Is The PP Good For Investing?

General Discussion on the Permanent Portfolio Strategy

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MediumTex
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Is The PP Good For Investing?

Post by MediumTex » Wed Jan 07, 2015 6:08 pm

I heard about the PP a while back and it sounded interesting.

I am aware of a recent book that seems to present many of Harry Browne's ideas in an updated way.

What I'm not sure about is whether the strategy is actually going to continue working.

I am very concerned about the stock market.  It seems very overvalued at current levels.

I am also very concerned about long term treasuries.  Yields seem very low and I am concerned that they will begin rising soon, which will be very bad for long term bond holders.

It also bothers me a lot to put so much of my allocation into "cash" which yields basically nothing, but generates a loss every day that inflation chips away at its real value.

Finally, gold seems like an asset that's just dead in the water.  The secular bull market technicals have all been destroyed and now its just floundering, and I'm pretty sure the falling price of oil is going to be providing downward pressure on the price of gold as well going forward.

All in all, the PP is intriguing, but it just seems a bit farfetched overall.  I have an open mind, but I also have common sense. 

Can someone help me get more comfortable with the idea of the PP?  There seem to be a lot of smart and well-informed people here at this interesting forum.

Thanks in advance.
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Re: Is The PP Good For Investing?

Post by pugchief » Wed Jan 07, 2015 6:11 pm

Welcome back MT! You have been dearly missed.
Last edited by pugchief on Sat Jan 10, 2015 7:05 am, edited 1 time in total.
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Re: Is The PP Good For Investing?

Post by MediumTex » Wed Jan 07, 2015 6:26 pm

I decided to have the neural pathways in my mind reconfigured to follow a more logical course, and it took a little longer than I thought it would to get that project wrapped up.

So what did I miss?

Lots of interesting stuff I imagine.
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Re: Is The PP Good For Investing?

Post by KevinW » Wed Jan 07, 2015 7:06 pm

Glad to have you back!
MediumTex wrote: So what did I miss?
Actually it's been notably quiet. I think a lot of people lost interest in the PP in 2013.
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Re: Is The PP Good For Investing?

Post by Pointedstick » Wed Jan 07, 2015 7:42 pm

MediumTex wrote: I decided to have the neural pathways in my mind reconfigured to follow a more logical course, and it took a little longer than I thought it would to get that project wrapped up.
Welcome back, TexCutus of Borg. ;)
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Re: Is The PP Good For Investing?

Post by pugchief » Wed Jan 07, 2015 7:45 pm

MediumTex wrote:
So what did I miss?
Approximately 97 pages in the Figuring Out Religion thread. Oh, and nothing's been figured out.  ::)
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Re: Is The PP Good For Investing?

Post by sophie » Wed Jan 07, 2015 10:03 pm

You had me going there for a while!!

Nice to see you back.  Your perspectives and literary turns have been much missed.
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Re: Is The PP Good For Investing?

Post by MachineGhost » Thu Jan 08, 2015 12:41 am

pugchief wrote: Approximately 97 pages in the Figuring Out Religion thread. Oh, and nothing's been figured out.  ::)
Speak for yourself!

I can actually think of several weaknesses that the PP hasn't been battle-tested under, but I don't want to be a party pooper.
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Re: Is The PP Good For Investing?

Post by MediumTex » Thu Jan 08, 2015 12:56 am

MachineGhost wrote:
pugchief wrote: Approximately 97 pages in the Figuring Out Religion thread. Oh, and nothing's been figured out.  ::)
Speak for yourself!

I can actually think of several weaknesses that the PP hasn't been battle-tested under, but I don't want to be a party pooper.
The PP should always be compared to other available strategies when thinking about the extent to which it is truly an "all-weather, all-season, battle-tested" portfolio.

In truth, of course, the PP is very fragile, it just happens to be much less fragile than almost anything else that can provide an investor with a consistently positive real rate of return with low volatility.

I continue to think that the biggest risk to almost any PP investor is a state of sustained prosperity because that little 4-5% real PP return can get pretty boring when the stock market is providing double that seemingly without much effort or risk.
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Re: Is The PP Good For Investing?

Post by MachineGhost » Thu Jan 08, 2015 1:50 am

MediumTex wrote: The PP should always be compared to other available strategies when thinking about the extent to which it is truly an "all-weather, all-season, battle-tested" portfolio.
That's a good point.  I'm concerned about the fragility of the PP and how to better make it anti-fragile.  Dalio's All Weather portfolio actually sucks compared to the PP.  There is nothing better than the PP... any enhancement you can make is merely tactical adjustments or tilting.
In truth, of course, the PP is very fragile, it just happens to be much less fragile than almost anything else that can provide an investor with a consistently positive real rate of return with low volatility.
Do you really believe a 25% MaxDD is "low volatility"?  Don't fall victim to recency bias.
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Re: Is The PP Good For Investing?

Post by MediumTex » Thu Jan 08, 2015 2:03 am

MachineGhost wrote: Do you really believe a 25% MaxDD is "low volatility"?  Don't fall victim to recency bias.
That occurred once in the 42 year data set, right?  As I recall, it was in the early 1980s when almost all investments were doing very poorly. 

I don't like the idea of a 25% draw down, but when I look at the entire 40+ year history I am comfortable with the level of risk and volatility.  I feel like I am an informed consumer when it comes to the PP.

Don't let the perfect be the enemy of the good comes to mind.

As I recall, there has never been a 36 month period in the history of the PP where a PP investor would have lost money, even if he bought at a peak.

If a PP investor with a time horizon of less than 36 months saw the Fed begin to aggressively raise interest rates in the middle of a recession, then it might make sense to consider something safer until the markets stabilized.

The problem is that PP tinkering almost always leads to regret unless one is a highly skilled investor, and even highly skilled investors often get it wrong when they start rearranging things.

But you're right, the PP is low volatility most of the time, but occasionally it has encountered turbulence that has taken up to 36 months to fully absorb.

Bad things can happen.  The world is uncertain.  All we can do is hedge our bets as best we can without becoming so conservative that we make it impossible to get consistently positive real returns.
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Re: Is The PP Good For Investing?

Post by MachineGhost » Thu Jan 08, 2015 2:14 am

MediumTex wrote: That occurred once in the 42 year data set, right?  As I recall, it was in the early 1980s when almost all investments were doing very poorly. 
Once in the 46-year data set and in 1969.  You're a bit behind. ;)

Forgive me, but maybe you can grit your teeth and bear it knowing that the PP most likely overcome it within 3 years, but considering how empty the forum was in 2013 with a tiny loss...  I think such a MaxDD again will turn the forum into a ghost town.

There is at least one scenario where the PP may not recover in 3 years.  That is when the economy and equites disconnect.  HB made an implicit assumption that equities always follows economic growth, but history shows that to be otherwise.  I'm thinking of the 1960's in particular here.  It didn't last that long but the point is it could happen again.  For that reason, I'm not 100% in equities to be exposed to Prosperity (and it certainly doesn't hurt that equities are not currently priced to deliver satisfactory long-term returns over the next 8+ years).
Last edited by MachineGhost on Thu Jan 08, 2015 2:28 am, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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