Does PP Only Work In Times of Declining Bond Yields?

General Discussion on the Permanent Portfolio Strategy

Moderator: Global Moderator

User avatar
Kriegsspiel
Executive Member
Executive Member
Posts: 3936
Joined: Sun Sep 16, 2012 5:28 pm

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by Kriegsspiel » Sun Jun 06, 2021 7:47 pm

jalanlong wrote:
Sun Jun 06, 2021 6:33 pm
This is something I struggle with. I am in a position where we can live on my wife's income and my income can go straight to savings. So given my high savings rate and the fact that my rewards checking account offers me 3.5% interest, do I really need to take on the risk of investments at all? I guess I should want to maximize the return on my money regardless of my savings rate.
The master, Jacob (all praise and blessings be upon him), just saved all his money in a bank account for like 66% of the time it took him to FIRE. But that was because he didn't know how to invest (I was in the same boat when I graduated college and let my money pile up in a checking account for a couple years). Since you already know how to invest, there's no reason to do that... Especially when your net worth gets higher and investment returns start to really carry some weight. But seriously, if you're a two-income household in Texas you should be in a good spot. I have some fond memories from when I was in Texas living super fucking cheap and paying no income tax.
But a lot of times I feel like I should just concentrate on maximizing my savings rate, using cash to avoid any debt and to buy things in bulk to save money and leave the markets to other people. There are studies showing that people who have high balances in the bank accounts (as opposed to retirement accounts) sleep better at night!
It's not either/or. High savings rate + investments will probably work better. I've recently come around a bit on debt (I just finished The Value Of Debt In Building Wealth by Thomas Anderson and there were some good points in there, it was on MMM's reading list) myself. I suspect those studies apply to normal people who usually live paycheck to paycheck. Or maybe to people who are in a portfolio that's too risky for them ;D
And as for him who lacks the courage to defend even his own soul: Let him not brag of his progressive views, boast of his status as an academician or a recognized artist, a distinguished citizen or general. Let him say to himself plainly: I am cattle, I am a coward, I seek only warmth and to eat my fill.
Solzhenitsyn, Live Not By Lies
vincent_c
Executive Member
Executive Member
Posts: 641
Joined: Wed Dec 02, 2020 10:58 am

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by vincent_c » Sun Jun 06, 2021 8:09 pm

tomfoolery wrote:
Sun Jun 06, 2021 12:43 pm

PP won't cut it, because it's a capital preservation strategy.
As I alluded to before, the PP's recent outperformance may have misled or caused some of us to forget what should be a given, that the PP is expected to preserve purchasing power with lower volatility than gold and also to produce a modest real return.

If you want anything other than this then a passive low volatility portfolio cannot achieve this. You will need to find something that produces a positive real return and then leverage it. Even business owners rely on the income that is fairly compensated for their time and energy to ride out the volatility of their investment (if it were mark to marketed). You can invest in a single business and take on the idiosyncratic risk along with hopefully higher returns without guarantees or you can start multiple businesses and diversify until you essentially have a stock portfolio.

Then you will have to consider whether you can stay the course with that higher volatility investment.
vincent_c
Executive Member
Executive Member
Posts: 641
Joined: Wed Dec 02, 2020 10:58 am

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by vincent_c » Sun Jun 06, 2021 8:11 pm

jalanlong wrote:
Sun Jun 06, 2021 6:33 pm
This is something I struggle with. I am in a position where we can live on my wife's income and my income can go straight to savings. So given my high savings rate and the fact that my rewards checking account offers me 3.5% interest, do I really need to take on the risk of investments at all?
The question I have is whether you or your wife would work for free. If not, then I would choose to stop work first and start doing what you want with the most valuable commodity.
stuper1
Executive Member
Executive Member
Posts: 1149
Joined: Sun Mar 03, 2013 7:18 pm

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by stuper1 » Mon Jun 07, 2021 12:48 pm

jalanlong wrote:
Sun Jun 06, 2021 6:33 pm
Kriegsspiel wrote:
Sat Jun 05, 2021 6:14 am
The important factor that you are leaving out is savings rate. With a very high savings rate, investment returns aren't as big of a factor in quickly achieving a high net worth. I'll grant you that a few places are hostile for median people to build wealth, but in all the other places a mediocre person earning a normal income can do it without being a genius investor.

In addition, your savings rate is a system, investment returns are (more) a goal. The things you do (or don't do) to increase your savings rate are robust enough to work under pretty much any situation, whereas markets go through cycles.
This is something I struggle with. I am in a position where we can live on my wife's income and my income can go straight to savings. So given my high savings rate and the fact that my rewards checking account offers me 3.5% interest, do I really need to take on the risk of investments at all? I guess I should want to maximize the return on my money regardless of my savings rate. But a lot of times I feel like I should just concentrate on maximizing my savings rate, using cash to avoid any debt and to buy things in bulk to save money and leave the markets to other people. There are studies showing that people who have high balances in the bank accounts (as opposed to retirement accounts) sleep better at night!
About that rewards checking account that offers 3.5% interest, isn't the 3.5% interest only on the first 10 to 20 thousand dollars and then the interest rate drops to a much lower rate? If not, please share which bank this is, because I'd like to look into it. Thank you.
User avatar
jalanlong
Executive Member
Executive Member
Posts: 659
Joined: Mon Jul 01, 2019 7:30 am

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by jalanlong » Mon Jun 07, 2021 1:39 pm

stuper1 wrote:
Mon Jun 07, 2021 12:48 pm
jalanlong wrote:
Sun Jun 06, 2021 6:33 pm
Kriegsspiel wrote:
Sat Jun 05, 2021 6:14 am
The important factor that you are leaving out is savings rate. With a very high savings rate, investment returns aren't as big of a factor in quickly achieving a high net worth. I'll grant you that a few places are hostile for median people to build wealth, but in all the other places a mediocre person earning a normal income can do it without being a genius investor.

In addition, your savings rate is a system, investment returns are (more) a goal. The things you do (or don't do) to increase your savings rate are robust enough to work under pretty much any situation, whereas markets go through cycles.
This is something I struggle with. I am in a position where we can live on my wife's income and my income can go straight to savings. So given my high savings rate and the fact that my rewards checking account offers me 3.5% interest, do I really need to take on the risk of investments at all? I guess I should want to maximize the return on my money regardless of my savings rate. But a lot of times I feel like I should just concentrate on maximizing my savings rate, using cash to avoid any debt and to buy things in bulk to save money and leave the markets to other people. There are studies showing that people who have high balances in the bank accounts (as opposed to retirement accounts) sleep better at night!
About that rewards checking account that offers 3.5% interest, isn't the 3.5% interest only on the first 10 to 20 thousand dollars and then the interest rate drops to a much lower rate? If not, please share which bank this is, because I'd like to look into it. Thank you.
https://www.hmbradley.com/

It is actually to $100k.
johnnywitt
Senior Member
Senior Member
Posts: 106
Joined: Fri May 08, 2020 6:06 pm

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by johnnywitt » Thu Jun 10, 2021 9:28 pm

So, the PP made a profit through the dramatic rate increases of the 70's. It also did well in the Japanese Deflation in comparison to other Portfolios.
Also, if the FED introduces a CBDC they could conceivably take interests rates well negative. Even if we don't get a CBDC rates could still plummet in a deflationary crash to way lower than they are right now.
The PP isn't for most people and it never will be because it goes to much against most normal folks emotional thresholds. I bet most people on this forum that run a PP and keep running it aren't "normal". >:D
vincent_c
Executive Member
Executive Member
Posts: 641
Joined: Wed Dec 02, 2020 10:58 am

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by vincent_c » Fri Jun 18, 2021 8:31 am

So for all the LTT bears out there, how do we explain the movement in 30Y yields recently?
dockinGA
Full Member
Full Member
Posts: 84
Joined: Tue May 04, 2021 9:29 am

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by dockinGA » Fri Jun 18, 2021 10:06 am

I'm not going to posit an explanation, but it's certainly trending in a direction that would cause another dreaded yield curve inversion.
bikeeagle1
Junior Member
Junior Member
Posts: 1
Joined: Mon Jul 12, 2021 6:06 pm

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by bikeeagle1 » Mon Jul 12, 2021 6:13 pm

vincent_c wrote:
Fri Jun 18, 2021 8:31 am
So for all the LTT bears out there, how do we explain the movement in 30Y yields recently?
I think it's as simple as the fact that LTTs had pulled back to their 200-Week MA (I use a TLT chart for this). I think the current bounce in TLT is a DCB (dead cat bounce), and that we will see a retest of the 200, followed by a further drop as the FED reduces bond buying and raises rates. The longer term channel would call for TLT to drop to around 120 ish.
67% GB, 33% Tactical SPY
Kbg
Executive Member
Executive Member
Posts: 2243
Joined: Fri May 23, 2014 4:18 pm

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by Kbg » Tue Jul 13, 2021 8:28 am

vincent_c wrote:
Fri Jun 18, 2021 8:31 am
So for all the LTT bears out there, how do we explain the movement in 30Y yields recently?
A STT move.

I don't predict. It's simply a matter of basic economics that interest rates "should" be heading north by now as bonds "should" be repricing for inflation.

However, the Fed can continue to buy bonds for longer than my expected lifespan. So, who knows?
vincent_c
Executive Member
Executive Member
Posts: 641
Joined: Wed Dec 02, 2020 10:58 am

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by vincent_c » Tue Jul 13, 2021 8:56 pm

Kbg wrote:
Tue Jul 13, 2021 8:28 am
vincent_c wrote:
Fri Jun 18, 2021 8:31 am
So for all the LTT bears out there, how do we explain the movement in 30Y yields recently?
A STT move.

I don't predict. It's simply a matter of basic economics that interest rates "should" be heading north by now as bonds "should" be repricing for inflation.

However, the Fed can continue to buy bonds for longer than my expected lifespan. So, who knows?
I agree, when I look at the yield curve it seems like there's a whole lot of flattening to do before 30Y yields are at risk of such repricing.
ppnewbie
Executive Member
Executive Member
Posts: 434
Joined: Fri May 03, 2019 6:04 pm

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by ppnewbie » Sat Dec 04, 2021 12:03 am

Have not read the thread so hopefully I’m not repeating something already said. But I look at at increasing yields as a response to inflation (and inflating assets like stocks, maybe gold, crypto, art).

A higher yield needs to be offered to get a loan if your competing with skyrocketing stocks or other things.

So the bonds go down (yields up) and stocks and maybe gold go up. Also cash goes down due to inflation.

But it is psychologically very hard to throw money at LTT’s.
seajay
Senior Member
Senior Member
Posts: 122
Joined: Mon Aug 09, 2021 11:11 am

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by seajay » Sat Dec 04, 2021 3:44 am

tomfoolery wrote:
Fri Jun 04, 2021 4:46 pm
Seeing some interesting posts scattered about hinting at this, as well as YouTube videos about macroeconomics in general, that are leading me to question whether the PP only works in times of declining interest rates.

We've experienced 40 years of declining interest rates, and this started only shortly after gold was legalized for private ownership. This leads me to conclude that it's difficult to backtest the PP to times when we didn't have perpetual declining interest rates.

Recently, gold appears to be moving in tandem with LTTs. As interest rates rise, gold drops. The theory I've heard is as interest rates rise, the dollar gets stronger which then by comparison makes gold drop relative to a strengthening dollar.

Stock Market tends to move in tandem with LTTs. As interest rates rise, the stock market is negatively impacted because corporations have to borrow at higher rates.

So we seem to be in an environment where assets are correlated with interest rates in the same direction. Interest rates rise, stocks, bonds and gold all move down together.

Further, real inflation is somewhere between 5% and 20% depending on the basket of goods you're buying. If you owned a home before 2020, and are on Medicare, then your inflation is likely in the 5% range. If you are a renter who is paying for insurance, either through your employer (who is artificially suppressing your wages to pay your insurance), or paying insurance out of pocket, then your inflation rate is closer to 20%.

So we have a situation where LTTs and cash are yielding somewhere between negative 3% and negative 18% with respect to what you can do with your money.

If we have an environment over the next 10 to 20 years where inflation remains at 5%+, as interest rates slowly creep up, but still yield negative real returns, I don't see how the PP can survive. Although the next question is "compared to what?" and perhaps no portfolio can survive that environment.

Although it seems like an equity-weighted portfolio in commodity producers might do alright.
LTT's could lose a lot less than many believe, they reflect long term inflation rate expectations such that even a spike in inflation to 6% might still see LTT's priced to perhaps 3%.

The PP embraces long term trends whilst yielding short term low negative side volatility. Gold back in the early 1980's was today's LTT's, high/over-priced. The two options were to try and correctly time exit/re-entry, or to time-average and time-averaging worked out very well albeit a longer term factor. 50/50 stock/gold for instance would have seen around 10 times more ounces of gold having been accumulated by taking some of great stock gains across the 1980's/90's.

Backtest a PP with silver instead of gold and the deeper historic results indicate low portfolio value volatility and modest real gains - preservation of wealth in both gross nominal and real terms. The primary risk factors are taxation and magnitude of real gains provided.

There are three sources of gains/rewards, price appreciation, income (interest/dividends) and volatility trading. Forward time from present valuations/circumstances and perhaps volatility trading is the potentially more likely greatest of the three and the PP structure is well positioned to exploit that. The nature of volatility is that one asset might drop 25%, subsequently gain 33%, compound to 0%; When however you can capture the average rather than the compounded, then that has a +4% positive bias.

Some nominal stats using portfoliovisualizer 1978 to 2021 (part year to end of November 2021) ... and the average of the yearly best asset out of stock, LTT, STT, gold = 25%, average of the remainder three assets = 3.5%. Stocks were the years best asset in 50% of years, STT 4% of years, LTT 10% of years, gold 8% of years. If you had a portfolio where every year one asset gained +25% whilst another three assets each averaged 3.5% then that yields a near 9% portfolio average reward. Those stats will vary considerably depending upon what market/time-period you measure across but the fundamental characteristics persists. Consider 1978 to 1987 ten year for instance and the average of the best = 39%, average of the other three 5.6%, stocks were the best in 20% of years, STT 10%, LTT 30%, gold 40% of years. Somewhat like being the owner of a casino rather than a punter in the casino. Sell that casino and use the proceeds to go and punt in someone else's casino if you like, you may however live to regret that.
User avatar
Vil
Executive Member
Executive Member
Posts: 319
Joined: Wed Jan 01, 2020 10:16 am

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by Vil » Sat Dec 04, 2021 5:25 am

bikeeagle1 wrote:
Mon Jul 12, 2021 6:13 pm
I think the current bounce in TLT is a DCB (dead cat bounce), and that we will see a retest of the 200, followed by a further drop as the FED reduces bond buying and raises rates. The longer term channel would call for TLT to drop to around 120 ish.
Yeah, right (its just 154 now). It has tested MA200 but from above and test was fine ... But hey, it can drop next month down to 120, right ?

Did not quite understand why only the yields of the bonds are discussed as their unique (but not implied) characteristic.
I still miss the point of anyone thinking the author of PP did put his rule "Your career provides your wealth" as Nr.1 in his list, as some sort of coincidence ...

Its weird (isn't it?) that there is no thread "Are stocks, cryptos, Fallen Angels bonds and marijuana ETFs only working in time of prosperity, and are they just fine in time of drastic drop of market sentiment ?" Neither government, nor FED knows what future brings - they want the stocks do well, they do QE, they increase rates, they have to find their way to pay the debt - all fine, but they are definitely not able to bend time and space and predict fat tail events for example. However, if we go a step further in the case of real SHTF event, PP will not save you either.

PS. I can only admire the long-time readers of this forum for rereading posts like mine for hundreds of times.
User avatar
dualstow
Executive Member
Executive Member
Posts: 12195
Joined: Wed Oct 27, 2010 10:18 am
Location: https://goo.gl/maps/pJecuAUsCapAMSFL7
Contact:

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by dualstow » Sat Dec 04, 2021 10:30 am

Vil wrote:
Sat Dec 04, 2021 5:25 am

PS. I can only admire the long-time readers of this forum for rereading posts like mine for hundreds of times.
They’re good O0
another day, another North Korean missile
let 2022 be the year of GOLD 🦣
coasting
Junior Member
Junior Member
Posts: 7
Joined: Tue Oct 12, 2021 8:00 am

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by coasting » Sat Dec 04, 2021 7:40 pm

seajay wrote:
Sat Dec 04, 2021 3:44 am
tomfoolery wrote:
Fri Jun 04, 2021 4:46 pm
Seeing some interesting posts scattered about hinting at this, as well as YouTube videos about macroeconomics in general, that are leading me to question whether the PP only works in times of declining interest rates.

We've experienced 40 years of declining interest rates, and this started only shortly after gold was legalized for private ownership. This leads me to conclude that it's difficult to backtest the PP to times when we didn't have perpetual declining interest rates.

Recently, gold appears to be moving in tandem with LTTs. As interest rates rise, gold drops. The theory I've heard is as interest rates rise, the dollar gets stronger which then by comparison makes gold drop relative to a strengthening dollar.

Stock Market tends to move in tandem with LTTs. As interest rates rise, the stock market is negatively impacted because corporations have to borrow at higher rates.

So we seem to be in an environment where assets are correlated with interest rates in the same direction. Interest rates rise, stocks, bonds and gold all move down together.

Further, real inflation is somewhere between 5% and 20% depending on the basket of goods you're buying. If you owned a home before 2020, and are on Medicare, then your inflation is likely in the 5% range. If you are a renter who is paying for insurance, either through your employer (who is artificially suppressing your wages to pay your insurance), or paying insurance out of pocket, then your inflation rate is closer to 20%.

So we have a situation where LTTs and cash are yielding somewhere between negative 3% and negative 18% with respect to what you can do with your money.

If we have an environment over the next 10 to 20 years where inflation remains at 5%+, as interest rates slowly creep up, but still yield negative real returns, I don't see how the PP can survive. Although the next question is "compared to what?" and perhaps no portfolio can survive that environment.

Although it seems like an equity-weighted portfolio in commodity producers might do alright.
LTT's could lose a lot less than many believe, they reflect long term inflation rate expectations such that even a spike in inflation to 6% might still see LTT's priced to perhaps 3%.

The PP embraces long term trends whilst yielding short term low negative side volatility. Gold back in the early 1980's was today's LTT's, high/over-priced. The two options were to try and correctly time exit/re-entry, or to time-average and time-averaging worked out very well albeit a longer term factor. 50/50 stock/gold for instance would have seen around 10 times more ounces of gold having been accumulated by taking some of great stock gains across the 1980's/90's.

Backtest a PP with silver instead of gold and the deeper historic results indicate low portfolio value volatility and modest real gains - preservation of wealth in both gross nominal and real terms. The primary risk factors are taxation and magnitude of real gains provided.

There are three sources of gains/rewards, price appreciation, income (interest/dividends) and volatility trading. Forward time from present valuations/circumstances and perhaps volatility trading is the potentially more likely greatest of the three and the PP structure is well positioned to exploit that. The nature of volatility is that one asset might drop 25%, subsequently gain 33%, compound to 0%; When however you can capture the average rather than the compounded, then that has a +4% positive bias.

Some nominal stats using portfoliovisualizer 1978 to 2021 (part year to end of November 2021) ... and the average of the yearly best asset out of stock, LTT, STT, gold = 25%, average of the remainder three assets = 3.5%. Stocks were the years best asset in 50% of years, STT 4% of years, LTT 10% of years, gold 8% of years. If you had a portfolio where every year one asset gained +25% whilst another three assets each averaged 3.5% then that yields a near 9% portfolio average reward. Those stats will vary considerably depending upon what market/time-period you measure across but the fundamental characteristics persists. Consider 1978 to 1987 ten year for instance and the average of the best = 39%, average of the other three 5.6%, stocks were the best in 20% of years, STT 10%, LTT 30%, gold 40% of years. Somewhat like being the owner of a casino rather than a punter in the casino. Sell that casino and use the proceeds to go and punt in someone else's casino if you like, you may however live to regret that.
Hi seajay,

Good post. It reminds me of Harry Browne discussing how for a given economic environment the gain of the favored asset can far exceed the loss of the disfavored asset(s) so the overall portfolio steadily gains over time.

However, I was trying to follow your #s on PV and couldn't match some. For the 1978 to 1987 ten year period, I get the same average of the best = 39%. Also, percentage of years best for stocks 20% and STT 10% check out. But I'm seeing the other two assets swapped with LTT 40%, gold 30%.

For the full 1978 to November 2021 period, should not the percentage of years best add to 100% rather than 50+4+10+8 = 72? Again the yearly best at 25% checks out. But I'm getting the following percentage of years best for the full time frame: stock 48%, LTT 18%, STT 11%, gold 23%.

Example, for the 10 year period these are the #s I pulled from PV:
Year Stock LTT STT Gold Winner
1978 8.45% -1.55% 3.35% 37.01% Gold
1979 24.25% -2.10% 8.08% 126.55% Gold
1980 33.15% -4.99% 8.81% 15.19% Stock
1981 -4.15% 0.65% 14.26% -32.60% STT
1982 20.50% 47.10% 22.12% 14.94% LTT
1983 22.66% -1.29% 8.00% -16.31% Stock
1984 2.19% 16.24% 14.01% -19.38% LTT
1985 31.27% 36.90% 13.83% 6.00% LTT
1986 14.57% 30.87% 10.35% 18.96% LTT
1987 2.61% -2.92% 4.78% 24.53% Gold
seajay
Senior Member
Senior Member
Posts: 122
Joined: Mon Aug 09, 2021 11:11 am

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by seajay » Wed Dec 08, 2021 8:31 am

coasting wrote:
Sat Dec 04, 2021 7:40 pm
seajay wrote:
Sat Dec 04, 2021 3:44 am
tomfoolery wrote:
Fri Jun 04, 2021 4:46 pm
Seeing some interesting posts scattered about hinting at this, as well as YouTube videos about macroeconomics in general, that are leading me to question whether the PP only works in times of declining interest rates.

We've experienced 40 years of declining interest rates, and this started only shortly after gold was legalized for private ownership. This leads me to conclude that it's difficult to backtest the PP to times when we didn't have perpetual declining interest rates.

Recently, gold appears to be moving in tandem with LTTs. As interest rates rise, gold drops. The theory I've heard is as interest rates rise, the dollar gets stronger which then by comparison makes gold drop relative to a strengthening dollar.

Stock Market tends to move in tandem with LTTs. As interest rates rise, the stock market is negatively impacted because corporations have to borrow at higher rates.

So we seem to be in an environment where assets are correlated with interest rates in the same direction. Interest rates rise, stocks, bonds and gold all move down together.

Further, real inflation is somewhere between 5% and 20% depending on the basket of goods you're buying. If you owned a home before 2020, and are on Medicare, then your inflation is likely in the 5% range. If you are a renter who is paying for insurance, either through your employer (who is artificially suppressing your wages to pay your insurance), or paying insurance out of pocket, then your inflation rate is closer to 20%.

So we have a situation where LTTs and cash are yielding somewhere between negative 3% and negative 18% with respect to what you can do with your money.

If we have an environment over the next 10 to 20 years where inflation remains at 5%+, as interest rates slowly creep up, but still yield negative real returns, I don't see how the PP can survive. Although the next question is "compared to what?" and perhaps no portfolio can survive that environment.

Although it seems like an equity-weighted portfolio in commodity producers might do alright.
LTT's could lose a lot less than many believe, they reflect long term inflation rate expectations such that even a spike in inflation to 6% might still see LTT's priced to perhaps 3%.

The PP embraces long term trends whilst yielding short term low negative side volatility. Gold back in the early 1980's was today's LTT's, high/over-priced. The two options were to try and correctly time exit/re-entry, or to time-average and time-averaging worked out very well albeit a longer term factor. 50/50 stock/gold for instance would have seen around 10 times more ounces of gold having been accumulated by taking some of great stock gains across the 1980's/90's.

Backtest a PP with silver instead of gold and the deeper historic results indicate low portfolio value volatility and modest real gains - preservation of wealth in both gross nominal and real terms. The primary risk factors are taxation and magnitude of real gains provided.

There are three sources of gains/rewards, price appreciation, income (interest/dividends) and volatility trading. Forward time from present valuations/circumstances and perhaps volatility trading is the potentially more likely greatest of the three and the PP structure is well positioned to exploit that. The nature of volatility is that one asset might drop 25%, subsequently gain 33%, compound to 0%; When however you can capture the average rather than the compounded, then that has a +4% positive bias.

Some nominal stats using portfoliovisualizer 1978 to 2021 (part year to end of November 2021) ... and the average of the yearly best asset out of stock, LTT, STT, gold = 25%, average of the remainder three assets = 3.5%. Stocks were the years best asset in 50% of years, STT 4% of years, LTT 10% of years, gold 8% of years. If you had a portfolio where every year one asset gained +25% whilst another three assets each averaged 3.5% then that yields a near 9% portfolio average reward. Those stats will vary considerably depending upon what market/time-period you measure across but the fundamental characteristics persists. Consider 1978 to 1987 ten year for instance and the average of the best = 39%, average of the other three 5.6%, stocks were the best in 20% of years, STT 10%, LTT 30%, gold 40% of years. Somewhat like being the owner of a casino rather than a punter in the casino. Sell that casino and use the proceeds to go and punt in someone else's casino if you like, you may however live to regret that.
Hi seajay,

Good post. It reminds me of Harry Browne discussing how for a given economic environment the gain of the favored asset can far exceed the loss of the disfavored asset(s) so the overall portfolio steadily gains over time.

However, I was trying to follow your #s on PV and couldn't match some. For the 1978 to 1987 ten year period, I get the same average of the best = 39%. Also, percentage of years best for stocks 20% and STT 10% check out. But I'm seeing the other two assets swapped with LTT 40%, gold 30%.

For the full 1978 to November 2021 period, should not the percentage of years best add to 100% rather than 50+4+10+8 = 72? Again the yearly best at 25% checks out. But I'm getting the following percentage of years best for the full time frame: stock 48%, LTT 18%, STT 11%, gold 23%.

Example, for the 10 year period these are the #s I pulled from PV:
Year Stock LTT STT Gold Winner
1978 8.45% -1.55% 3.35% 37.01% Gold
1979 24.25% -2.10% 8.08% 126.55% Gold
1980 33.15% -4.99% 8.81% 15.19% Stock
1981 -4.15% 0.65% 14.26% -32.60% STT
1982 20.50% 47.10% 22.12% 14.94% LTT
1983 22.66% -1.29% 8.00% -16.31% Stock
1984 2.19% 16.24% 14.01% -19.38% LTT
1985 31.27% 36.90% 13.83% 6.00% LTT
1986 14.57% 30.87% 10.35% 18.96% LTT
1987 2.61% -2.92% 4.78% 24.53% Gold
Thanks Coasting. Looked that data up in haste and clearly transposed with errors. The general concept is the same however.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4086
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by mathjak107 » Wed Dec 08, 2021 8:58 am

all that matters is what happens when its your money invested ….we can try to drag up all the cases you think may be similar and it can mean little ..each time things are different enough to make what we thought about last time just play out different enough.

trying to predict the effect of what is going on today is almost silly
johnnywitt
Senior Member
Senior Member
Posts: 106
Joined: Fri May 08, 2020 6:06 pm

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by johnnywitt » Wed Dec 08, 2021 5:10 pm

Hal wrote:
Fri Jun 04, 2021 8:43 pm
vincent_c wrote:
Fri Jun 04, 2021 8:04 pm
Curious to know what other people think.

If people are so convinced that declining bond yields are over, how much do you think these people should be leveraged in their short LTT positions in order to show their conviction?
My 2 cents worth...

The premise of the PP is that you cannot predict the future. Now there ARE people smart enough to pick trends, but alas that's not me. So I would rather be 1/2 right than 100% wrong.

To Toms point about rising interest rates, yes that's the PP's Achilles heel. Maybe farmland? People always have to eat. Maybe that what Bill Gates was thinking?
I agree Hal.
The HBPP has inherent bias towards an inflationary outcome. Like I said in a previous post on this thread the HBPP did OK in the very inflationary period in the '70's against other portfolios. If you are concerned about a period of inflation (not talking hyperinflation) then you need some oil stocks in a VP. From 1970-1980 oil was the #1 asset that did well followed by Gold Bullion.
Last edited by johnnywitt on Wed Dec 08, 2021 5:36 pm, edited 1 time in total.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4086
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Does PP Only Work In Times of Declining Bond Yields?

Post by mathjak107 » Wed Dec 08, 2021 5:22 pm

very different reasons back in the 1970s why gold shot up like it did and we had an oil issue in the mid east . i wouldnt bet on that playing out the same way .

high inflation gold will do well , moderate , not so much if other assets are still holding up .gold is not good with just moderate inflation
Post Reply