Let's debate the Permanent Portfolio

[Vil]

You may find this interesting (or not). Rumours of gold and gov bonds death have been greatly exaggerated ...

Rates.png (189.48 KiB) Viewed 4860 times

[mathjak107]

While it always feels like we can get sideswiped any minute the fact is we have not had a down year in equities since 2008 ...

You mean 2018?

Yes 2018 was one down year since 2008 and none sine 2014

Here is a copy of the post




I used a mix of the 25% income model and the 100% equities growth model as a retirement portfolio. Total allocation runs from 30-4if we are in a correction or bear market ..I tend to run 30-35% equities when like now markets are higher and 35-40% when they are lower like March .

Up to pre retirement the growth model has been my portfolio since 1987

2014 growth model up 9.70 , income model up 7.10, pp 4.04

2015 growth up 1.60 , income up .10 , pp down 3.26

2016 growth up 6.70 , income up 6.67. Pp up 6.17

2017 growth up 24 , income up 7. 4 ..Pp up12.97

2018 growth up 6.20 , Income down 4.80. Pp down 4.09

2019 growth up 29.80 , income up 12.70....pp up 18.66

2020 growth up 33.70 , income up 11.60,, pp up 20.07

2021 growth up 4.80 , income up 1.69. Pp for me down 3.00%

Growth model zero down years since 2014

Income model 1 down year since 2014 ...

Pp so far 3 down periods.

2016 growth up 6.70 , income up 6.67. Pp up 6.17

2017 growth up 24 , income up 7. 4 ..Pp up12.97

2018 growth up 6.20 , Income down 4.80. Pp down 4.09

2019 growth up 29.80 , income up 12.70....pp up 18.66

2020 growth up 33.70 , income up 11.60,, pp up 20.07

2021 growth up 4.80 , income up 1.69. Pp for me down 3.00%

Growth model zero down years since 2014

Income model 1 down year since 2014 ...

Pp so far 3

down periods.


https://www.fmandi.com/about/performance/perf_gr.php

https://www.fmandi.com/about/performance/perf_i.php

[mathjak107]

You may find this interesting (or not). Rumours of gold and gov bonds death have been greatly exaggerated ...


Rates.png

Totally different scenario then today’s in a different world with different options ...I wouldn’t even attempt a comparison thought.

Show me the money going forward is all I am interested in

[Tyler]

Bond returns are highly correlated to starting yield and we know how low bond yields are in absolute terms.

You sure about that? Here's the last 51 years of data.

For short term bonds, your statement generally holds up (with the caveat that high starting rates don't prevent low returns when rates rise).




For long term bonds... not so much. Real returns are all over the map and mostly uncorrelated to starting rates.




When people talk about bonds in the Permanent Portfolio, they're generally speaking exclusively about long term bonds. So that part of your argument doesn't hold up to me. Bond returns are a lot more sophisticated than most people realize!

[mathjak107]

With a duration of 19 years that is how long you would have to sit in Tlt to see the interest deal you got the day you bought just as if you bought an individual bond ...so for me I must be in the 1.75% range ......

For those who don’t follow , let’s suppose you bought a treasury bond fund paying 5% and let’s suppose it cost 10 bucks a share and has a duration of 5 years

If rates jump 1% to 6% your nav falls to 9.50 ..but you are getting an extra 1% a year now ..at the end of 5 years you made an extra 5% in interest to offset the 5% drop in nav bringing you back to your 5% deal ...but that is now 5% in a 6% world

[Smith1776]

When Browne mentioned a tight money recession he was primarily talking about rates going up. Rates have indeed gone up just recently, and we may very well be in a recession. (We generally don't know the latter officially for a couple of quarters.)

The interesting thing about the PP and its equanimity is that while it may not be the world's best investment strategy, I can't really think of a better one to replace it when all factors are considered. All other approaches seem to require either more time & effort than I'm willing to give, or make too much of a one-way bet, or simply don't let me sleep at night.

To be fair, I suppose I am no longer running a 100% canonical PP. I am utilizing the GoldSmith variation with 1% Bitcoin.

[Smith1776]

No offense Smith, but I'm trying really hard to do the opposite, which is to get someone to spend more time and effort to figure out just how good the PP is. None of this will affect my sleep and if money is a source of stress then I would not recommend following this debate.

This forum and its predecessor, the epic thread on the BH forum have been analyzing and dissecting the PP for literally over a decade. Most of us who have been around for a while (or have read the ancient threads) have probably settled on a conclusion. It's definitely not a portfolio for everyone.

https://www.bogleheads.org/forum/viewto ... 10&t=15434

I've read the epic BH thread probably ten times now. I never get tired of it personally. But yeah, I'm settled on the PP and I sleep extremely well at night.

Also, how do you know you have considered all factors?

Too epistemological in my view. Eventually I think you just have to say "good enough" and move on. The PP meets my needs while no other approach I've investigated seems to do the job.

[Tyler]

Thanks Tyler.

I think I meant coupon rate rather than starting yield. Can you check that for me?

And I'm talking about expected long term return rather than return at the end of the year.

Edit: Maybe I didn't think wrong because coupon rate is the starting yield as well?

For the purposes of this data, coupons and yields for bond funds are identical in highly liquid open treasury markets. It's just the market interest rate for the given maturity.

And looking at 10-year returns instead of year-end returns, the argument is indeed a lot more sound.




Now whether weighting the expected long term returns of two assets in isolation accurately describes the total returns of a regularly rebalanced portfolio of uncorrelated assets (which bounce around like the year-end chart, not the 10-year chart) is another discussion entirely.

[Smith1776]

Too epistemological in my view. Eventually I think you just have to say "good enough" and move on. The PP meets my needs while no other approach I've investigated seems to do the job.

But why do you feel the need to say that though.

I'm sure I'm not the only one with an interest in further discussion. I just don't understand why others have to come in and essentially share that they're not interested.

Oh not at all, I'm perfectly interested in debating the PP. To this day it's still one of my favourite topics of discussion. I'm just sharing my perspective that no other portfolio seemed to meet all my needs.

Alternatively, I suppose I can share why some of the other popular approaches left me feeling uncomfortable.

- All Seasons portfolio: too much term risk and commodities are hard to access in Canada
- Three Fund portfolio: no hard assets, not enough international, generally too much equity risk (and those implementations with minimal equity have too much term risk)
- Merriman Ultimate portfolio: too complicated, also no hard assets

Most portfolios I have similar objections. Everywhere I turn I feel uncomfortable.

However, the PP certainly isn't perfect I'll admit. It definitely doesn't have as much "lifting" ability as some of the more equity aggressive strategies. I've occasionally considered putting all my money in Berkshire Hathaway, being a huge Buffett fan.

[Smith1776]

This forum and its predecessor, the epic thread on the BH forum have been analyzing and dissecting the PP for literally over a decade. Most of us who have been around for a while (or have read the ancient threads) have probably settled on a conclusion. It's definitely not a portfolio for everyone.

Prior to joining, I was never a posting person rather I just lurked.

The reason for joining is that literally after a decade of discussion I both had ideas and questions that were not resolved. I think it is a mistake to assume that there is nothing left to be learned.

I can certainly not argue with the notion that there's always more for me to learn.

[Smith1776]

If I recall correctly from the BH discussion involving the use of the Simba backtesting spreadsheet, the pre-tax return differences were not significant between annual rebalancing, 20/30 bands, and 15/35 bands. In taxable accounts the 15/35 bands are certainly desirable.

The only rebalancing policy that seemed to "ruin" the portfolio was to have no rebalancing at all.

[Tyler]

But why do you feel the need to say that though.

I'm sure I'm not the only one with an interest in further discussion. I just don't understand why others have to come in and essentially share that they're not interested.

I can't speak for everyone else, but I've been here for a while and can offer a bit of perspective.

Everyone is here because they have some sort of interest in the Permanent Portfolio. Sure, it has been talked about for years, but most people are happy to continue discussing how it works, talk about performance in different economic environments, help others set up their own PP, and generally share Harry's ideas in new ways. We certainly don't all agree on everything, but that's our common bond.

Sometimes, though, we run across someone who just wants to filibuster threads, crap on the core ideas, point out every negative day for the portfolio, imply that PP investors are stupid, and generally just tear things down. Over the years several people have been banned for that kinda thing, not because the mods don't tolerate dissent but because the behavior of the individuals was fundamentally destructive to the community. Some never returned, which is honestly for the best for them as well since obsessing over a topic completely misaligned with your values can't be good for your health. Others are back with toned-down rhetoric and offer lots of good insights rather than simply always taking the negative side of the argument. I'm not going to name names -- you know who you are and I'm glad you're back.

Now I don't think this thread is a problem, but based on the history of the forum I can understand the reaction based on the title. "Great, another thread trying to prove everyone wrong." To encourage good discussion, I simply recommend that everyone try to avoid the temptation to exclusively argue the negative. Be constructive.

[pp4me]

But why do you feel the need to say that though.

I'm sure I'm not the only one with an interest in further discussion. I just don't understand why others have to come in and essentially share that they're not interested.

I can't speak for everyone else, but I've been here for a while and can offer a bit of perspective.

Everyone is here because they have some sort of interest in the Permanent Portfolio. Sure, it has been talked about for years, but most people are happy to continue discussing how it works, talk about performance in different economic environments, help others set up their own PP, and generally share Harry's ideas in new ways. We certainly don't all agree on everything, but that's our common bond.

Sometimes, though, we run across someone who just wants to filibuster threads, crap on the core ideas, point out every negative day for the portfolio, imply that PP investors are stupid, and generally just tear things down. Over the years several people have been banned for that kinda thing, not because the mods don't tolerate dissent but because the behavior of the individuals was fundamentally destructive to the community. Some never returned, which is honestly for the best for them as well since obsessing over a topic completely misaligned with your values can't be good for your health. Others are back with toned-down rhetoric and offer lots of good insights rather than simply always taking the negative side of the argument. I'm not going to name names -- you know who you are and I'm glad you're back.

Now I don't think this thread is a problem, but based on the history of the forum I can understand the reaction based on the title. "Great, another thread trying to prove everyone wrong." To encourage good discussion, I simply recommend that everyone try to avoid the temptation to exclusively argue the negative. Be constructive.

Well said.

[doodle]

I simply recommend that everyone try to avoid the temptation to exclusively argue the negative. Be constructive.

I want to just remind everyone that I have offered to argue either side and MJ also allowed me to choose so I have chosen the negative side just because to do the reverse risks more bias. I think it is also good for MJ to argue for the PP.

I'm happy if people want to constructively go after the portfolio...

That which is bending deserves to be pushed...

I for one think it's going to be interesting to see how the portfolio extricates itself from its current position. Honestly, the next few years in my opinion will be an amazing stress test

[I Shrugged]

I can't really think of a better one to replace it when all factors are considered.

Also, how do you know you have considered all factors?

Oh, so you want certainty. Okay then.

[Smith1776]

If I have any qualms about the PP it would relate to my recent concerns about gold's continued status as the world's preferred alternative store of value. In some future iteration of the PP we may very well be using Bitcoin instead. Obviously I'm not implying this will happen overnight, but we're talking about permanence here after all.

[mathjak107]

I have my doubts about Bitcoin since central banks can’t pee on bit coin

[Smith1776]

I have my doubts about Bitcoin since central banks can’t pee on bit coin

I have doubts as well. One of my favourite things about gold is the fact that it's, well, physical.

[Kbg]

This post may be a big muddled mush of nonsense but maybe I can express the thoughts well enough to foster some good comments as it's something I've been thinking about but have not formed any conclusions.

1. What do we really know about any asset class? Are there any "truths" to various asset classes or just a historical record that we assume will continue as the past?

2. If so, what are those "truths" and what makes us think they are something enduring vs. simply artifacts of the historical record?

3. In reference to #2 and 3 above and the 4 core PP assets classes what do we think are the "truths" and why do we think that? What's our evidence, what do we worry is artifact? Why?

Yeah I know, very philosophicalish. There's a significant, maybe growing part of me that wonders if it's all just historical artifact carried forward by hope of historical repeat. I think if we peel the onion back, most thread back and forths on the PP (or any portfolio on this and other boards) come down to a discussion of whether history will hold or if "this time is different." I think this completely explains the gold vs. BTC threads that have popped up as of late.

So I propose we take the assets one at a time, dissect them individually and then reassemble for a portfolio level review.

Anyone interested in this approach?

[drumminj]

I think if we peel the onion back, most thread back and forths on the PP (or any portfolio on this and other boards) come down to a discussion of whether history will hold or if "this time is different." I think this completely explains the gold vs. BTC threads that have popped up as of late.

So I propose we take the assets one at a time, dissect them individually and then reassemble for a portfolio level review.

Anyone interested in this approach?

I think this is a fair point (if I understand it) and could yield a good discussion.

I'm not sure I 100% agree with your premise -- one aspect of the PP that resonates with me is it's not purely based on historical record (look at all the outcomes -- 60/40 is the way to go!), but instead has a philosophy, hypothesis, and then data to back it up. It's not simply about following the trend, though if the historical data didn't support it then no one would jump on board.

I think your point is valid, though -- just because there's a hypothesis that is supported by existing data doesn't mean that it's a law by any means -- it may just mean that we haven't collected/encountered/discovered the data that shows we've just been tracking a "short"-term trend in the bigger picture of things.

[Kbg]

I'm not sure I 100% agree with your premise -- one aspect of the PP that resonates with me is it's not purely based on historical record (look at all the outcomes -- 60/40 is the way to go!), but instead has a philosophy, hypothesis, and then data to back it up. It's not simply about following the trend, though if the historical data didn't support it then no one would jump on board.

I think your point is valid, though -- just because there's a hypothesis that is supported by existing data doesn't mean that it's a law by any means -- it may just mean that we haven't collected/encountered/discovered the data that shows we've just been tracking a "short"-term trend in the bigger picture of things.

I agree as well. I've read way too many investment books in my life and "Best Laid Plans" is still one of my faves. It is really, really good on the philosophy and hypothesis aspects of the approach.

Let's see if enough people decide they want to join in and help out. I don't think my suggestion will be an easy one to accomplish if it is done well and I don't have the personal time to take it on by myself. I do believe we can check most of the key premises of the HBPP to see how they've done post publication with data to see if there are any anomalies or if the data confirms the premises are holding. Another thing is to capture the theory of why the assets behave the way they do from other sources.

[doodle]

I for one think it's going to be interesting to see how the portfolio extricates itself from its current position. Honestly, the next few years in my opinion will be an amazing stress test

Me too.

Just want to thank you as one of the people who have contributed to my attempts to engage in discussion constructively. It's easy to tell who's here to learn from each other and who isn't.

One of the factors that convinced me to go ahead with this portfolio initially was how open and receptive this board was twelve years ago to any sort of criticism of the portfolio. There was no defensiveness or cultish adherence to it's tenets....everyone seemed open to discusssing any potential weakness one could conceive of. That sort of discussion gave me a lot of confidence that the people here were not just blindly jumping into this....they had and we're willing to continue to put considerable thought into it.

I remember freaking out when long term rates started to drift under 4% convinced everything was doomed. Now that they are about half that I am having similar feelings....has the moment finally come? I'm not sure, this portfolio is like a jiujitsu black belt fighter...it might look like it's been mounted and about to get pounded but somehow it always manages to find a way to sneak itself out with minimal damage and keep fighting.

[mathjak107]

But why do you feel the need to say that though.

I'm sure I'm not the only one with an interest in further discussion. I just don't understand why others have to come in and essentially share that they're not interested.

I can't speak for everyone else, but I've been here for a while and can offer a bit of perspective.

Everyone is here because they have some sort of interest in the Permanent Portfolio. Sure, it has been talked about for years, but most people are happy to continue discussing how it works, talk about performance in different economic environments, help others set up their own PP, and generally share Harry's ideas in new ways. We certainly don't all agree on everything, but that's our common bond.

Sometimes, though, we run across someone who just wants to filibuster threads, crap on the core ideas, point out every negative day for the portfolio, imply that PP investors are stupid, and generally just tear things down. Over the years several people have been banned for that kinda thing, not because the mods don't tolerate dissent but because the behavior of the individuals was fundamentally destructive to the community. Some never returned, which is honestly for the best for them as well since obsessing over a topic completely misaligned with your values can't be good for your health. Others are back with toned-down rhetoric and offer lots of good insights rather than simply always taking the negative side of the argument. I'm not going to name names -- you know who you are and I'm glad you're back.

Now I don't think this thread is a problem, but based on the history of the forum I can understand the reaction based on the title. "Great, another thread trying to prove everyone wrong." To encourage good discussion, I simply recommend that everyone try to avoid the temptation to exclusively argue the negative. Be constructive.

Thanks for the kind words. Lol

One thing though I do want to comment on is this .

One of the biggest factors where we as humans hurt ourselves more often than not is what an article in Forbes called sleeping with the enemy .

Most people tend to hang out , high five and support only those who support their view ....they never spend time really getting in to the enemies camp ..they never really understand the negatives the other side sees because they never sleep with the enemy .

When one fully understands the enemy’s side and can argue for or against some thing then they likely have a full understanding which they never got just hanging with their own. it is very different when you intimately learn the other side vs believing our own bull shit about the other side

Unless one made a poor choice and needs a support group , then one sided discussions supporting each other’s same decisions are not going to be educational or informative....

[doodle]

But why do you feel the need to say that though.

I'm sure I'm not the only one with an interest in further discussion. I just don't understand why others have to come in and essentially share that they're not interested.

I can't speak for everyone else, but I've been here for a while and can offer a bit of perspective.

Everyone is here because they have some sort of interest in the Permanent Portfolio. Sure, it has been talked about for years, but most people are happy to continue discussing how it works, talk about performance in different economic environments, help others set up their own PP, and generally share Harry's ideas in new ways. We certainly don't all agree on everything, but that's our common bond.

Sometimes, though, we run across someone who just wants to filibuster threads, crap on the core ideas, point out every negative day for the portfolio, imply that PP investors are stupid, and generally just tear things down. Over the years several people have been banned for that kinda thing, not because the mods don't tolerate dissent but because the behavior of the individuals was fundamentally destructive to the community. Some never returned, which is honestly for the best for them as well since obsessing over a topic completely misaligned with your values can't be good for your health. Others are back with toned-down rhetoric and offer lots of good insights rather than simply always taking the negative side of the argument. I'm not going to name names -- you know who you are and I'm glad you're back.

Now I don't think this thread is a problem, but based on the history of the forum I can understand the reaction based on the title. "Great, another thread trying to prove everyone wrong." To encourage good discussion, I simply recommend that everyone try to avoid the temptation to exclusively argue the negative. Be constructive.

Thanks for the kind words. Lol

One thing though I do want to comment on is this .

One of the biggest factors where we as humans hurt ourselves more often than not is what an article in Forbes called sleeping with the enemy .

Most people tend to hang out , high five and support only those who support their view ....they never spend time really getting in to the enemies camp ..they never really understand the negatives the other side sees because they never sleep with the enemy .

When one fully understands the enemy’s side and can argue for or against some thing then they likely have a full understanding which they never got just hanging with their own. it is very different when you intimately learn the other side vs believing our own bull shit about the other side

Unless one made a poor choice and needs a support group , then one sided discussions supporting each other’s same decisions are not going to be educational or informative....

I agree and it's one of the reasons why I ultimately chose this forum and this portfolio. This place was not the cult of Harry Browne. No one dismissed solid arguments in order to deflect attention from the portfolios potential weaknesses. My life is invested in this thing and I want to know if I'm staring down the barrel of a gun.

But, it's important to realize that everyone has different priorities when investing and this portfolio is not the be all end all of asset allocations. By it's nature, it appeals to individuals of a particular personality and mindset who perhaps analyze data and weigh or discount potential risks differently than the average person. For example, there are people who are completely comfortable building multi-million dollar mansions on sandbars in the Florida Keys....or at the base of active volcanos. That doesn't work for me.

When we have a period where the portfolio is down I ask myself whether it's just some strange anomaly of the markets that will eventually right itself or whether the assets are fundamentally broken...in other words, do the assets contained in the portfolio still respond powerfully to the four economic conditions of inflation, deflation, growth and recession? If not, then we truly have a problem. At this moment I think we have a market that is confused and there has been a flight to cash...Harry Browne recognized that this was the Achilles heel of the portfolio. He didn't hide the fact that this type of environment would be tough..but sooner or later another pattern will emerge and the portfolio always seems to plug along just fine. The last two years we're extremely strong compared to portfolios average...I wouldn't be surprised at all if it takes a breather.

[doodle]

A couple things on my monitor as potential issues to portfolio in the medium to long term

Crypto...I do think that the recent mania has pulled some money from the gold market and perhaps in a world absent crypto we would be a a few hundred dollars higher at this point...this could account partially for the portfolios recent weaknes. One can do some estimating of that by looking at the sizes of both markets...I'm guessing gold is probably around 10x the crypto market at this point. Going forward though this will change as absent government interference, Crypto as an alternative to government fiat will continue to grow. It's not clear yet at all who will be the winner...but ultimately one platform will emerge. The market seems to have gravitated to bitcoin at this point but as far as I'm concerned it's not a store of value rather than a wild speculative asset. Also, going forward bitcoin faces some serious challenges and has drawbacks that would make me very hesitant to put money into it. Anyways, these are topics for another thread but as it concerns this one I think this new money is relevant to future of portfolio and should be monitored.

Long bonds...I do think the deflation thesis is possibly weakening. It's very tough to say however as there are so many trends that I think could send us in that direction. Whether it's tech and AI, aging demographics, reduced demand for labor and downward pressure on wages, changing consumption patterns. Also government actions in fiscal and monetary arenas have been unprecedented...

China and emerging markets..while the US dollar status as reserve currency is solid at this point China will shortly overtake US as world's largest economy. US economic growth rates are also forecast to be significantly lower in our mature economy vs the potential for growth in other areas of the world...perhaps robbing equity gains in future? What implications this has is an unknown for me...

Political instability...the US centric approach of portfolio worries me in a country that just had it's Capitol building overrun during process of democratic elections.