Throwing in the Towel because Harry is Right!!!

[Professor Disorientation]

I just had some master limited partnerships implode because of falling gas prices. Some of these I have held for a number of years. So much for buy-and-hold. I have thrown in the towel, and set up my own Permanent Portfolio on 12/16/14. It is only a couple of days old, but I am sticking with it from here on out. There is a sense of relief I already feel. With all the government interference, enormous debt, and unpredictability, who can really know where the market is going? I can't. Harry's philosophy is simple. Own an asset class that will do well in that particular market environment. Sell a portion of your winners and buy the laggards.

My Variable Portofolio is comprised of dividend-paying stocks. I let the dividends accrue and buy more dividend-paying stocks if the price permits.

Thanks Harry for giving me the confidence to build my wealth. Your wisdom and independence are much appreciated.

[goodasgold]

With all the government interference, enormous debt, and unpredictability, who can really know where the market is going? I can't. Harry's philosophy is simple. Own an asset class that will do well in that particular market environment. Sell a portion of your winners and buy the laggards.
Thanks Harry for giving me the confidence to build my wealth.... Your wisdom and independence are much appreciated.

Welcome to the list, Professor.

P.S. Will there be a midterm exam regarding your brief but excellent summary of the PP philosophy? (Just kidding.) 

[Professor Disorientation]

No midterm. But the market does test us regularly. I have failed a couple of times. Well, more than a couple. The Permanent Portfolio is equivalent to a Ph.D in investing.

[dualstow]

Hi, Professor. How did you discover the pp, by the way?

Please give my warm regards to Professor Chaos.

[Professor Disorientation]

Actually, I am quite familiar with Harry Browne and his Permanent Portfolio. I've read all of his books and purchased The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy over a year ago. I am been personally busy lately and failed to give my portfolio enough time and attention. When some of MLPs imploded, that was the last straw for me. I sold everything and set up the PP.
My disposition is in agreement with the PP philosophy. I loathe expert opinion. The future is uncertain and unpredictable. Human nature has not changed: fear and greed. The business cycle has not changed: boom and bust. The PP encapsulates both human nature and the business cycle nicely. Come Hell or High Water, I'm adhering to the PP. I bought TLT fairly high on Tuesday, but whenever you begin the PP, something is probably going to be overvalued and something undervalued at the time you buy (only time will tell). The perfect time to jump in is yesterday. It will be interesting to see how my PP will perform next year.

[dualstow]

Interesting! Since those failing MLPs gave you the final push toward the pp, maybe their loss will turn out to be a win for you in the end.

[Professor Disorientation]

It was a moment of clarification for me, followed by the realization to make that leap of faith to start the PP. I did it!

[MachineGhost]

Pain is a great teacher.

[Professor Disorientation]

Pain is especially noticeable when we are losing money.

[LC475]

Congratulations!  I hope it works well for you.  I am confident that, as long as you can quietly, boringly, stick with it for at least a few years (hopefully many, many more) it will.

Happy returns!

[Professor Disorientation]

Thank you for your kind welcome. I started my PP on Tuesday, and I am already showing a profitable portfolio. My trading costs are going down and my peace of mind is going way up. A win-win.

[MachineGhost]

Thank you for your kind welcome. I started my PP on Tuesday, and I am already showing a profitable portfolio. My trading costs are going down and my peace of mind is going way up. A win-win.

Just so you know, the worst case maximum drawdown for the PP historically was -25% nominal.  Forethought is foresight.

[dragoncar]

Thank you for your kind welcome. I started my PP on Tuesday, and I am already showing a profitable portfolio. My trading costs are going down and my peace of mind is going way up. A win-win.

Just so you know, the worst case maximum drawdown for the PP historically was -25% nominal.  Forethought is foresight.

Do you have any details on this?  I thought it was more like -18%

[stuper1]

Like any portfolio, the PP will have drawdowns, but it has always recovered faster than most portfolios.

[LC475]

Do you have any details on this?  I thought it was more like -18%

Since MG never answers questions like this:

The Permanent Portfolio, going back to the time of its invention about 40 years ago, has only had a few losing years and the worst was 1981 when it lost about 4%.

MG is talking about some quick and dirty back-tested results of how the Permanent Portfolio would have done, prior to its existence.  But not even that, not the actual PP.  He is using 10-year bond figures, for example.  So basically: this figure he has made up is bogus.

[MachineGhost]

The Permanent Portfolio, going back to the time of its invention about 40 years ago, has only had a few losing years and the worst was 1981 when it lost about 4%.

MG is talking about some quick and dirty back-tested results of how the Permanent Portfolio would have done, prior to its existence.  But not even that, not the actual PP.  He is using 10-year bond figures, for example.  So basically: this figure he has made up is bogus.

Oh, rubbish!  I've backtested the PP to 1968 (when gold started trading freely) with 30-year Treasuries.  -25% is the deal.  Take it or leave it.

Since I don't have dividend data from 1968 to 1972, there's a POSSIBILITY the nominal maximum drawdown is less than -25% by a few percent.

And the HBPP in its current incarnation only came into existence in 1987.  Anything before that is "bogus" as you put it.  Before 1987, the HBPP was more or less the PRPFX.

I don't answer it because I've already answered it MANY times.

[l82start]

it was my understanding that the 25% figure was real, but represented a short term loss < 1 year and that the yearly loss figures were more in line with a 4% to 6% range.. 

perhaps one of our number wizards could clarify or correct..

[MachineGhost]

it was my understanding that the 25% figure was real, but represented a short term loss < 1 year and that the yearly loss figures were more in line with a 4% to 6% range.. 

perhaps one of our number wizards could clarify or correct..

That year (1969) closed out around -8.8%.  So long as you don't watch the PP every day, you won't notice it.  That actually happened to me with one of my stock funds back in 2008.  I was cocky because it was hedged; well at the end of the year I was shocked to see it had a -25% maximum drawdown.  Since it was after the fact, it was less of a freakout than it would have been in real-time.  However, thats not what I consider acceptable portfolio performance, either for a hedged stock fund or the PP.  At least with the PP you know you have a high probability of making it back with 33% gain without relying on the bogus ingenuity of an Wall Street professional.

I don't actually know if a rebalancing band got hit that year; highly probable it was and highly probable it was also to difficult to rebalance if the entire portfolio was down -25% at that point.  Man up, people!

EDIT: Here's what happened more or less...

~Gold -16.91%
~SPY -13.88%
~TBonds -10.61%
~TBills 2.18%

It was discussed in "46 Years of the PP" what happened that year.  Basically, it was "tight money" as I recall.

Remember, I rebalance annually which is equivalent to 20%/30% bands so its a conservative risk accounting.  If you hit a rebalance band early in the year but don't check until December, its possible you can have a deeper maximum drawdown.  Also possible with 15%/35% since that only happens every 2-3 years.  But I doubt that scenario has happened....  yet.

[Reub]

Why do you rebalance annually?

[MachineGhost]

Why do you rebalance annually?

'cuz I can't figure out how to code up rebalancing bands.

[LC475]

The Permanent Portfolio, going back to the time of its invention about 40 years ago, has only had a few losing years and the worst was 1981 when it lost about 4%.

MG is talking about some quick and dirty back-tested results of how the Permanent Portfolio would have done, prior to its existence.  But not even that, not the actual PP.  He is using 10-year bond figures, for example.  So basically: this figure he has made up is bogus.

Oh, rubbish!

Didn't seem like rubbish to me.

  I've backtested the PP to 1968 (when gold started trading freely) with 30-year Treasuries.  -25% is the deal.  Take it or leave it.

I'll leave it.  I do not believe it.  I think that your 25% number is utterly bogus.  I think that you may be misremembering.

Feel free to provide the data proving your assertion.

[buddtholomew]

According to http://peaktotrough.com,  maximum draw-down for a 35/15 rebalanced portfolio was 18.36%. The PP was up approximately 12% in the month of January alone that year, so the losses are not as extreme when considered in context.

Max Drawdown 18.36% (1980-01-21 - 1980-03-27)

[Mark Leavy]

According to http://peaktotrough.com,  maximum draw-down for a 35/15 rebalanced portfolio was 18.36%. The PP was up approximately 12% in the month of January alone that year, so the losses are not as extreme when considered in context.

Max Drawdown 18.36% (1980-01-21 - 1980-03-27)

That seems about right to me.  Using daily data and varying the start date, I've seen it get close to 20% max DD.
You really need to wrap your mind around that if you plan on staying with the PP long term.  The other number that I think is important is the maximum number of days between peaks.  I don't have the data in front of me right now, but I think it was something like 18 months from peak to peak - even with the ~20% draw down.

Whenever I am evaluating any portfolio I look at the maximum DD and the maximum number of days to a new peak - using as much historical data as I can get my hands on.  I start to get really uncomfortable with more than 20% DD and 18 months between peaks.

[MachineGhost]

I'll leave it.  I do not believe it.  I think that your 25% number is utterly bogus.  I think that you may be misremembering.

Feel free to provide the data proving your assertion.

Okay!  It's your funeral...    http://gyroscopicinvesting.com/forum/pe ... /#msg97825

Just to be amuse everyone I've replicated Peak2Trough's results by always selling exactly on the last trading day of each year and buying on the first trading day of the new year: 7.67% CAR, -18.65% MaxDD. 

[img width=1024]http://i57.tinypic.com/2hygazc.png[/img]

So I reiterate, the longer you go before a rebalancing band being hit and you checking to see it has been hit, the bigger your potential MaxDD.  There is a turn of the month (year) effect that is consistently bullish that unfortunately aligns with strategies that exactly fall on the last/first day of the month (year).  That's why, as a rule, I don't generally align strategies to buy or sell on such days and sometimes don't even rebalance all assets on the exact same date.  This acts as a robustness check.

But hey, that's just my opinion...  I could be wrong.

[Reub]

Let's please be civil in here! MG deserves a LOT better!