About to follow permanent portfolio stratagy but...

General Discussion on the Permanent Portfolio Strategy

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david clissold
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About to follow permanent portfolio stratagy but...

Post by david clissold » Wed Apr 26, 2017 3:25 am

Hi Guys, new member. I have recently read fail safe investing. Also permanent portfolio.

I get it. I,m very concerned US stock market is ready to crash. Not if but when. Feel I should lighten the stock load , or use companies like proctor and gamble giving 3% divided.
After the crash switch to index funds.
Seems I would get a jump start by not taking as bad an initial hit on stocks.

They Craig/J.M give a small amount of wriggle room in the explanations but are strongly advising against it in all forms.

Comments?
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Re: About to follow permanent portfolio stratagy but...

Post by mathjak107 » Wed Apr 26, 2017 4:04 am

More money has been lost or given up preparing for or anticipating the next downturn than has actually been lost because of any down turn-- peter lynch

Bad investor behavior is the usual reason money is lost ,not markets.
Over time you can drop in a downturn and still be way a head of where you would have been had you just did something more conservative..
As i mentioned in another thread , if you got scared after brexit and decided to do the pp instead of your more aggressive model by years end you had double digit losses from the pp so short term the volatility can still be there..

Looking at it from a long term perspective , do short term dips matter if you have a long term view ?

You have to ask yourself if the logic is there for you. Personally when i was a long term investor i never saw any logic mitigating temporary short term dips and permanently reducing my long term gains since the short term did not matter to me.

If mitigating short term volatility was a goal than going with the pp may not do that as it can be pretty volatile in the short term when all assets move the same
So you have to ask yourself if mitigating long term volaility
important to you when short term swings can still scare the heck out of you. I know we had swings the last few months where my golden butterfly exceeded my 100% equity growth model.
Last edited by mathjak107 on Wed Apr 26, 2017 7:31 am, edited 1 time in total.
barrett
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Re: About to follow permanent portfolio stratagy but...

Post by barrett » Wed Apr 26, 2017 7:22 am

Welcome to the forum, David.

Stocks definitely seem overvalued right now but have a look at this article about John Bogle's simple formula:

http://awealthofcommonsense.com/2016/09 ... n-formula/

Bogle hates gold as an investment but that's not my point in bringing this up. What I like about his view of expected stock market returns is that he is consistent in how he lays everything out. Note that this article is from September of 2016 but if you do a search online, you'll find that he always says the same thing which is:

Future Market Returns = Dividend Yield + Earnings Growth +/- Change in P/E Ratio

Bogle tries to figure out a general long-term (say, a decade or more) level of what he expects the stock market will return. What he has in common with Harry Browne is that they both readily admit that the timing of what they believe will happen can be off by a lot (HB often pointed out that he got lucky with the timing on his prediction that gold would skyrocket in the 1970s). The linked article makes the point that stocks are basically worth whatever investors are willing to pay for them. That sentiment is reflected in P/E ratios which can stay low or high for long periods. Right now investors are willing to own stocks when the P/E ratio is high... but that might still be the case in ten years.

In other words, a "crash" doesn't have to happen just because it seems likely. Stocks may be the best performing asset going forward. We just don't know. A PP holds them just in case they are.
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mathjak107
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Re: About to follow permanent portfolio stratagy but...

Post by mathjak107 » Wed Apr 26, 2017 7:26 am

Stocks were considered way over valued in 1982 when with double interest rates stock p/e's doubled in about a year.

Who knew that was going to be the start of the greatest bull market in history.
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Re: About to follow permanent portfolio stratagy but...

Post by sophie » Wed Apr 26, 2017 7:51 am

The problem with predicting market crashes is that you're right on whether it will happen - but likely you're wrong on the time frame. If it happens tomorrow, then getting out of stocks now will be a brilliant move. If it happens 3 years from now, you will miss out on a lot of gains in those 3 years, not to mention that you will probably get discouraged and buy back in at year 2.5.

This is exactly why market timing doesn't work. If it did, all those active managers who devote their professional lives to understanding the market - which you can't do if you work in a different career - would beat the passive indexes over time. News flash - THEY DON'T.

The PP will be hard for you to stick with if you're a market timer. I suggest you settle this question for yourself before diving in. Harry Browne's book "Best Laid Plans..." and his radio show are good resources if you want to explore further.
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Re: About to follow permanent portfolio stratagy but...

Post by stuper1 » Wed Apr 26, 2017 8:36 am

Welcome David,

I don't understand what your question is. Could you please try to re-phrase it?
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Re: About to follow permanent portfolio stratagy but...

Post by mathjak107 » Thu Apr 27, 2017 5:54 am

He pretty much is saying he wonders if trying to catch the unicorn is what he should do at this point.

We all have visions of sitting in cash and the big crash comes. Good luck with that dream.

More than likely you will give up more in gains waiting than you get by waiting to buy in after some crash which happened only 3 or 4x or so in the more than 30 years i have been an investor.

It rarely plays out as it takes a real nervous nellie to sell out when markets and the trend is up and it takes balls of steel to buy in when markets look like they are never coming back.
Rarely does someone have both qualities.
I can see going to a more defensive portfolio now and if things
drop switching to a more aggressive model. But this vision of
being in cash and swooping in will end up costing you dearly.

Even going into wellesley income would not be a bad idea if trying to be bullet proof and leaving to much money on the table is not what you want .

So far right up to this moment ,thinking "this time is different "has been the most expensive words in our language.
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Re: About to follow permanent portfolio stratagy but...

Post by sophie » Thu Apr 27, 2017 7:19 am

mathjak107 wrote: So far right up to this moment ,thinking "this time is different "has been the most expensive words in our language.
Mathjak, that is a quote worth framing and hanging on the wall!
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Re: About to follow permanent portfolio stratagy but...

Post by mathjak107 » Thu Apr 27, 2017 9:04 am

To bad it is not my quote but john templeton's along along time ago.

But it has been so true. Every downturn we think this one is the one that is different and we plan for that worst case.

In the end it is not any different and we still go on to higher highs and higher lows

A
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Re: About to follow permanent portfolio stratagy but...

Post by Xan » Thu Apr 27, 2017 10:08 am

It's a question of perspective.

When Mathjak expresses the opinion that this time won't be different, he's looking back, say, 100 years or so, in this country alone. He sees that there have been ups and downs, but every single time, the ups have won out. "This time will not be different" means stay in 100% stocks no matter what!

PPers who express the opinion that this time won't be different are looking back thousands and thousands of years, across the entire world. They see the extinction of every fiat currency. They see mighty empires rise and fall. They see stock markets in advanced countries go from great to nothing. They see the USA over the past ~250 years of its existence as a remarkable run, but really a blip in the grand scheme, and know that at some point it will come to an end in some way or other. "This time will not be different" means that it's NOT a good idea to be 100% in stocks.
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mathjak107
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Re: About to follow permanent portfolio stratagy but...

Post by mathjak107 » Thu Apr 27, 2017 10:36 am

Except i don't recommend 100% stocks unless you have decades of time.

If you do , i would certainly go that route once again. Odds are you would still be far enough a head that you would still do just fine even with a roll back .

Everything in investing is a bet on the most logical outcome.
We are making the same bet that we won't have years of the pp having all 3 asset classes moving down together like we keep seeing every time the smell of rate increases are in the air.

I can say the golden butterfly has to date been a wilder ride at times than the 100% equity portion my long term money is in.

There is nothing that says results with anything we do will be favorable results in the end if conditions are not met as expected.
All we can do is give it our best shot.


My planning has always been based on what was , what is and
what stands a reasonable chance of continuing
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Re: About to follow permanent portfolio stratagy but...

Post by Cortopassi » Thu Apr 27, 2017 1:54 pm

david clissold wrote:Hi Guys, new member. I have recently read fail safe investing. Also permanent portfolio.

I get it. I,m very concerned US stock market is ready to crash. Not if but when. Feel I should lighten the stock load , or use companies like proctor and gamble giving 3% divided.
After the crash switch to index funds.
Seems I would get a jump start by not taking as bad an initial hit on stocks.

They Craig/J.M give a small amount of wriggle room in the explanations but are strongly advising against it in all forms.

Comments?
I think many comments are applicable here and whether you are 25/25/25/25 or some slight variant of that, you can't let the current valuations stop you. I was saying the exact same thing in 2014 when I first got in. People have been saying it for nearly 9 years in this current bull cycle. People have been projecting bonds to crumble as well. And gold at $700. And the dollar to hyperinflate and become worthless.

One or more of those will happen in the future. When and how much, we don't try to guess. Just "hope" that the other assets will take up at least some of the slack.
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Re: About to follow permanent portfolio stratagy but...

Post by stuper1 » Thu Apr 27, 2017 3:31 pm

I personally see 25/25/25/25 as a very conservative and agnostic portfolio. I would not want to go less than 25% stocks even though stocks may seem over-valued. As others have said, stocks can go up further from here. During the 2008 crash, the 4x25 survived fairly well. Hopefully, it would do the same during upcoming downturns.
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Re: About to follow permanent portfolio stratagy but...

Post by mathjak107 » Thu Apr 27, 2017 6:42 pm

do we invest for the year?

other investments did fine over the years that contained 2008 too . wellesley income has a decent 10 year average with only 40% equities when we include 2008 as well along with many others .

how something reacts in a particular event is not enough to say an investment is good , bad or right .


just think of my example of someone turning to the pp for safety after brexit and suffering double digit losses by years end as gold and TLT got hammered from those levels they would have bought in at .

everything has good and bad times , it is the longer term that counts and the risk vs reward that you consider acceptable .

i can say i have been very satisfied with my risk vs reward for more than 30 years through more events than i care to count . crashes , lost decades and flash crashes are all part of the deal good or bad .

now that i added the gb in to the model time will tell what it brings to the party or takes away .
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