New Member and Permanent Portfolio Novice. Asking for help

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SilentStoic
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New Member and Permanent Portfolio Novice. Asking for help

Post by SilentStoic » Thu Dec 05, 2019 9:16 am

Dear all

Firstly, I am glad to have found the Permanent Portfolio strategy. I am currently going through Craig Rowland's book and just finished the Bonds Chapter (Chapter 7). I get the gist of the strategy and am sold that it is the proper way for me to proceed for implementing for my portfolio.

Unfortunately, I am in the red for many of my holdings of individual stocks:
as an example:
BNS -10.40%
BXEFF -99.8%
F -22%
GE -52%
GM -20%
KGC (gold) -14%
MU -12%
MORL -16%
Aggregated loss of all US holdings (unrealized) is -25%

Those are just US stocks. I also have Canadian holdings (i live in Canada) and may of them are in the red as well
I have an aggregated loss of -22% on my CAD portfolio (could of the ones in red though are gold (IMG and XAU). Another big loss leader in that portfolio is YFI (-88.5%)


I would like to do as the Permanent Portfolio advises and move away from stocks to Index funds. But if I were to sell right now, I would be incurring huge losses as you can see. Do you think it is the right move for me to do so?

I am a novice to financial management despite being in my 40s - made a lot of errors but trying to learn and rectify now.

Any input and advice is appreciated. Also let me know if you have follow up questions and I will do my best to answer.
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Re: New Member and Permanent Portfolio Novice. Asking for help

Post by dualstow » Thu Dec 05, 2019 9:30 am

Hi!

You wrote “many of my holdings.” Are there stocks with gains that you could match against those losses? If there are, I wouldn’t hesitate to sell for an overall gain/loss of zero.

Would you be able to get some benefit against income tax? Just a general question- better to have a Canadian get to the specifics.
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SilentStoic
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Re: New Member and Permanent Portfolio Novice. Asking for help

Post by SilentStoic » Thu Dec 05, 2019 9:45 am

dualstow wrote:
Thu Dec 05, 2019 9:30 am
Hi!

You wrote “many of my holdings.” Are there stocks with gains that you could match against those losses? If there are, I wouldn’t hesitate to sell for an overall gain/loss of zero.

Would you be able to get some benefit against income tax? Just a general question- better to have a Canadian get to the specifics.

Hi Dualstow
Thanks for the reply, appreciate it!
Yes, the thought of selling the holdings which are up and matching them against the losses occurred to me as well. I will double check but the brokerage website does show an overall aggregate loss of -25% (for example) and my thought was that calculates against the ones that are up already (but I am not sure. I will call them today and find out and post back here). I will also look into tax implications as you advised.

EDIT: Further to the above, after calculating all the holdings, (Market Value - Book Value), the loss will not be offset and is indeed about 25% aggregated.

My initial take is to just accept it and invest in a total index fund. I will be speaking to my accountant about any tax implications but my guess is it will not be enough to offset the losses
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Re: New Member and Permanent Portfolio Novice. Asking for help

Post by ochotona » Thu Dec 05, 2019 1:47 pm

Here are some ideas for how to deal with your equities:

Although analyst opinions, ranking, and targets are sometimes not worth the paper they're printed on, I think it would help for you to gather analyst opinions for the stocks you hold in order to decide which could be candidates for keeping, even though they haven't met your expectations to date.

You may also find such adverse opinions about some of them that the knowledge may make the divorce easier. You may find that some stocks are highly rated, but deep value plays, and value has been out of favor for years... but maybe not forever.

You need to think about whether owning a certain stock helps or hurts you based on where you earn your paycheck. If you're in the auto industry, don't own "F". You have too much career risk already, why have a stock that will be going down the moment you get unemployed?

Do you have a good source for information? As a Schwab investor, I have lots of decent reports. Do you have a similar source?

And for sure, try to do tax-loss harvesting.

As to stock indexing, I am a real fan of equal-weighted stock funds as being outperformers over the long term, though not recently. That would be RSP or GSEW or VADAX.
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Re: New Member and Permanent Portfolio Novice. Asking for help

Post by dualstow » Thu Dec 05, 2019 7:44 pm

Remember, you don’t have to go all in, in year 1. Like Ocho said, you may want to hold onto some stocks.
You’ll want to put some of the proceeds into a broad market stock index, no matter what.
But, don’t feel you have to rush to sell at a steep loss.
Might want to ditch that broker in the near future if s/he chose those stocks for you. O0 Or even if they didn’t.
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Re: New Member and Permanent Portfolio Novice. Asking for help

Post by sophie » Thu Dec 05, 2019 9:13 pm

SilentStoic, it does seem you've been incredibly unlucky. I don't understand how that can happen, unless you were trying to market time and ended up buying high and selling low repeatedly. Is that what happened? Otherwise I can't understand how you could post double digit losses for GM and BNS, two stocks that have been stable and/or increasing in the past several years.

And, in a way you're trying to market time now, by asking if you should sell now or hold. The answer should be guided by what you want to do for a long-term investing strategy, along with tax considerations (hint: take advantage of the opportunity to tax loss harvest before year's end, if there is such a thing in Canada!). Don't try to predict whether the stock will go up or not. Look where that got you! Are you going to be any better at it today than you were last year?

If I were you, I'd sanity check those figures, grok the tax implications of selling, decide if you want to hold some stocks long term, and then...hold your nose and jump. The water's fine.
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Re: New Member and Permanent Portfolio Novice. Asking for help

Post by ochotona » Fri Dec 06, 2019 10:52 pm

Stoic, here you go:

The first column is the Schwab Equity Rating (SER). The rest are self-explanatory.
Screenshot 2019-12-06 at 10.51.13 PM.png
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SilentStoic
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Re: New Member and Permanent Portfolio Novice. Asking for help

Post by SilentStoic » Sat Dec 07, 2019 8:31 am

Thanks all for the helpful responses. Much appreciated.


Ochotona: Thanks for that screenshot. It seems obvious, as you implied, to hold many of the equities in the portfolio. BXEFF is almost 0 so thats bust and does not matter whether I hold or sell.

Sophie: You are correct, I need to sanity check the numbers further and check on tax implications of selling.

And as most replies (dualstow, ochotana) said, I do not need to go all or nothing right away. So as I am going through the book and learning more , I will be figuring out the strategy.

The good thing is, I have cash. I need to buy more bonds and gold. So I need to figure out what is the total holdings, and buy some gold and bonds while leaving the rest in cash and slowly selling the stocks that are up and moving to total market index funds. That sounds about right to me but if I missed anything, feel free to let me know.

Again, I appreciate the help and am very grateful for the replies. This feels like a solid community.
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Re: New Member and Permanent Portfolio Novice. Asking for help

Post by ochotona » Sat Dec 07, 2019 10:44 am

Momentum is a harsh mistress for individual stocks (it's volatile), but based on momentum, I'd be keeping GE, MU, KGC, if you want to try to minimize trades and second-guessing your actions. Small gradual moves over time are often best.

You really want to sell stocks with losses, not gains, if they are in a taxable account, so you can claim the losses on your income taxes, if you have a taxable account and Canada and your personal circumstances allows that. Also, "let your winners run and cut your losers short"

PerfChart option from Stockcharts.com, it's free
Screenshot 2019-12-07 at 10.41.18 AM.png
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Re: New Member and Permanent Portfolio Novice. Asking for help

Post by Matthew19 » Tue Dec 10, 2019 12:29 am

Ask yourself if you'd buy those stocks today at their current prices. Sell the ones that you wouldn't and then give a time frame to cut the others. You'll be rebuying several of them inside of the PP anyway with the Stocks portion of the portfolio.

I was in this same situation just a few years ago. Cutting your losses and making peace with your past mistakes is the first step to your PP journey.
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Re: New Member and Permanent Portfolio Novice. Asking for help

Post by tarentola » Tue Dec 10, 2019 9:09 am

SilentStoic
I used to be in a similar position, with a number of possibly ill-chosen stocks and bonds and no clear strategy.
The good thing is, I have cash. I need to buy more bonds and gold. So I need to figure out what is the total holdings, and buy some gold and bonds while leaving the rest in cash and slowly selling the stocks that are up and moving to total market index funds.
I guess I am only summing up what others including you have proposed, but here goes:

Think very hard and move very slowly, as they say about financial decisions. Do not sell anything yet. Ignore the paper losses for the moment.

If you have not done so already, I suggest you make up a spreadsheet of all your existing holdings, divided by stocks, bonds, gold and cash. Look at the relative percentages of these and estimate how much you need to get to 4x25%. Then top up the bonds, gold and cash to get as close as you can to 4x25%. Now you have a Permanent Portfolio.

All that remains is to clean up the stocks section. That could be done over months or even years. I am on the wrong side of the Atlantic for US and Canadian stocks so can't make suggestions, other than Ochotona's suggestion on keeping stocks that have upward momentum. You have plenty of time to research each stock and make a decision based on momentum, or on fundamentals such as projected earnings or yield.
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Re: New Member and Permanent Portfolio Novice. Asking for help

Post by Fredmong » Wed Dec 11, 2019 1:21 pm

tarentola wrote:
Tue Dec 10, 2019 9:09 am
SilentStoic
I used to be in a similar position, with a number of possibly ill-chosen stocks and bonds and no clear strategy.
The good thing is, I have cash. I need to buy more bonds and gold. So I need to figure out what is the total holdings, and buy some gold and bonds while leaving the rest in cash and slowly selling the stocks that are up and moving to total market index funds.
I guess I am only summing up what others including you have proposed, but here goes:

Think very hard and move very slowly, as they say about financial decisions. Do not sell anything yet. Ignore the paper losses for the moment.

If you have not done so already, I suggest you make up a spreadsheet of all your existing holdings, divided by stocks, bonds, gold and cash. Look at the relative percentages of these and estimate how much you need to get to 4x25%. Then top up the bonds, gold and cash to get as close as you can to 4x25%. Now you have a Permanent Portfolio.

All that remains is to clean up the stocks section. That could be done over months or even years. I am on the wrong side of the Atlantic for US and Canadian stocks so can't make suggestions, other than Ochotona's suggestion on keeping stocks that have upward momentum. You have plenty of time to research each stock and make a decision based on momentum, or on fundamentals such as projected earnings or yield.
Sound advice. That was also my initial thought when I read OP's question. Balance your assets first. Then move away from individual holdings.
I have been hit by GE too so I feel for you. Ended up selling at a huge loss. I can tell you that I did not regret it even though the price is higher now. I just couldn't stomach 10% drop every now and then. Fortunately, I had huge gains in other names. So I sold my losers and kept my winners.

I implemented a Canadian Permanent Portfolio in May 2019. Up around 6% since inception. What a year for the Permanent Portfolio it is so far ! I used the following ETFs : VCN,ZFL,MNT,CLF. I went through all the questions about geographic allocation, hedging and cash allocation. Feel free to PM me if you have questions, I am very passionate about all things investing, lately asset allocation. I also follow a lot of the stocks you are holding.

Full disclosure : I am not 100% allocated to the permanent portfolio. I have a dividend growth portfolio, a Canadian Permanent Portfolio, a classic Permanent Portfolio and a trading account for more speculative plays (call it a variable portfolio). So I am not 4x25 allocated right now. But I got to say I just love the low volatility of the permanent portfolio.
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Re: New Member and Permanent Portfolio Novice. Asking for help

Post by sophie » Thu Dec 12, 2019 9:25 am

Some good advice in the posts above, but I think they're also making things complicated. I suspect the last thing the OP needs to be hearing about it momentum and other market timing strategies. He's saying that he's tried all that stuff for many years now, got burned, and now just wants to switch to a passive approach. Kudos for recognizing that.

When I switched to the PP it was really not all that hard. Here's a step by step approach which is basically what I did:

1. Decide which investments you want to keep vs sell. Keeping none of them is a perfectly sound decision. Figure out the tax consequences of selling. You may wish to split your sales between 2019 and 2020 tax years (i.e. do some now, and the rest in January). Leave the sale proceeds in cash for now.
2. Decide how much of your cash is going to be considered part of the PP. If you're saving up for things you intend to buy in the near future, I would keep that separate.
3. Total up the amount of money that you have for your PP: your investable cash pile plus whatever stocks you decided to hang onto. Divide this number by 4. Call this number N.
4. Go ahead and buy the assets, up to N dollars for each. Check the FAQ in each section for recommendations on what to buy, but I would keep this simple for now: cash in a savings account, a long bond (20 years plus) index fund, a total market stock fund, and gold bullion coins or an ETF (current favorites are AAAU or IAU). You can do this in about an hour of work, even including making a phone call to buy physical gold online if that's your preference. If you kept some stocks (let's say S dollars worth), you'll buy N - S dollars of a stock index fund.

I suggest not reinvesting dividends for the stocks or funds, let them pile up in cash. Add new contributions to cash. Rebalance (i.e. distribute excess cash among the other assets) every so often - no need to wait until you hit the rebalancing band with cash.
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Re: New Member and Permanent Portfolio Novice. Asking for help

Post by vnatale » Thu Apr 23, 2020 6:38 pm

sophie wrote:
Thu Dec 12, 2019 9:25 am
Some good advice in the posts above, but I think they're also making things complicated. I suspect the last thing the OP needs to be hearing about it momentum and other market timing strategies. He's saying that he's tried all that stuff for many years now, got burned, and now just wants to switch to a passive approach. Kudos for recognizing that.

When I switched to the PP it was really not all that hard. Here's a step by step approach which is basically what I did:

1. Decide which investments you want to keep vs sell. Keeping none of them is a perfectly sound decision. Figure out the tax consequences of selling. You may wish to split your sales between 2019 and 2020 tax years (i.e. do some now, and the rest in January). Leave the sale proceeds in cash for now.
2. Decide how much of your cash is going to be considered part of the PP. If you're saving up for things you intend to buy in the near future, I would keep that separate.
3. Total up the amount of money that you have for your PP: your investable cash pile plus whatever stocks you decided to hang onto. Divide this number by 4. Call this number N.
4. Go ahead and buy the assets, up to N dollars for each. Check the FAQ in each section for recommendations on what to buy, but I would keep this simple for now: cash in a savings account, a long bond (20 years plus) index fund, a total market stock fund, and gold bullion coins or an ETF (current favorites are AAAU or IAU). You can do this in about an hour of work, even including making a phone call to buy physical gold online if that's your preference. If you kept some stocks (let's say S dollars worth), you'll buy N - S dollars of a stock index fund.

I suggest not reinvesting dividends for the stocks or funds, let them pile up in cash. Add new contributions to cash. Rebalance (i.e. distribute excess cash among the other assets) every so often - no need to wait until you hit the rebalancing band with cash.
The whole thing above was great! Spelling it all out both concisely yet with detail. However, for we literalists out here, can you more precisely define "every so often"?

Thanks

Vinny
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Re: New Member and Permanent Portfolio Novice. Asking for help

Post by mdwilson1991 » Fri Apr 24, 2020 9:33 am

vnatale wrote:
Thu Apr 23, 2020 6:38 pm

The whole thing above was great! Spelling it all out both concisely yet with detail. However, for we literalists out here, can you more precisely define "every so often"?
Certainly Sophie can reply with own answer to what she meant, but my interpretation - - -

We can't forget that a foundation of the PP is that we can't predict what will happen. So, no matter how much analysis we put into determining what the optimal rebalance frequency is, or what the bands should be, or if the bands should be asymmetrical, etc., it will still only prove to be optimal over the specific backtested timeframe and the specific backtested investments. Going forward...who knows.

Any choice of rebalance parameters will at some point in the future be demonstrably wrong. "If only I had rebalanced a little earlier/later I would have more $..."

So I say there is flexibility there - annually is a low maintenance strategy, more often than that if you want, or according to bands, but recognizing that there is no absolutely optimal answer for the unknowable future. There seems to be consensus that over the long run some amount of rebalancing is beneficial.
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Re: New Member and Permanent Portfolio Novice. Asking for help

Post by stpeter » Fri Apr 24, 2020 11:15 am

vnatale wrote:
Thu Apr 23, 2020 6:38 pm
sophie wrote:
Thu Dec 12, 2019 9:25 am
Rebalance (i.e. distribute excess cash among the other assets) every so often - no need to wait until you hit the rebalancing band with cash.
The whole thing above was great! Spelling it all out both concisely yet with detail. However, for we literalists out here, can you more precisely define "every so often"?

Thanks

Vinny
I just rebalanced for the first time. I was hovering around 33% cash but after reading the research cited in another thread about optimal rebalance bands being +/-25% (not +/-40%), I decided to settle on 20%-30% as my preferred bands, not 15%-35%. YMMV, but time-based balancing (e.g., once a year) might lead you to trade more often than necessary.
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