PP* Portfolio

General Discussion on the Permanent Portfolio Strategy

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perfect_simulation
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PP* Portfolio

Post by perfect_simulation » Sun Dec 13, 2020 8:50 am

The vanilla PP is a perfect concept, but I see 2 modifications that enhance it (based on what Harry said). I call it PP*
  1. 25% Growth Stocks (eg, VUG, SPG, SCHG) - Harry said that stocks do well in times of prosperity. In times of prosperity he said that interest rates are often low and the economy expands. I'm not debating Growth vs Value: only suggesting that Growth stocks benefit more from the prosperity conditions that Harry talks about
  2. 25% Cash is a lost opportunity when you have more than 2 years of savings. Harry said that cash protects you during recession or times of tight money. He said that recessions are inherently short, self-limiting, and don't usually last more than 1 year. Assume someone has 2 years of living expenses covered at 15% cash. They can enjoy a 15% 28% 28% 28% permanent portfolio without injuring themselves
Thoughts?
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mathjak107
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Re: PP* Portfolio

Post by mathjak107 » Sun Dec 13, 2020 9:17 am

perfect_simulation wrote:
Sun Dec 13, 2020 8:50 am
The vanilla PP is a perfect concept, but I see 2 modifications that enhance it (based on what Harry said). I call it PP*
  1. 25% Growth Stocks (eg, VUG, SPG, SCHG) - Harry said that stocks do well in times of prosperity. In times of prosperity he said that interest rates are often low and the economy expands. I'm not debating Growth vs Value: only suggesting that Growth stocks benefit more from the prosperity conditions that Harry talks about
  2. 25% Cash is a lost opportunity when you have more than 2 years of savings. Harry said that cash protects you during recession or times of tight money. He said that recessions are inherently short, self-limiting, and don't usually last more than 1 year. Assume someone has 2 years of living expenses covered at 15% cash. They can enjoy a 15% 28% 28% 28% permanent portfolio without injuring themselves
Thoughts?
the cash is also acting as an option , to buy assets that have fallen at a later date , except unlike options , cash has no expiration date .

cash is also the other side of the barbel that balances out duration on the long term treasuries to something in the intermediate term range .

you no longer have the pp and its features with a dr Frankenstein version.

cash's roll in the pp is far more than emergency spending money . it is an integral part of design . it balances the barbel in bonds and it acts as an option would .
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Hal
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Re: PP* Portfolio

Post by Hal » Sun Dec 13, 2020 9:28 am

Just a quick thought....

Personally I see cash and gold as reserves while bonds and shares are investments (as per Ben Graham).
If the Bond/Shares prices drop, they become good value and you use the reserves to purchase more investments.

So I see this more through a value investment lens. HB's focus on economic climate is totally valid, it just depends how you look at it.
Aussie GoldSmithPP - 25% PMGOLD, 75% VDCO
perfect_simulation
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Re: PP* Portfolio

Post by perfect_simulation » Sun Dec 13, 2020 9:31 am


the cash is also acting as an option , to buy assets that have fallen at a later date , except unlike options , cash has no expiration date .

cash is also the other side of the barbel that balances out duration on the long term treasuries to something in the intermediate term range .

you no longer have the pp and its features with a dr Frankenstein version.

cash's roll in the pp is far more than emergency spending money . it is an integral part of design . it balances the barbel in bonds and it acts as an option would .
I partially disagree. Harry said he looked everywhere for an asset that benefits directly from recession and he couldn't find one. If he had, that asset would have been there instead of cash or in addition to cash. Which might prove my point, he didn't design for 25% cash, only that 25% cash gives the best protection against recession. But at some point, you are over protected no?
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Re: PP* Portfolio

Post by pmward » Sun Dec 13, 2020 10:52 am

Reducing cash is the easiest way to apply leverage to the PP. I think 25% cash is great for a retiree, or someone close to retirement. But for someone who is young and in accumulations I think reducing cash down to something like 1 year of expenses would probably do the trick, especially since cash is a fixed expense right now after inflation.

The whole "you need cash for tight money" argument I think is weak. Even Harry himself said that these periods were fully self limiting. 1 year of cash for someone that is still working and earning income should be more than enough to weather the storm.
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Matthew19
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Re: PP* Portfolio

Post by Matthew19 » Sun Dec 13, 2020 10:19 pm

Can this be back tested?
perfect_simulation
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Re: PP* Portfolio

Post by perfect_simulation » Sun Dec 13, 2020 11:05 pm

Matthew19 wrote:
Sun Dec 13, 2020 10:19 pm
Can this be back tested?
In my testing, PP* is ~2% over or under whatever the vanilla PP does so nothing drastic
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dualstow
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Re: PP* Portfolio

Post by dualstow » Mon Dec 14, 2020 7:43 am

Enhancing perfection, eh? O0 The Chinese call that painting eyes on the dragon. (It’s hard).
perfect_simulation wrote:
Sun Dec 13, 2020 8:50 am
...
• 25% Cash is a lost opportunity when you have more than 2 years of savings
...
can enjoy a 15% 28% 28% 28% permanent portfolio without injuring themselves


Thoughts?
Nothing wrong with growth stocks. Harry moved toward a broad index in the end and I like the efficiency of a total market fund. I added some growth though.

If you look through this forum, you will see a lot of threads about reducing cash or getting rid of it altogether.
i think there are two kinds of pp investors now that Harry Browne has passed. Those who follow it and those who say, “I don’t think Harry would have stuck with his own pp in *this* situation. He would have made this change and that.”

You know that part of Stephen King’s ‘The Stand’ in which most people are dead from a plague, civilization has collapsed, and there’s this retarded guy who spells every word M-O-O-N and refuses to smash the glass of a bike shop to get a bike because he was taught it was wrong and cannot adapt to new rules? That’s me (except my spelling is better). I never change the rules, despite low interest rates, etc.

The way I get around it is to have a stock-heavy vp. If I start painting eyes on the dragon, I will never know if the pp works as intended, because I won’t truly have one.
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Fredmong
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Re: PP* Portfolio

Post by Fredmong » Mon Dec 14, 2020 11:45 am

dualstow wrote:
Mon Dec 14, 2020 7:43 am
...
The way I get around it is to have a stock-heavy vp. If I start painting eyes on the dragon, I will never know if the pp works as intended, because I won’t truly have one.
This. A lot of people here seem to forget about the VP. Even the Golden Butterfly is a 80%/20% PP/VP with small-caps in the VP. If one thinks there isn't enough of something in the PP or too much of something, one can just add the missing component to their VP or reduce the portion allocated to the PP.
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Re: PP* Portfolio

Post by ppnewbie » Mon Dec 14, 2020 12:12 pm

One way I look at cash in the PP is an anchor to reality. If everything gets expensive, it forces you to sell high and store the proceeds in cash. If any one of the other three assets get cheap, the rules say you should use the cash to buy the cheap assets.
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Re: PP* Portfolio

Post by perfect_simulation » Mon Dec 14, 2020 2:46 pm

Even the Golden Butterfly is a 80%/20% PP/VP with small-caps in the VP.
Hmm, good point. Perhaps I am underestimating the VP
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Re: PP* Portfolio

Post by mukramesh » Mon Dec 14, 2020 2:51 pm

perfect_simulation wrote:
Sun Dec 13, 2020 11:05 pm
Matthew19 wrote:
Sun Dec 13, 2020 10:19 pm
Can this be back tested?
In my testing, PP* is ~2% over or under whatever the vanilla PP does so nothing drastic
According to Portfolio Charts,

PP:
5.1% Avg
7.3% Std Dev.

PP*:
5% Avg
6.8% Std Dev.

So basically the same. Why make the change?

Edit: I only tested reducing the cash allocation. Stock portion is Total US Stock Market in both cases.
Last edited by mukramesh on Mon Dec 14, 2020 4:53 pm, edited 1 time in total.
johnnywitt
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Re: PP* Portfolio

Post by johnnywitt » Mon Dec 14, 2020 4:31 pm

perfect_simulation wrote:
Sun Dec 13, 2020 8:50 am
The vanilla PP is a perfect concept, but I see 2 modifications that enhance it (based on what Harry said). I call it PP*
  1. 25% Growth Stocks (eg, VUG, SPG, SCHG) - Harry said that stocks do well in times of prosperity. In times of prosperity he said that interest rates are often low and the economy expands. I'm not debating Growth vs Value: only suggesting that Growth stocks benefit more from the prosperity conditions that Harry talks about

    Thoughts?
Ok, so I was thinking that Growth Stocks would give the meager 25% allocation to stocks more kick as well. However, after reading the Swedroe & Grogan book, "Black Swans" it appears that actually the way to go is Small Cap Value both domestic and International if you want more volatility capture and higher returns over time. So, I have to give a nod to Hal here because he was saying this the whole time. Also, to pmward here with the 'don't take such a dogmatic approach to the PP'. My view is that if I apply a Swedroe effect to my 25% equity allocation in a PP and maybe include some sm, cap value (like the GB does as well in a nod to Swedroe & Grogan) then it still falls conceptually within the scope of remaining a PP more or less IMHO. I think as long as one sticks pretty much with HB PP to include a GB you will probably be ok in the end. The thing is: only time will tell.
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