PSA: I now have a 3-year period with no gains

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dragoncar
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PSA: I now have a 3-year period with no gains

Post by dragoncar » Wed Aug 26, 2015 2:33 pm

I started investing in the PP in mid-2011.  My gains are now equal to those I saw in August, 2012.  In other words, I haven't made any money in the PP in three years.

The caveat is that I've been regularly and aggressively contributing to the PP.  So my early gains in 2011/2012 were small as a percent of my current total portfolio value.  Losses in 2015 are applied to a much higher portfolio value.  Hopefully that makes sense.

Overall, not super happy with this portfolio.  I might try to move out of it by continually rebalancing into stocks but never rebalancing out of stocks until my allocation is more boglehead like.
Last edited by dragoncar on Wed Aug 26, 2015 2:34 pm, edited 1 time in total.
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Tyler
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Re: PSA: I now have a 3-year period with no gains

Post by Tyler » Wed Aug 26, 2015 2:49 pm

I appreciate that you are patient and not immediately moving your money around.  That's a good attitude.

Just be warned that if the reason you want to switch is that three down years bothers you, Bogleheads portfolios can do that for a decade or more.  If that's your pressure point, be sure you know what you're getting into and don't be tempted by recency bias.
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dragoncar
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Re: PSA: I now have a 3-year period with no gains

Post by dragoncar » Wed Aug 26, 2015 3:36 pm

Tyler wrote: I appreciate that you are patient and not immediately moving your money around.  That's a good attitude.

Just be warned that if the reason you want to switch is that three down years bothers you, Bogleheads portfolios can do that for a decade or more.  If that's your pressure point, be sure you know what you're getting into and don't be tempted by recency bias.
I know that objectively the PP has had a lower Sharpe ratio than, say, 75/25, but subjectively it feels like I'm not getting returns to justify the risks.  For me, it seems that volatility "saturates" -- as long as I'm losing thousands in a day, it doesn't matter much to me exactly how many thousands they are -- I have the same level of anxiety.  If I'm going to be anxious anyways, might as well go with something that I expect to give higher returns in the long run.

I haven't made up my mind, but the "three year negative returns" rule has been tossed around as a time take a critical look at the portfolio.  I know my particular DCA path is different (worse) from a lump-sum B&H PP starting at the same time, but I've been putting this off until the three year mark.
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buddtholomew
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Re: PSA: I now have a 3-year period with no gains

Post by buddtholomew » Wed Aug 26, 2015 3:49 pm

Bingo! Welcome to what I have been feeling all along...too bad I get berated for it. Hopefully you have more success than me.

This is how the last week has played out:

Stocks plunge, gold and treasuries are flat.
Stocks plunge again, gold and treasuries decline.
Stocks rally, gold and treasuries get demolished.

See the pattern? I know...its only a week, blah, blah, blah. Same crap, different day. Been that way since 2011.

The only time the PP will shine is if we encounter SIGNIFICANT inflation and GOLD responds (certainly questionable). Other than that, you are underweight equities and overweight fixed income at historically low yields and it shows. I would be down again today with a 600 point rally if I didn't buy equity on Monday.
Last edited by buddtholomew on Wed Aug 26, 2015 3:56 pm, edited 1 time in total.
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Re: PSA: I now have a 3-year period with no gains

Post by Pointedstick » Wed Aug 26, 2015 3:56 pm

Budd, I berate you for complaining about something that you want to change, and have the power to change, but choose not to change for reasons that still nobody understands. For what it's worth, my PP has had similarly lousy performance over the same time period and I feel similar things. The three-year-no-gains line is here. My current line of thinking is to move into a more Desert-like allocation (overweight stocks and underweight gold) during the next stock crash.

That said, this has been a rough year for everyone so far. We may be in one of those periods where everything does poorly or treads water. Even though I haven't made any gains, it's comforting not to be worrying about when the bottom of the market is going to drop out and all hell breaks loose. It feels like we're nearing that point.
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Tyler
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Re: PSA: I now have a 3-year period with no gains

Post by Tyler » Wed Aug 26, 2015 3:58 pm

It's normal to dislike volatility but also to want higher returns.  Just be sure you're looking at the right numbers and not simply assuming that volatility is always rewarded with higher compound returns.  It's a common misconception.  Copying one of my comments from another thread because it's relevant here:
As an example, the average real return of the PP since 1972 is about 1% less per year than a 60-40 portfolio.  But the compound real return that you'd actually experience in real-life dollars is virtually identical (within the range of fund expense ratio differences).  The 40% less volatility in the PP makes up the difference mathematically.  People like to say "higher risk, higher reward" but that isn't always the case. 
Everyone should reevaluate their plan periodically.  That's a very healthy thing to do.  Just make sure you're being realistic about any direct comparisons. 
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buddtholomew
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Re: PSA: I now have a 3-year period with no gains

Post by buddtholomew » Wed Aug 26, 2015 4:14 pm

Pointedstick wrote: Budd, I berate you for complaining about something that you want to change, and have the power to change, but choose not to change for reasons that still nobody understands. For what it's worth, my PP has had similarly lousy performance over the same time period and I feel similar things. The three-year-no-gains line is here. My current line of thinking is to move into a more Desert-like allocation (overweight stocks and underweight gold) during the next stock crash.

That said, this has been a rough year for everyone so far. We may be in one of those periods where everything does poorly or treads water. Even though I haven't made any gains, it's comforting not to be worrying about when the bottom of the market is going to drop out and all hell breaks loose. It feels like we're nearing that point.
The problem is "everything is not doing poorly", only the PP. You gave up returns from 2011-2015 invested in this allocation while telling everyone how great it was. Now that you realize in 3 years you have no gains, you choose to switch to another portfolio. I'll let dragoncar speak his mind and won't hijack this thread.
Last edited by buddtholomew on Wed Aug 26, 2015 4:17 pm, edited 1 time in total.
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Re: PSA: I now have a 3-year period with no gains

Post by Pointedstick » Wed Aug 26, 2015 4:33 pm

buddtholomew wrote: The problem is "everything is not doing poorly", only the PP. You gave up returns from 2011-2015 invested in this allocation while telling everyone how great it was. Now that you realize in 3 years you have no gains, you choose to switch to another portfolio. I'll let dragoncar speak his mind and won't hijack this thread.
Everything has been doing poorly this year; that's what I was referring to. Last year the PP did great. But you're right, and hindsight's a bitch. However, I refuse to dwell on a past I can't change. The portfolio seemed like a great idea and I certainly haven't lost anything--just given up hypothetical gains, which is both different and constant; you're always giving up gains you didn't know at the time you could receive if you had done something different. What's changed is that I've realized is that I can tolerate more volatility than I thought I could and I like stocks more than I thought I did. For many years, I've kept separate stock-heavy portfolios in other accounts that I couldn't make into a PP and the volatility in them hasn't really upset me. I think investing in assets you like and minimizing assets you don't is more important than we've all thought, because the assets you hate are the ones that make you question your plan at the worst possible time, and the ones you love are the ones whose wild rides you're more easily able to tolerate.

What I plan to move into is still pretty PP-like, with more gold than average and a lot of bonds, and, in terms of backtests, not much more volatility at all. And I plan to wait for a while to implement it. I'm not selling right now.
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Re: PSA: I now have a 3-year period with no gains

Post by mathjak107 » Wed Aug 26, 2015 4:59 pm

there is never a perfect plan .

when i abandoned the pp idea for my own model within days equty's crapped the bed .

then of course you say gee maybe the permanent portfolio is not such a bad thing .

then you see how easily stocks can roar back and watch the pp get clobbered and i go good choice .

there is never a time what you own will be the answer  .

if low volatility is your goal then realize low volatility is no guarantee of performance .

on the other hand if gains are your criteria then you have to live with the volatility . positive returns though are not guaranteed in either case .

my own preference has always been equity  heavier  since in my investing time frame stock cycles have been shorter than commodity and interest rate cycles .
Last edited by mathjak107 on Wed Aug 26, 2015 5:02 pm, edited 1 time in total.
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buddtholomew
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Re: PSA: I now have a 3-year period with no gains

Post by buddtholomew » Wed Aug 26, 2015 5:35 pm

mathjak107 wrote: if low volatility is your goal then realize low volatility is no guarantee of performance .
...stock cycles have been shorter than commodity and interest rate cycles.
Two excellent points in my opinion.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Re: PSA: I now have a 3-year period with no gains

Post by ozzy » Wed Aug 26, 2015 5:50 pm

Pointedstick wrote: I think investing in assets you like and minimizing assets you don't is more important than we've all thought, because the assets you hate are the ones that make you question your plan at the worst possible time, and the ones you love are the ones whose wild rides you're more easily able to tolerate.

Very well said PointedStick.  In my opinion the PP is a "framework".  And as long as each person owns all the asset classes in the portions they’re comfortable with, that’s the best assurance they won’t change course during rough seas.

For example, I’m in the accumulation phase, and I like being overweight is stocks.  So whenever there is a stock market dip, I'm a buyer. 

FYI - On Monday I placed market orders for IJR and IJH shortly after the open, and noticed my broker took a very long time to fill them (like 15min).  I believe there were temporary problems with the exchanges.  They ended up filling near the bottom (I got lucky) and now my IJR position up +32% in 3 days!  The fastest gain I've ever seen in my life! 
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Re: PSA: I now have a 3-year period with no gains

Post by drumminj » Wed Aug 26, 2015 6:07 pm

buddtholomew wrote: The problem is "everything is not doing poorly", only the PP. You gave up returns from 2011-2015 invested in this allocation while telling everyone how great it was.
From what I've seen (as a lurker for months), PS and others have been very good about being balanced with their opinions and qualifying them.  I've not seen anyone say "the PP is the bestest, no downsides, everyone should allocate this way!".  Instead, I've seen discussions of the tradeoffs, and often acknowledgements of what you're giving up when adopting the PP.

All we can do is choose the portfolio we think best aligns with our goals (growth, preservation, low-volatility, etc) and hope things work out the way we want. But we each individually make our choice.
Last edited by drumminj on Wed Aug 26, 2015 6:11 pm, edited 1 time in total.
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