% and 12.7%. This would mean I rebalance the UK again (the 5% rule) and the EU (the 25% rule). This is a mechanical method to try to - 1. allow the trend to be your friend, 2. let your winners run a bit, and 3. buy low and sell high.

 

Since January 2008 this strategy has returned an annual CAGR of +4.6% and year to date I am down 2.5%. So poor returns compared to many GEI members.

 

SELLING GOLD AS IT RISES

 

Now the interesting bit. GEI members on the whole still seem very bullish on gold. My mechanical method forced me to do exactly the opposite yesterday. I sold 20% of my gold. This was caused by - 1. equities becoming cheaper by my PE10 method forcing me to hold more, 2. my actual holdings of equities becoming less due to the recent declines and 3. gold rising.

 

With the proceeds my mechanical method forced me to buy EU equities and EU REIT's.

 

So my mechanical method has forced me to be a bit contrarian to a lot of GEI members. I also saw for the first time in the main stream press (BBC News 24 this morning) a supposed "expert" saying that gold would be a good thing to buy now, making me think gold has just started to go mainstream. Previously everything has been sell us your gold up to now. So if I was not mechanically investing and instead relying on my "skills" I'd be thinking gold still had some way to go as the average mum and dad still needs to buy before the big boys sell allowing mum and dad to take the pain in the usual style. The old mum and dad buy high sell low strategy. So my mechanical method has also forced me to be contrarian to my own thinking.

 

Not really relevant to this post but these "experts" really are dangerous. This lady stated that in these times it would be good to hold both gold or London property as they both behaved the same in the current climate. That IMO is dangerous and also incorrect even with my limited knowledge. How do these people become "experts". Do you get the certificate out of Weetabix boxes or something? Also she's saying buy at $1,850 when I bought at $700 and many GEI members bought at far less than that.

 

Would be great to hear others thoughts?

 

Of course I have to say I have no idea what I'm doing and so always DYOR.

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Interesting strategy, I'm sure it will work out over the long haul.

 

I sold 10% of my total PM position yesterday aiming to buy back when things calm down a bit.

 

Gold hit a very important top yesterday. If I'm wrong I still have 90% left, if not then I'll hopefully buy back cheaper

 

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... My mechanical method forced me to do exactly the opposite yesterday. I sold 20% of my gold. This was caused by - 1. equities becoming cheaper by my PE10 method forcing me to hold more, 2. my actual holdings of equities becoming less due to the recent declines and 3. gold rising.

 

With the proceeds my mechanical method forced me to buy EU equities and EU REIT's.

 

So my mechanical method has forced me to be a bit contrarian to a lot of GEI members.

It is interesting to hear about your "mechanical method", and I wonder how far you back-tested it?

We are in unusual times now, with ultralow interest rates - lowest in history, and that has distorted prices, since there is no return for savers, after inflation.

 

I also saw for the first time in the main stream press (BBC News 24 this morning) a supposed "expert" saying that gold would be a good thing to buy now, making me think gold has just started to go mainstream. Previously everything has been sell us your gold up to now. So if I was not mechanically investing and instead relying on my "skills" I'd be thinking gold still had some way to go as the average mum and dad still needs to buy before the big boys sell allowing mum and dad to take the pain in the usual style. The old mum and dad buy high sell low strategy. So my mechanical method has also forced me to be contrarian to my own thinking.

 

Not really relevant to this post but these "experts" really are dangerous. This lady stated that in these times it would be good to hold both gold or London property as they both behaved the same in the current climate. That IMO is dangerous and also incorrect even with my limited knowledge. How do these people become "experts". Do you get the certificate out of Weetabix boxes or something?

The "experts" are often hired by companies with something to sell, and they get paid for promoting opinions which suit their employers.

 

One of the reasons that many experts working for big firms have not suggested Gold is that the big firms make little money when you buy gold. They make more money when you buy stocks that have paid placement fees to the big firms for underwritings.

 

With Gold now "going parabolic" the big firms are making money on their own gold holdings, but they will want to unload at some point - since they know what often happens after parabolic moves up. So they want more people in on the game, and they know the average guy chases price action likes this, and usually doesnt sell at the right time.

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It is interesting to hear about your "mechanical method", and I wonder how far you back-tested it?

 

The 2 main indices I base my PE10 overweight/underweight tactical decisions are the S&P500 and the ASX200. For the S&P500 I essentially use the Shiller dataset which allows PE10 calculations back to 1881. The ASX200 is my own work and only allows backtesting to 1993. I have also developed a FTSE100 PE10 from 1993 however I am not yet using it to make any investment decisions.

 

As an investor rather than a trader I am looking for long term trends. For example one back test I ran found a negative correlation between the PE10 and 5 year total equity return (price + dividends) suggesting that a little extra performance may be able to be squeezed from what is now essentially a buy, hold and rebalance strategy. For the US when I ran it sometime ago this was -0.45 and for Aus it was -0.33.

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Feeling better now, after the drop?

 

Gold sell price to current price -2.6%

EU equities buy price to current price +2.2%

EU property buy price to current price +3.7%

 

and to be honest I'm feeling nothing because my strategy is long term and these past few days are just noise. I'll keep watching my rebalancing bands. At the present time my Gold is 2.3% away from my target allocaction. I guess that's investing rather than trading.

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How do you backtest your strategy? Are there programs or websites that can help you do this?

 

I'm just using Excel and it now takes a few minutes a month to update. I then check all my rebalancing bands weekly against this monthly dataset. It did however take me a lot of effort to build my datasets in the first instance. I used to publish a lot of these regularly on my blog (link in my sig if interested) however I'm really short on time these days so have neglected it quite a bit.

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Looking at your disposable income, you obviously sell something to somebody for a lot of fiat.

 

Why not spend it on stuff you want?

 

That's what a medium of exchange is supposed to facilitate.

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Looking at your disposable income, you obviously sell something to somebody for a lot of fiat.

 

Why not spend it on stuff you want?

 

That's what a medium of exchange is supposed to facilitate.

 

It's also a store of value - for future needs. Or it should be.

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Looking at your disposable income, you obviously sell something to somebody for a lot of fiat.

 

Why not spend it on stuff you want?

 

That's what a medium of exchange is supposed to facilitate.

 

I think you have just made a very big assumption to get to that statement. I'm guessing you think I earn big money because I save 60% of my gross earnings. Well you couldn't be further from the truth. For me the number one priority in life is spending/enjoying time with friends/family, relaxing and reading. That doesn't cost a lot. In fact if you don't "want for stuff" it is very easy to live on a small amount of money in the UK. Let me give some idea of how I live:

- I don't own an iPad or a 46" television nor do I want them.

- I drive the most fuel efficient car I can get my hands on. Wherever possible I choose not to drive but instead use public transport or walk. I find it more relaxing and the exercise is great.

- I buy new clothes when my old ones wear out rather than when a new fashion comes in.

- Rather than live in a McMansion mortgaged to the hilt I live in modest accomodation appropriate for my families size. This also means I don't have excessive energy bills.

- I have no debt. If I want to buy something I save up for it rather than put it on the credit card or take out a personal loan.

- I don't waste money. For example some time ago I ran an exercise where I bought the cheapest of every item I needed from the supermarket. Some of it was ok an some awful so the next week I bought the cheapest of what was good but the next most expensive of the rest and so on. That gave me the lowest priced shopping bill.

 

I could go on but hope that gives you an idea on the expense side. I also very much enjoy my life as I am not focused on collecting personal possesions but instead maximising my well being.

 

On the earnings side I don't sell anything to anyone. I work for a company as an employee. I also work extremely hard. Nothing has been given to me. What I do though is use whatever tax advantages I can get to maximise my earnings/savings. For example pensions, ISA's, annual CGT exemptions, NS&I ILSC's.

 

I hope you now start to understand how I save 60% of my salary. I'm doing nothing more than the Average Joe is capable of if s/he took some time out from XFactor and instead did some thinking/reading.

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Why?

 

I do not spend everything I earn as I do not expect the future generations to take care of me at all. That includes now or when I get to the point of "retirement", which I define as work becoming optional. Those that read my blog will have seen that I recently was out of work. In that time I went nowhere near any benefits and instead looked after myself by living frugally compared to my normal life and also by using up some of my savings.

 

I also agree with cassini and look to convert what fiat I can into mediums that can store value. With this I do not intend to sail around the world but instead someday retire and live of my stored value instead of going cap in hand to the government having spent it all and saying I want a Pension.

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I also save about 60% of my earnings. I do very little with it really, apart from my one extravagance which was learning to fly. I have no debt, and I don't waste money. I can't remember the last item of clothing i bought, though i have started throwing out socks when they get huge holes in the heels :D

 

I don't consume partly because I don't like giving my money to the gubbermint. If and when i do buy things, I save for them and usually buy a good quality one which I expect to last for a LONG time.

 

I recently did actually buy a new laptop (old computer I had had for 10 years, was basically unusable) - but FOR GODS SAKE, DON'T GET A MAC WITH LION (OSX 10.7)- I sent it back!

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Why?

 

 

I could put it this way - to avoid being shackled by the 'coincidence of wants'.

Even squirrels save some nuts for the day when the nuts stop being so plentiful.

If you are relying on your income being uninterrupted all the way up to your demise

you may be disappointed at some point. Of course, you can always throw yourself on the

mercy of the government...

 

Life is an uncertain business, it is wise to have reserves for dreams, contingencies and hard times.

Those that don't may end up like the losers on that documentary programme 'Skint'.

They spend everything they have as it comes in, plus a bit more.

Read the Fable of the Grasshopper and the Ant by Aesop.

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Looking at your disposable income, you obviously sell something to somebody for a lot of fiat.

 

Why not spend it on stuff you want?

 

That's what a medium of exchange is supposed to facilitate.

 

I think you have just made a very big assumption to get to that statement. I'm guessing you think I earn big money because I save 60% of my gross earnings. Well you couldn't be further from the truth. For me the number one priority in life is spending/enjoying time with friends/family, relaxing and reading. That doesn't cost a lot. In fact if you don't "want for stuff" it is very easy to live on a small amount of money in the UK. Let me give some idea of how I live:

- I don't own an iPad or a 46" television nor do I want them.

- I drive the most fuel efficient car I can get my hands on. Wherever possible I choose not to drive but instead use public transport or walk. I find it more relaxing and the exercise is great.

- I buy new clothes when my old ones wear out rather than when a new fashion comes in.

- Rather than live in a McMansion mortgaged to the hilt I live in modest accomodation appropriate for my families size. This also means I don't have excessive energy bills.

- I have no debt. If I want to buy something I save up for it rather than put it on the credit card or take out a personal loan.

- I don't waste money. For example some time ago I ran an exercise where I bought the cheapest of every item I needed from the supermarket. Some of it was ok an some awful so the next week I bought the cheapest of what was good but the next most expensive of the rest and so on. That gave me the lowest priced shopping bill.

 

I could go on but hope that gives you an idea on the expense side. I also very much enjoy my life as I am not focused on collecting personal possesions but instead maximising my well being.

 

On the earnings side I don't sell anything to anyone. I work for a company as an employee. I also work extremely hard. Nothing has been given to me. What I do though is use whatever tax advantages I can get to maximise my earnings/savings. For example pensions, ISA's, annual CGT exemptions, NS&I ILSC's.

 

I hope you now start to understand how I save 60% of my salary. I'm doing nothing more than the Average Joe is capable of if s/he took some time out from XFactor and instead did some thinking/reading.

Yeah, but what are you buying?

 

Because you are spending 60% of your earnings on something.

 

 

 

I do not spend everything I earn as I do not expect the future generations to take care of me at all. That includes now or when I get to the point of "retirement", which I define as work becoming optional. Those that read my blog will have seen that I recently was out of work. In that time I went nowhere near any benefits and instead looked after myself by living frugally compared to my normal life and also by using up some of my savings.

 

I also agree with cassini and look to convert what fiat I can into mediums that can store value. With this I do not intend to sail around the world but instead someday retire and live of my stored value instead of going cap in hand to the government having spent it all and saying I want a Pension.

Ahh.

 

You are spending 60% of your earnings on the hope of capturing some value of the future labour of others.

 

 

I could put it this way - to avoid being shackled by the 'coincidence of wants'.

Even squirrels save some nuts for the day when the nuts stop being so plentiful.

If you are relying on your income being uninterrupted all the way up to your demise

you may be disappointed at some point. Of course, you can always throw yourself on the

mercy of the government...

 

Life is an uncertain business, it is wise to have reserves for dreams, contingencies and hard times.

Those that don't may end up like the losers on that documentary programme 'Skint'.

They spend everything they have as it comes in, plus a bit more.

Read the Fable of the Grasshopper and the Ant by Aesop.

How many nuts do you have?

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Let me give some idea of how I live:

- I don't own an iPad or a 46" television nor do I want them.

- I drive the most fuel efficient car I can get my hands on. Wherever possible I choose not to drive but instead use public transport or walk. I find it more relaxing and the exercise is great.

- I buy new clothes when my old ones wear out rather than when a new fashion comes in.

- Rather than live in a McMansion mortgaged to the hilt I live in modest accomodation appropriate for my families size. This also means I don't have excessive energy bills.

- I have no debt. If I want to buy something I save up for it rather than put it on the credit card or take out a personal loan.

- I don't waste money. For example some time ago I ran an exercise where I bought the cheapest of every item I needed from the supermarket. Some of it was ok an some awful so the next week I bought the cheapest of what was good but the next most expensive of the rest and so on. That gave me the lowest priced shopping bill.

 

I could go on but hope that gives you an idea on the expense side.

These are great skills that people usually learn from their parents (rather than from the education system).

Unfortunately many parents never learned these lessons themselves and so cant pass the benefits down to their kids.

Maybe people will have to get back to learning "make-do-and-mend".

Enjoy life :)

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I also save about 60% of my earnings. I do very little with it really, apart from my one extravagance which was learning to fly. I have no debt, and I don't waste money. I can't remember the last item of clothing i bought, though i have started throwing out socks when they get huge holes in the heels :D

 

I don't consume partly because I don't like giving my money to the gubbermint. If and when i do buy things, I save for them and usually buy a good quality one which I expect to last for a LONG time.

 

I recently did actually buy a new laptop (old computer I had had for 10 years, was basically unusable) - but FOR GODS SAKE, DON'T GET A MAC WITH LION (OSX 10.7)- I sent it back!

 

I too was recently up for a new laptop. No iPad for me. I went for the cheapest laptop I could get my hands on. Works fine and does everything I could possible want it to. Also doesn't run Vista which is a great benefit :)

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...

Ahh.

 

You are spending 60% of your earnings on the hope of capturing some value of the future labour of others.

...

 

At some time in the future I will not be able to earn units of exchange. On one extreme this could be because of illness or injury. On the other extreme it may because I want to do charitable or volunteer work. It could also be for any reason in between. However after this period I will still need food, shelter and clothing as a bare minimum. I am no different to every other man, woman and child on the planet.

 

I see 3 options to meet this need:

1 The method I currently employ

2 Expect my family to support me

3 Expect total strangers to support me

 

I can sleep at night with my choice of option 1.

 

I think you are not telling the whole story with your "capturing some value of the future labour of others". Let's think about a sustainable society. I am today providing added value to society however I am not in return not seeing full potential benefit for this by storing some of it. This storage is me "giving some value of the present labour of myself to others". I can live with that. I'm buying and somebody out there is selling as they need the units of exchange from their storage. Move forward a few years and then I'll be the one selling with my stored units of exchange to the next down the line. Doesn't sound to bad to me.

 

If you don't agree, what do you propose as an alternative?

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These are great skills that people usually learn from their parents (rather than from the education system).

Unfortunately many parents never learned these lessons themselves and so cant pass the benefits down to their kids.

Maybe people will have to get back to learning "make-do-and-mend".

Enjoy life :)

 

While I learnt a great many things from my parents unfortunately a lot of these I didn't. I say unfortunately because it took me until my early 30's before I did, putting me about 10 years behind where I could have been. That said I wouldn't change it, have no regrets and respect my parents greatly for what they did teach me. I do not blame others for my own faults.

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You are spending 60% of your earnings on the hope of capturing some value of the future labour of others.

 

Perhaps you might phrase that "in the expectation of being able to enter into a voluntary exchange of labour and capital". Savings do not allow one to 'capture' the labour of anyone. That's what socialism is for.

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Yeah, but what are you buying?

 

Because you are spending 60% of your earnings on something.

 

 

 

 

Ahh.

 

You are spending 60% of your earnings on the hope of capturing some value of the future labour of others.

 

 

 

How many nuts do you have?

 

When someone saves they are foregoing the fruits of their labour - effectively giving it to someone else. When they spend their savings they are reclaiming it. The process is conservative - that is, sustainable - and fair. It is the deferment of gratification - no one is hurt unless the system is out of balance. Those who are unable to defer gratification may well be baffled that anyone may have plans with an horizon of longer than to the next pay day - well, what can I say?...

 

How many nuts? Including you?

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Easy does it...

 

(There seems to be plenty of tension on the threads these days. I wonder why?)

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Thought I'd write a quick update on my strategy which is defined in the first post of this thread as something interesting has just happened. It's just gone positive again YTD. :)

 

As a comparison we know that YTD the FTSE 100 is down around 9%, the Dow hasn't moved and gold priced in GBP is up around 16%.

 

In comparison my boring stay the course (buy and hold?), rebalance asset classes at preset limits (buy low sell high?), flex allocation based on a valuation metric, after all fees and taxes paid at source is up all of 0.8%. Of course it is negative if you allow for the devaluation of money. Using the RPI as a devaluer and the return goes to something like -3.5%.

 

For my strategy to work I need a CAGR of about 4% after inflation. So far it's therefore not working out.

 

Of course that return will be nothing compared to the GEI traders out there but hopefully it gives a small insight into what is possible for somebody with no trading skills...

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Thought I'd write a quick update on my strategy which is defined in the first post of this thread as something interesting has just happened. It's just gone positive again YTD. :)

 

As a comparison we know that YTD the FTSE 100 is down around 9%, the Dow hasn't moved and gold priced in GBP is up around 16%.

 

In comparison my boring stay the course (buy and hold?), rebalance asset classes at preset limits (buy low sell high?), flex allocation based on a valuation metric, after all fees and taxes paid at source is up all of 0.8%. Of course it is negative if you allow for the devaluation of money. Using the RPI as a devaluer and the return goes to something like -3.5%.

 

For my strategy to work I need a CAGR of about 4% after inflation. So far it's therefore not working out.

 

Of course that return will be nothing compared to the GEI traders out there but hopefully it gives a small insight into what is possible for somebody with no trading skills...

Nothing wrong with that.

 

Even a conservative strategy should allow some rebalancing at "extremes" of valuation.

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