PP vs Desert Portfolio

General Discussion on the Permanent Portfolio Strategy

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jalanlong
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PP vs Desert Portfolio

Post by jalanlong » Mon Jan 13, 2020 1:13 pm

I have been in the PP for some time and been reading this board for quite a while. I became intrigued by the Desert Portfolio a while ago and the more I look and study it, the more it seems to beat the PP over most periods of time both in an absolute and a risk-adjusted level. The major difference is that the Desert Portfolio only calls for 10% Gold as opposed to the 25% of the PP. Even if I take the Desert Portfolio and change it to 55% 10 Year Bond, 30% Stocks and 15% Gold, it outperforms the PP.

What are some of the risks of going with that allocation instead of the PP? I know people are going to tell me they like having cash. However, if we are looking at the overall portfolio and its volatility then the Desert as a whole is less volatile than the PP. So in that case I don't know why "having cash" makes any difference. What situations would cause an substantial outperformance of the PP vs the Desert Portfolio?
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Re: PP vs Desert Portfolio

Post by stuper1 » Mon Jan 13, 2020 1:22 pm

55% of 10-year T-bonds is basically the same as having 27.5% cash and 27.5% long-term T-bonds. It's called the bullet versus the barbell. Either one is fine, although having the barbell may give more options because you have cash to buy things when needed.

So, you're revised Desert portfolio is basically an unrebalanced PP with 30% stocks, 27.5% long-term T-bonds, 27.5% cash, and 15% gold. That's a great portfolio also. You might also look at the Golden Butterfly. The problem with the PP is that it insures equally against four economic conditions that don't occur with equal probabilities.
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mathjak107
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Re: PP vs Desert Portfolio

Post by mathjak107 » Mon Jan 13, 2020 6:51 pm

The problem with trying to compare long term treasuries and cash with intermediate bonds I think is that long term bonds trade on far greater , fear , greed and perception like equities do ...

They are influenced far more , good or bad when things effect them .

That makes them overly sensitive in comparison.....durations may be temporarily close but then like throwing lighter fluid on a fire their moves can be far more explosive up or down .
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Smith1776
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Re: PP vs Desert Portfolio

Post by Smith1776 » Mon Jan 13, 2020 7:55 pm

I have great intellectual sympathy for the desert portfolio.

I find the desert portfolio is actually a great "gateway drug" portfolio to the full PP/GB allocations. Gold is generally the biggest hurdle with the PP and finding acceptance. Easing people in with a small allocation via the desert strategy is eminently practical.

I wouldn't want to have less than 20% allocated to gold myself... but I can see the appeal.
For the money you can't afford to lose, why would you invest it in anything other than the PP? ???
Check out the Goldsmith PP: https://www.gyroscopicinvesting.com/forum/viewtopic.php?f=1&t=9613
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sophie
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Re: PP vs Desert Portfolio

Post by sophie » Tue Jan 14, 2020 8:19 am

Yes, the Desert Portfolio is a very nice one for people interested in the PP but skittish about putting such a large proportion of assets into gold. It's also potentially a good option for 401K accounts, if you can manage to "match" 10% of your 401K contributions in taxable, in order to hold the gold on the side.

10% gold isn't enough to compensate for a 1970s-like inflation/stagflation scenario, but it's still way better than only holding stocks and bonds which got creamed in that decade.
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Smith1776
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Re: PP vs Desert Portfolio

Post by Smith1776 » Tue Jan 14, 2020 1:50 pm

If there was a bit more civility on the BH forums I imagine we might have even got Larry making some contributions here too.

The Larry Portfolio and the PP/GB really aren't that far apart from each other. They're both about making sure the unlikely isn't treated as impossible. They're both about reducing fat tails and making it so that you can read the newspaper with total equanimity and stay the course. There are more similarities than differences. Man, Larry would have been a fantastic asset to the community if only he hadn't been pushed away.

The GB in particular, with its factor tilting, is pretty much the Larry Portfolio with gold.

A modified desert portfolio so that the equity is factor titled is also intriguing to me.
For the money you can't afford to lose, why would you invest it in anything other than the PP? ???
Check out the Goldsmith PP: https://www.gyroscopicinvesting.com/forum/viewtopic.php?f=1&t=9613
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Xan
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Re: PP vs Desert Portfolio

Post by Xan » Tue Jan 14, 2020 1:52 pm

Smith1776 wrote:
Tue Jan 14, 2020 1:50 pm
If there was a bit more civility on the BH forums I imagine we might have even got Larry making some contributions here too.
The thread here about him, and in which he participated (barely) wasn't particularly civil towards him. I hadn't seen it until Vinny dug it up.
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Smith1776
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Re: PP vs Desert Portfolio

Post by Smith1776 » Tue Jan 14, 2020 1:56 pm

Xan wrote:
Tue Jan 14, 2020 1:52 pm
Smith1776 wrote:
Tue Jan 14, 2020 1:50 pm
If there was a bit more civility on the BH forums I imagine we might have even got Larry making some contributions here too.
The thread here about him, and in which he participated (barely) wasn't particularly civil towards him. I hadn't seen it until Vinny dug it up.
That's true. Also a damn shame.

EDIT: Maybe we should send him a basket of muffins as a peace offering.

EDIT EDIT: Oh whoops, my post was meant to be in the other thread. I didn't realize that this wasn't the thread where we were discussing Larry's appearance here.
For the money you can't afford to lose, why would you invest it in anything other than the PP? ???
Check out the Goldsmith PP: https://www.gyroscopicinvesting.com/forum/viewtopic.php?f=1&t=9613
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