mathjak107 wrote:
rickb wrote:
mathjak107 wrote:
especially when they are weighted with as much riding on the most likely outcome as the most remote outcome . those are bernsteins words not mine .
Bernstein's words from where? Apparently not here
http://www.efficientfrontier.com/ef/0adhoc/harry.htm
his book deep risk
I haven't read it. It sounds like he's perhaps changed his mind. In his "Wild about Harry" article he says "Diversifying asset classes, as Harry Browne knew well, can benefit a portfolio. The secret is deploying them before those diversifying assets shoot the lights out. "
I think the real question may be what goal are you trying to achieve?
If you're interested in maximizing long term gain (over a period of decades) and can stomach 50% (or more) drops along the way (and are willing to ignore low probability black swans that can completely wipe you out), 100% stocks is likely the way to go.
If you're interested in minimizing drawdowns and preserving a substantial portion of your wealth in virtually any condition (including some very rare events like total currency collapse) at the expense of giving up some growth, the PP is difficult to beat.
There's definitely a tradeoff, and I suspect Harry was well aware. The more gold you hold, the better off you'll be in SHTF scenarios. But these are very rare. Well, not so rare that it's unthinkable that you'll run into one in your lifetime. If your gold allocation matches the likelihood of a SHTF scenario, you'd probably only allocate 1% or so - but this isn't enough to preserve a substantial portion of your wealth.
Would you be OK if your house insurance only paid you 1% of the value of your house if it burned down?
The problem is you can't buy "black swan" insurance. The PP provides this through its substantial allocation to gold (which also serves to provide at least some inflation and deflation protection as well).
Imagine what your portfolio value would be if a nuclear bomb went off in NYC. Is this likely? No. Is it possible? I think Buffett has said it's inevitable.
This is only one of many black swans that are out there.
What I hear you saying is that you're willing to bet EVERYTHING that none of these will happen in your lifetime and that you'd rather have an extra 1-2% CAGR (and the wild swings in value, up and down) of a much more stock heavy portfolio.
My guess is most folks here are willing to give up 1-2% CAGR in return for avoiding the wild swings and gaining the black swan protection.