Early Retirement Extreme Forums

Without knowing of Taleb and his nomenclature, my wife and I have been very aggressively anti-fragilizing through nearly obsessive debt payoff, and various other lifestyle strategies.
I also read The Greatest Trade Ever a couple of years ago. For those that haven't read it, it's about guys that won (and lost) betting against housing.
http://www.amazon.com/Greatest-Trade-Ev ... 0385529945
Thus prepared, Taleb's Black Swan and Antifragile hit me like a ton of bricks.
I believe our systemic risks continue to mount since 2008. I don't really want to debate whether or not this is correct here- I want to discuss how not just to survive/be robust, but thrive in these conditions. (real or imagined)
For a totally debt free person lacking fuck you money, how do they take the next step in Antifragilizing, and getting Black Swan exposure? What does the practical implementation of a barbell strategy in 2013 look like?
I hope to go beyond these, but some previous links/threads from the forum-
The article I poached the thread title from- http://online.wsj.com/article/SB1000142 ... 83448.html
Taleb famously used options (and wrote a book) and also was interested in Venture Financing for his high risk. Treasuries was where he parked most of his capital.
Now, Taleb says he looks for a dividend over a coupon and owns real estate as he doesn't find treasuries safe now (neither do I). Some forum discussion:
viewtopic.php?t=2222#post-30114
Is Permanent Portfolio the lowest risk investment strategy? A thread, with comments on risk generally, and growing risks in bonds too.
viewtopic.php?t=2440#post-39891

Reduce the need for money (ERE principal #1).
What needs do we have? Food, shelter, medical care, transportation, energy consumption, and the taxes placed on those items/income. Thus gather your own food, own land/vagabond, be healthy, walk/bicycle, avoid using energy, find the tax structure that best reduces your obligations while achieving the rest, and have reserves.
I'd like to know more about foods that require no refrigeration or cooking other than drying.
I dislike gold (or any commodity) as an investment since it doesn't provide income -- unless you think of a way to rent out the commodity that doesn't become a zero-sum game. Investing in resource production (gold mining) makes sense, provided you understand the risks inherent in that commodity's production.

That Taleb article just radiates wisdom, if only he was heeded... These are big questions, too close to beer thirty for me to answer them well.
I agree with George 100%, my number 1 is to reduce dependence on money. As retirement nears, it is so much easier to lower expenses by $100/mo then save an additional $30,000, which is how much $1,200/yr requires at 4% SWR... I will continue to be vigilant on this. My expenses are probably 40% of what they were when I first thought "that's good enough, you can relax now!"
Then diversify the savings as it comes in... As my investments start to become more important than my job's income I want to shift my efforts to increasing self sufficiency and returns on investment. Which I should have the time to do since I'll be working less.
@George: Gold derivative options carry a heavy premiums. You could easily sell covered calls on gold ETFs, or even physical gold if you have the margin... If you're afraid of the selling covered calls, how about something like GGN? Which tracks the price of GLD (fairly close, minus dividends) and the dividend is yielding 12% right now. GGN dividend is made from selling options, so as long as volatility is there it should be safe.

Robustness is very Very good. Most people do not have this. I'd define the PP as one of, if not the best, attempts at Robustness in investments.
But how do we get the next step, Antifragility, as defined by Taleb- not just preserving capital during change and Black Swans in the markets, but getting stronger/wealthier from it.
(I didn't mention the ERE book as I assume we've all read it. This is the robust lifestyle defined!)

IMHO, too many people look at the gold, 30-year treasuries, and cash in the PP and immediately toss it in the drawer with other perma-bear portfolios. But the asset allocation model based on diversification across economic conditions (coupled with a rebalancing mechanism that profits from volatility in the individual assets) is, to me, the definition of anti-fragility. With the PP, you're poised to make 3-6% real returns no matter what happens in the market - even a stock market crash or crushing inflation that kills most portfolios - with basically zero effort and no guesswork required.
Yes, bonds are risky. As is gold. And stocks, for that matter. They're all volatile as hell, and could drop sharply at any moment. But that's how anti-fragility works - embracing the unknown and positioning yourself to profit in any scenario.
There's no such thing as a magical perfect portfolio, or everyone would be using it. The hardest part about investing is finding something you can stick with long-term, and to each his own. But for me personally, I have a very difficult time picturing anything that can best an ERE lifestyle funded by a PP backstop for financial peace of mind.

@Tyler9000,
I pretty much aggree....The PP is so well balanced for me. I don't even worry about a stock market crash because I know the PP mostly protects me with other asset classes.
That, coupled with continued progress towards becoming a producer and less of a consumer, equals security and peace of mind long term.
I also tend to park some of my money into large cap, DOW stocks who are currently big Dogs. More times than not, they recover, and usually providing an above average return.

Well, I have just implemented over the last 2 weeks the PP for about 30% of our assets (before it was almost 100% in savings accounts).
But the loss of around 6% for gold these last days, was not (yet) made up by other parts of the PP. I am not used to volatility yet and advocating to DW the PP is more save as a savings account, have not yet paid off

Congrats on diversifying out of savings accounts. That's a big step.
Don't sweat the daily swings. Gold was down almost 5% yesterday, but the PP was still down less than one. That's actually a good example of how it protects you from big unforeseen drops while still keeping you engaged in the markets. It'll protect you similarly if stocks crater tomorrow.

Very much obsessed with the same topic, have huge interest in Taleb and doing a PhD in uncertainty within IT project implementations.

Also think PP is the best solution, however I am very much weary of government bonds in this age of disastrous public debts. No way I would invest in US/Japanese/Italian... bonds.

Thus my current portfolio is mostly in AUD 50%, gold and silver 35% and an index fund 15%. Therefore, the recent metals drop hit me hard. I`ve been planning to level these three categories out to equal amounts, or maybe to get closer to the original PP do 40% index funds and 30% each cash and metals. Within the index funds I am planning the allocation 25% large cap, 25% small cap, 25% property and 25% bonds.

Opted for the index funds as I don`t have time to manage it myself (work full time, study part time).

Thanks noskich. Interesting ideas on your ideas for your interpretation of the PP.
Are you looking at anything for the other end of the barbell, high risk?

Well, I would prefer not to expose myself to too much risk until I go ERE. But than again what is not risky nowadays when the government can shave off the deposits, when gold and silver can plunge 15% in a week? From my perspective only the land is relatively not risky if you purchase it not as an investment but for personal use in order to satisfy the needs for food and accommodation.

Everything else is set by the market which can and is manipulated by big players.

For my taste 40% in index funds consisting of equal amounts of large cap, small cap stocks, property funds and bonds is more than enough risk.

Have you implemented PP by the book Seneca?

We're in the US. Right now we are funding our tax deferred 401(k) accounts and paying off the much hated mortgage.
Within our 401(k) we have a basic index strategy with a slight overweight to small cap. Any cash we pay taxes on, I'd rather use on the mortgage, so we're not buying anything outside these accounts. The investments available to us within these accounts are very limited, so I think it is the best for now.
My wife's employment situation is changing and her options are going to open up so we will be able to start moving that way.
We're in the talking stage right now, and stuck somewhere in the middle. A shift to a barbell strategy will happen slowly over the next couple of years.