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General Discussion on the Permanent Portfolio Strategy

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Cortopassi
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Post by Cortopassi » Thu Apr 30, 2015 9:11 am

Seem to be quite a lot of these days lately.  Looks like any 2015 gains I had are now gone.  Gold to the woodshed, yet again, even after another delay in rate hikes.  It can't win.
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Post by buddtholomew » Thu Apr 30, 2015 9:26 am

I am at a loss for words...this portfolio is very disappointing and it has trailed my 60/40 allocation substantially since 2009. No matter what anyone says, if gold sucks the PP sucks.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Post by dualstow » Thu Apr 30, 2015 10:04 am

After such a long run, I don't know how we can expect gold to do anything fantastic anytime soon. Best not to pay attention to these short term movements, regardless of whether they're up to 13xx or down to 11xx.

I just wish I had enough cash to buy more gold for the future.
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Post by iwealth » Thu Apr 30, 2015 10:09 am

Dollar is strong, commodities are weak, global deflation, US rate hikes around the corner, strong stock market, relative geopolitical calmness...gold being in the pits is about as surprising as the sun coming up in the morning.

The PP is supposed to be a "market agnostic" portfolio, but it doesn't mean the market itself is agnostic. The market very much so believes it can predict the future and it's saying no inflation or WW3 likely any time soon, so lay off the gold and enjoy the free money and rising equities.

And once you do that it'll be sure to promptly chop your manhood right off.
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Post by ochotona » Thu Apr 30, 2015 10:14 am

iwealth wrote: Dollar is strong, commodities are weak, global deflation, US rate hikes around the corner, strong stock market, relative geopolitical calmness...gold being in the pits is about as surprising as the sun coming up in the morning.

The PP is supposed to be a "market agnostic" portfolio, but it doesn't mean the market itself is agnostic. The market very much so believes it can predict the future and it's saying no inflation or WW3 likely any time soon, so lay off the gold and enjoy the free money and rising equities.

And once you do that it'll be sure to promptly chop your manhood right off.
I remember hearing / reading those housing bubble news stories during 2005-2006-2007 and thinking, "OMG this can't last".
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Post by dualstow » Thu Apr 30, 2015 11:03 am

iwealth wrote: And once you do that it'll be sure to promptly chop your manhood right off.
Are you watching the Bruce Jenner interview or something?  ;)
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Re: No where to hide

Post by KevinW » Thu Apr 30, 2015 11:27 am

Guys, we've been through this.

The PP is designed to achieve moderate returns, low volatility, and protect a portion of your wealth against a local economic collapse.

It is not designed to achieve high returns, go up every single day, or track a stock-heavy index allocation.

We're only 4 months into 2015. It's too early to give up on the year. One day's returns are irrelevant.

You can't expect a bicycle to work like a car or for chocolate ice cream to taste like strawberry. Likewise you can't expect the PP to perform to a standard different than the one to which it was designed. If you can't tolerate a one-day drawdown then you should probably be in a portfolio designed to prevent that, such as 100% cash or short term bonds. If you can't tolerate tracking error vs. a conventional portfolio then you should probably be in a conventional portfolio. Sorry, but that's how the cookie crumbles.
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Post by barrett » Thu Apr 30, 2015 11:35 am

Cortopassi wrote: ...Looks like any 2015 gains I had are now gone...
Yeah, as I have said a couple of times, with interest rates this low, even if we are expecting rolling real returns of 4% - 5%, we are likely to have more weeks, months & years with negative nominal PP returns. The real returns will just be clustered around a lower number and the portfolio is bound to feel as if it's going nowhere until (If? When?) some inflation kicks in. With inflation at 4% to 5% you would expect a CAGR of around 9% and that would mean doubling your money every 8 years. If there is no inflation and we use a real return of 4.5%, your money doubles in 16 years. Just a slow upward crawl with lots of ups and downs around that line of best fit. At least that is what I am hoping for.

For sure there is a better allocation going forward but I don't know what it is. But, yes, definitely a couple of crappy days and it's best not to be checking balances or attaching too much self worth to net worth (I have nothing against the latter in good times!). Chins up, I say.
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Re: No where to hide

Post by Ad Orientem » Thu Apr 30, 2015 1:30 pm

KevinW wrote: Guys, we've been through this.

The PP is designed to achieve moderate returns, low volatility, and protect a portion of your wealth against a local economic collapse.

It is not designed to achieve high returns, go up every single day, or track a stock-heavy index allocation.

We're only 4 months into 2015. It's too early to give up on the year. One day's returns are irrelevant.

You can't expect a bicycle to work like a car or for chocolate ice cream to taste like strawberry. Likewise you can't expect the PP to perform to a standard different than the one to which it was designed. If you can't tolerate a one-day drawdown then you should probably be in a portfolio designed to prevent that, such as 100% cash or short term bonds. If you can't tolerate tracking error vs. a conventional portfolio then you should probably be in a conventional portfolio. Sorry, but that's how the cookie crumbles.
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Re: No where to hide

Post by Cortopassi » Thu Apr 30, 2015 2:08 pm

I know, I know.  All I am doing is bitching.
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Re: No where to hide

Post by dragoncar » Thu Apr 30, 2015 2:28 pm

Cortopassi wrote: I know, I know.  All I am doing is bitching.
I find bitching is just a regular part of the PP.  It's really 20% stocks, 20% gold, 20% bonds, 20% cash, and 20% bitching.  Bitching is high right now so you probably need to rebalance out of it.
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Post by iwealth » Thu Apr 30, 2015 2:48 pm

dragoncar wrote:
Cortopassi wrote: I know, I know.  All I am doing is bitching.
I find bitching is just a regular part of the PP.  It's really 20% stocks, 20% gold, 20% bonds, 20% cash, and 20% bitching.  Bitching is high right now so you probably need to rebalance out of it.
Typically as a hedge one holds a high % of bitching when stocks are outperforming. Bitching allocations are then moderate to low when bonds are doing really well. And nobody holds any bitching whatsoever when gold is on a tear. People actually short bitching and buy more gold when this happens.
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Post by Cortopassi » Thu Apr 30, 2015 2:50 pm

;D ;D ;D

Thanks.  Best laugh of the day.
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Post by AdamA » Thu Apr 30, 2015 3:38 pm

dragoncar wrote: I find bitching is just a regular part of the PP.  It's really 20% stocks, 20% gold, 20% bonds, 20% cash, and 20% bitching.  Bitching is high right now so you probably need to rebalance out of it.
Good one.
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Post by Pet Hog » Thu Apr 30, 2015 4:28 pm

I just posted these numbers on the Bonds>"TLT Negative YTD" thread, but thought they might be of interest here, too.  The real yields over the last one, five, and ten years have all been greater than 5%.  This year has been slightly positive.  No cause for concern, yet, in my mind.
Pet Hog wrote: YTD returns (dividends reinvested; Dec 31, 2014 to Apr 30, 2015)
TLT: +0.63%
VTI: +2.27%
IAU: +0.00%
SHY: +0.62%
PP Total: +0.88% (+2.70% annualized)
Inflation: +0.56% (end Dec 2014 to end Mar 2015)
PP real: +0.32% (+0.98% annualized)

YOY returns (dividends reinvested; Apr 30, 2014 to Apr 30, 2015)
TLT: +16.57%
VTI: +12.72%
IAU: –8.48%
SHY: +0.82%
PP Total: +5.41%
Inflation: –0.40% (end Apr 2014 to end Mar 2015)
PP real: +5.81%
Pet Hog wrote: Five-year returns (dividends reinvested; Apr 30, 2010 to Apr 30, 2015)
TLT: +60.28%
VTI: +95.60%
IAU: –0.87%
SHY: +4.31%
PP Total: +39.83% (+6.94% annualized)
Inflation: +8.31% (end Apr 2010 to end Mar 2015; +1.61% annualized)
PP real: +5.33% annualized

Ten-year returns (dividends reinvested; Apr 30, 2005 to Apr 30, 2015)
TLT: +98.82%
VTI: +133.77%
IAU: +163.59%
SHY: +27.34%
PP Total: +105.88% (+7.49% annualized)
Inflation: +21.34% (end Apr 2005 to end Mar 2015; +1.95% annualized)
PP real: +5.54% annualized
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Re: No where to hide

Post by madbean » Thu Apr 30, 2015 5:53 pm

I discovered the secret last year.

Don't look.

I resolved to not look for one full year and when I did last February I had WAY more money than I thought I would.

I'm thinking maybe it's a quantum mechanics/Schrodinger's cat thing. Looking at it affects the outcome so just don't do it.
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Post by dualstow » Thu Apr 30, 2015 7:50 pm

Hmm, now I have to choose between not looking and bitching.
As the saying goes: if you don't look, you can't bitch.
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Post by sixdollars » Thu Apr 30, 2015 8:21 pm

dragoncar wrote:
Cortopassi wrote: I know, I know.  All I am doing is bitching.
I find bitching is just a regular part of the PP.  It's really 20% stocks, 20% gold, 20% bonds, 20% cash, and 20% bitching.  Bitching is high right now so you probably need to rebalance out of it.
Bitching sounds like a bad VP play, should just go 100% PP imo.

Everytime I hear someone complaining about the PP, this excerpt always comes to mind from William Bernstein.
And therein lies the real problem with the TPP: because of its huge tracking error relative to more conventional portfolios, it attracts assets and adherents during crises, then sheds them in better times. There?s nothing wrong with Harry?s portfolio?nothing at all?but there?s everything wrong with his followers, who seem, on average, to chase performance the way dogs chase cars.
"There’s nothing wrong with Harry’s portfolio—nothing at all—but there’s everything wrong with his followers, who seem, on average, to chase performance the way dogs chase cars."

-William J. Bernstein
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Post by barrett » Fri May 01, 2015 9:24 am

madbean wrote: I discovered the secret last year.

Don't look.

I resolved to not look for one full year and when I did last February I had WAY more money than I thought I would.

I'm thinking maybe it's a quantum mechanics/Schrodinger's cat thing. Looking at it affects the outcome so just don't do it.
Two days ago I wouldn't have understood the reference but came upon a reference to Schrodinger's thought experiment a couple of nights ago. Alas, I am old enough so that I may forget who Schrodinger was two days hence!

sixdollars, thanks for the reminder on the Bernstein quote. It is a great one.
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Re: No where to hide

Post by buddtholomew » Fri May 01, 2015 9:33 am

And the rout continues...rationalize all you want, but the bottom line is the portfolio is doing absolutely nothing but racking up losses.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Re: No where to hide

Post by Kbg » Fri May 01, 2015 9:39 am

buddtholomew wrote: And the rout continues...rationalize all you want, but the bottom line is the portfolio is doing absolutely nothing but racking up losses.
OK, I'll go here...by my tracking YTD

100% SPY: .88% return
PP: .39% return

Seriously...if you are going to freak out about .49% maybe this investing stuff isn't for you.
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Post by Pointedstick » Fri May 01, 2015 10:00 am

Kbg wrote:
buddtholomew wrote: And the rout continues...rationalize all you want, but the bottom line is the portfolio is doing absolutely nothing but racking up losses.
OK, I'll go here...by my tracking YTD

100% SPY: .88% return
PP: .39% return

Seriously...if you are going to freak out about .49% maybe this investing stuff isn't for you.
+1

Some of these criticisms border on the ridiculous. The YTD tracking error of PP vs SPY is practically a rounding error. If not the PP, then what? Stocks, bonds, and gold have all had a rough and choppy year so far. Nothing goes up all the time and sometimes everything treads water for a bit. If this kind of stuff bothers you, you should be in all cash or on whatever portfolio makes you feel better even if it may be riskier (100% stocks, 60/40, etc). Or maybe put some of your money towards anti-anxiety medication of counseling or something. All this worrying over nothing is likely far more detrimental to your finances than obsessing that your investment portfolio isn't doing as well as you'd like.
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Re: No where to hide

Post by Cortopassi » Fri May 01, 2015 10:13 am

I think the no looking is the best strategy, however, if people are like me, this is all tied into Quicken or some other financial program, so when I enter receipts from stores or other financial info, it is staring me right in the face, every single day, so it is something I need to/have learned to live with.

The optimistic view?  That all assets don't go down simultaneously and rebalancing lets me add to the laggards over the upcoming years.  That's the whole concept, right?

I have no better investment ideas or plans (outside of personal business ventures), so I stick with the PP.
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Post by Ad Orientem » Fri May 01, 2015 10:24 am

Pointedstick wrote:
Kbg wrote:
buddtholomew wrote: And the rout continues...rationalize all you want, but the bottom line is the portfolio is doing absolutely nothing but racking up losses.
OK, I'll go here...by my tracking YTD

100% SPY: .88% return
PP: .39% return

Seriously...if you are going to freak out about .49% maybe this investing stuff isn't for you.
+1

Some of these criticisms border on the ridiculous. The YTD tracking error of PP vs SPY is practically a rounding error. If not the PP, then what? Stocks, bonds, and gold have all had a rough and choppy year so far. Nothing goes up all the time and sometimes everything treads water for a bit. If this kind of stuff bothers you, you should be in all cash or on whatever portfolio makes you feel better even if it may be riskier (100% stocks, 60/40, etc). Or maybe put some of your money towards anti-anxiety medication of counseling or something. All this worrying over nothing is likely far more detrimental to your finances than obsessing that your investment portfolio isn't doing as well as you'd like.
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Re: No where to hide

Post by buddtholomew » Fri May 01, 2015 10:24 am

Under what circumstances does the PP produce a satisfactory return? The portfolio has been lagging a conventional allocation since 2009, correct? If it declines when equities rise and declines when equities fall, what am I missing?

Keep in mind that I am comparing the PP to my BH portfolio. The latter is beating the pants off the PP year after year. Do we need another financial crisis or inflation at 10% for the PP to return to its historical 7-9% nominal return?
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