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

[dualstow]

60 may be the new 40 but 9pm is the new midnight .

[kka]

That's kinda what spurred my post to begin with.  From when mediumtex said "A rolling three year period of negative returns would make me open up the hood and take a look."  We are nearing that point.

2014 returned like 12% on the PP.  Where are you getting this 3-year period of negative returns?

We are getting close -- 1.5% CAGR over the last 36 months.  Slightly positive nominally but 0 real return.  I'd be curious to know if MT has looked under the hood yet and what he sees.




MT's simpler alternative of 90% PRPFX + 10% EDV has gone literally nowhere on a nominal basis for 4 years.




I wavered for a short time, but I'm glad that I ultimately stuck with a BH portfolio.  PP is good for maintaining wealth (although if you're really risk averse, a CD ladder will probably do almost as well) but not for growing it.  A good long-term comparison would be PRPFX vs. Wellington.  PP no longer follows PRPFX exactly, but that is the original formulation and it's a good approximation.  Wellington is actively managed but low cost, low turnover, and has been around along time, so it makes a good 60/40 BH proxy.  I'll accept double the volatility for 2% or 3% higher CAGR, otherwise I'll be working until I'm 80.

[Tyler]

A good long-term comparison would be PRPFX vs. Wellington.  PP no longer follows PRPFX exactly, but that is the original formulation and it's a good approximation.  Wellington is actively managed but low cost, low turnover, and has been around along time, so it makes a good 60/40 BH proxy.  I'll accept double the volatility for 2% or 3% higher CAGR, otherwise I'll be working until I'm 80.

Since 1972, the real CAGR of the HBPP is 5.0%.  For Wellington, it's 5.9%.  Perhaps you'd trade the nearly double volatility for an additional 2-3%.  But for less than 1%?  That's still up to you, but it's not as big a difference as you think.

Like all stock-heavy portfolios, VWELX made its name in the 80's and 90's and looks great since 2009.  The PP beat it in the 70's and 2000's and was generally more consistent throughout.

[kka]

A good long-term comparison would be PRPFX vs. Wellington.  PP no longer follows PRPFX exactly, but that is the original formulation and it's a good approximation.  Wellington is actively managed but low cost, low turnover, and has been around along time, so it makes a good 60/40 BH proxy.  I'll accept double the volatility for 2% or 3% higher CAGR, otherwise I'll be working until I'm 80.

Since 1972, the real CAGR of the HBPP is 5.0%.  For Wellington, it's 5.9%.  Perhaps you'd trade the nearly double volatility for an additional 2-3%.  But for less than 1%?  That's still up to you, but it's not as big a difference as you think.

Like all stock-heavy portfolios, VWELX made its name in the 80's and 90's and looks great since 2009.  The PP beat it in the 70's and 2000's and was generally more consistent throughout.

Since 1975, it's almost 3% CAGR difference.  I don't think we can count on gold quadrupling again in just a few years like it did after the gold window was closed.

[dragoncar]

That's kinda what spurred my post to begin with.  From when mediumtex said "A rolling three year period of negative returns would make me open up the hood and take a look."  We are nearing that point.

2014 returned like 12% on the PP.  Where are you getting this 3-year period of negative returns?

http://gyroscopicinvesting.com/forum/pe ... #msg128483

[MediumTex]

A good long-term comparison would be PRPFX vs. Wellington.  PP no longer follows PRPFX exactly, but that is the original formulation and it's a good approximation.  Wellington is actively managed but low cost, low turnover, and has been around along time, so it makes a good 60/40 BH proxy.  I'll accept double the volatility for 2% or 3% higher CAGR, otherwise I'll be working until I'm 80.

Since 1972, the real CAGR of the HBPP is 5.0%.  For Wellington, it's 5.9%.  Perhaps you'd trade the nearly double volatility for an additional 2-3%.  But for less than 1%?  That's still up to you, but it's not as big a difference as you think.

Like all stock-heavy portfolios, VWELX made its name in the 80's and 90's and looks great since 2009.  The PP beat it in the 70's and 2000's and was generally more consistent throughout.

Since 1975, it's almost 3% CAGR difference.  I don't think we can count on gold quadrupling again in just a few years like it did after the gold window was closed.

Even at today's price levels, gold has quadrupled from where it was in 2000.

[AdamA]

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.

Don't you see where that logic is flawed, though? 

That doesn't mean the PP has had 3 consecutive negative years, just that you put a large sum of money in during a period in which it took a loss.

[sixdollars]

bernsteins opinions and theory's change way to fast himself ,  he changes them far to much to take anything he says  for more than the moment .

first he was big on retiree's investing through retirement  using equity's  and bonds for their income ,  then he switched sides in his book the age of the investor .  now it was short term bonds , tips and a longevity annuity , equity's were only if you had extra money to inveast after essential expenses were covered  .  then he re-canted that  strategy for now  after another researcher pointed out that rates are just to damn low to make that an option .

i don't take bernstein's opinion on anything for more than the thought in his head at the moment .

It is only natural to change your thoughts when presented with convincing contradictory evidence.  I don't know enough about Bernstein personally, so I'll reserve my judgment.  In any case, what Bernstein said that I have quoted was only an observation.  To me it seems that this observation still holds as evidenced by this very thread.  Even if that is a reason to not believe much of what Bernstein says, I would still say that there's no need to throw the baby out with the bathwater...

[rocketdog]

Pardon the intrusion, but I didn't have time to read all 17 pages of posts in this thread.  I dusted off my PP historical performance spreadsheet and wanted to share some food for thought.  (Note:  the numbers below assume you bought a PP on 1/1 of each year and held it without rebalancing until 1/1 of the following year, at which point you rebalanced to 4x25%):

The worst 3-year performance for the PP was 1999-2001, when it returned a total of 7.8%, or 2.6% annually.
The worst 4-year performance for the PP was 1999-2002, when it returned a total of 14.9%, or 3.8% annually.
The worst 5-year performance for the PP was 1998-2002, when it returned a total of 25.9%, or 5.2% annually. 

Notice that the longer you hold the PP, the more it stabilizes.  As of 12/31/2014 (the most recent full calendar year of PP performance we have), here are the numbers:

3-year performance from 2012-2014 = 13.5%, or 4.5% annually.
4-year performance from 2011-2014 = 24.0%, or 6% annually.
5-year performance from 2010-2014 = 38.5%, or 7.7% annually. 

As you can see, the PP as of 12/31/2014 is still far from experiencing the worst 3, 4, or 5-year period on record.  Again, the longer you hold the PP, the more it stabilizes. 

In fact, in order for the PP to become the worst performer over 3, 4, and 5-year periods as of the end of this year (12/31/2015), the PP would need to provide a dismal 1% return this year.  Is that possible?  Most certainly.  Would you abandon the PP at that point?  If so, consider this...

After the PP experienced its worst 3, 4, and 5-year periods as shown above, its performance steadily improved over the next 5 years.  By 2007, it had rebounded to a 5-year total return (2003-2007) of 52.3%, or 10.5% annually over those 5 years. 

In other words, don't buy high and sell low.  I'm certainly not, although I will admit that I only hold about 40% of my portfolio in a PP, simply because I don't like to put all my eggs in one basket (or in this case, investing strategy).  I treat my PP as the low-volatility portion of my portfolio, almost as if it were a low-volatility bond.  The rest (my VP) I keep in stocks, commodities, and REITs. 

Stick with your plan, and assuming you're a long-term investor don't sweat the short-term gyrations.  As Keynes once said, "The market can stay irrational longer than you can stay solvent."

[mathjak107]

if i remember correctly the idea for the pp didn't exist in 1975 .    which also happened to be its best run years  but it didn't exist . to be fair tracking it  before it existed is really not the way to track things ..

[Tyler]

if i remember correctly the idea for the pp didn't exist in 1975 .    which also happened to be its best run years  but it didn't exist . to be fair tracking it  before it existed is really not the way to track things ..

Well the first S&P500 index fund was established in 1973.  Surely you believe tracking that index before it existed (in any form accessible to normal people) is also a waste of time. 

[mathjak107]

That's kinda what spurred my post to begin with.  From when mediumtex said "A rolling three year period of negative returns would make me open up the hood and take a look."  We are nearing that point.

2014 returned like 12% on the PP.  Where are you getting this 3-year period of negative returns?

We are getting close -- 1.5% CAGR over the last 36 months.  Slightly positive nominally but 0 real return.  I'd be curious to know if MT has looked under the hood yet and what he sees.




MT's simpler alternative of 90% PRPFX + 10% EDV has gone literally nowhere on a nominal basis for 4 years.




I wavered for a short time, but I'm glad that I ultimately stuck with a BH portfolio.  PP is good for maintaining wealth (although if you're really risk averse, a CD ladder will probably do almost as well) but not for growing it.  A good long-term comparison would be PRPFX vs. Wellington.  PP no longer follows PRPFX exactly, but that is the original formulation and it's a good approximation.  Wellington is actively managed but low cost, low turnover, and has been around along time, so it makes a good 60/40 BH proxy.  I'll accept double the volatility for 2% or 3% higher CAGR, otherwise I'll be working until I'm 80.

the interesting part to me would be the comparison of the recovery , both in speed and magnitude .

[mathjak107]

if i remember correctly the idea for the pp didn't exist in 1975 .    which also happened to be its best run years  but it didn't exist . to be fair tracking it  before it existed is really not the way to track things ..

Well the first S&P500 index fund was established in 1973.  Surely you believe tracking that index before it existed (in any form accessible to normal people) is also a waste of time. 

the pp to me is different , it is a concept like a fund would be that used unconventional investing methods .  anyone could have bought the s&p 500 stocks as they dominated just about any large cap fund back then  but no one could really buy the pp concept since it wasn't out yet to the public .  first index trust came out in 1976 .

the pp wasn't really out there  in its current form until much later .

[dragoncar]

Pardon the intrusion, but I didn't have time to read all 17 pages of posts in this thread.  I dusted off my PP historical performance spreadsheet and wanted to share some food for thought.  (Note:  the numbers below assume you bought a PP on 1/1 of each year and held it without rebalancing until 1/1 of the following year, at which point you rebalanced to 4x25%):

The worst 3-year performance for the PP was 1999-2001, when it returned a total of 7.8%, or 2.6% annually.
The worst 4-year performance for the PP was 1999-2002, when it returned a total of 14.9%, or 3.8% annually.
The worst 5-year performance for the PP was 1998-2002, when it returned a total of 25.9%, or 5.2% annually. 

Notice that the longer you hold the PP, the more it stabilizes.  As of 12/31/2014 (the most recent full calendar year of PP performance we have), here are the numbers:

3-year performance from 2012-2014 = 13.5%, or 4.5% annually.
4-year performance from 2011-2014 = 24.0%, or 6% annually.
5-year performance from 2010-2014 = 38.5%, or 7.7% annually. 

As you can see, the PP as of 12/31/2014 is still far from experiencing the worst 3, 4, or 5-year period on record.  Again, the longer you hold the PP, the more it stabilizes. 

In fact, in order for the PP to become the worst performer over 3, 4, and 5-year periods as of the end of this year (12/31/2015), the PP would need to provide a dismal 1% return this year.  Is that possible?  Most certainly.  Would you abandon the PP at that point?  If so, consider this...

After the PP experienced its worst 3, 4, and 5-year periods as shown above, its performance steadily improved over the next 5 years.  By 2007, it had rebounded to a 5-year total return (2003-2007) of 52.3%, or 10.5% annually over those 5 years. 

In other words, don't buy high and sell low.  I'm certainly not, although I will admit that I only hold about 40% of my portfolio in a PP, simply because I don't like to put all my eggs in one basket (or in this case, investing strategy).  I treat my PP as the low-volatility portion of my portfolio, almost as if it were a low-volatility bond.  The rest (my VP) I keep in stocks, commodities, and REITs. 

Stick with your plan, and assuming you're a long-term investor don't sweat the short-term gyrations.  As Keynes once said, "The market can stay irrational longer than you can stay solvent."

I don't think you can ignore 2015 in this analysis

[kka]

Since 1975, it's almost 3% CAGR difference.  I don't think we can count on gold quadrupling again in just a few years like it did after the gold window was closed.

Even at today's price levels, gold has quadrupled from where it was in 2000.

True, but it took more than a few years and was after a 20-year period where it lost 3% CAGR nominal.  After the next one of those will be a great time to buy gold (maybe around 2030).  It does seem that the PP lives and dies by what gold does.

[MediumTex]

Since 1975, it's almost 3% CAGR difference.  I don't think we can count on gold quadrupling again in just a few years like it did after the gold window was closed.

Even at today's price levels, gold has quadrupled from where it was in 2000.

True, but it took more than a few years and was after a 20-year period where it lost 3% CAGR nominal.  After the next one of those will be a great time to buy gold (maybe around 2030).  It does seem that the PP lives and dies by what gold does.

The PP performed pretty close to its 40 year average during gold's 20 year bear market, so I wonder if gold's performance really determines the direction of the whole portfolio.

I would say that the gold in the PP provides you with the type of volatility you need under certain economic conditions and leave it at that.

[jay]

Up until Sep 2012, i.e. exactly 3 years ago today:

3-yr CAGR (Sep 10, 2009 - Sep 10, 2012): 12.83%
5-yr CAGR (Sep 10, 2007 - Sep 10, 2012): 10.06%
10-yr CAGR (Sep 10, 2002 - Sep 10, 2012): 9.65%
20-yr CAGR (Sep 10, 1992 - Sep 10, 2012): 8.33%

*Source: http://www.peaktotrough.com, 35/15 rebal bands, 3-yr treasuries for cash, divvies going to cash.

Now consider the following scenario: If one started in Jan 2, 1997 (18.70 years ago), $10,000 would've grown at 7.21% to $36,776 (using same settings as above). Let's assume the PP stayed flat until the end of next year, i.e. to complete a 20-yr period.

3-yr CAGR would fall to ~2.82%
5-yr CAGR to ~2.21%
10-yr CAGR to ~6%
20-yr CAGR to ~6.73%

And that is still quite a possibility. No? In such a low interest env, the PP has done quite well in the last 3/5 years and I think it is doing a bit of mean reversion.

In fact, it would take another 5% drop from here (i.e. PP ending 2016 with value $35,000) so that the 10-yr CAGR would fall to 5.5%, which would make a great entry point.

I started the PP 3.5 years ago and I barely made any money. And I am not expecting much from it in the next 1-2 years. The main question remains: what is a better alternative at this point?

[mathjak107]

what may be a better alternative  ?

well at the risk of sounding like a broken record i think a conventional portfolio with short to intermediate term bonds would likely be the best choice at least for the next few years . less emphases on interest rate risk and gold .

[stuper1]

at the risk of sounding like a broken record

That gets my vote for understatement of the year.

I think we've got your point by now.  You'd accomplish a lot more good in the investing world by focusing your energies on the much larger group of people who are doing stupid things like wasting their money on market timing, high expense-ratio mutual funds, etc.  Us PP people just happen to have a different philosophy than you do, maybe a bit less certain about the future, and willing to put up with lower returns to have better insurance for possible black swan events.  I'm not saying that you should leave, but it does get a bit tiresome to hear the same spiel from you every day.

[mathjak107]

just think how quiet the forums here would have been without me  ha ha ha .

but the main point is i expose everyone to a pretty comprehensive view of the other side , especially when it comes to portfolio's in the  retirement spending  which most folks do not fully understand  when you are in the decumulation stage ..

if you guys can argue for or against the pp and are doing so now based on anything i brought to light then you are one step smarter at making good rational decisions yourself on the subject .

i love learning about  what i disagree with because it makes me understand  just that much more why i do agree with something .

in particular i like tylers charts because good or bad it lets me analyze the correct stuff as well  find the flaws in the incorrect stuff .

[iwealth]

just think how quiet the forums here would have been without me  ha ha ha .

You are probably one of the most prolific forum posters on the entire internet based on your activity here and the other forums you frequent. I'm still not sure if you are for real or some sort of really well-programmed spambot

[mathjak107]

thanks ,  i think spermbot may be more practical .

[Snoopy]

at the risk of sounding like a broken record

That gets my vote for understatement of the year.

I think we've got your point by now.  You'd accomplish a lot more good in the investing world by focusing your energies on the much larger group of people who are doing stupid things like wasting their money on market timing, high expense-ratio mutual funds, etc.  Us PP people just happen to have a different philosophy than you do, maybe a bit less certain about the future, and willing to put up with lower returns to have better insurance for possible black swan events.  I'm not saying that you should leave, but it does get a bit tiresome to hear the same spiel from you every day.

+++1 

[MediumTex]

at the risk of sounding like a broken record

That gets my vote for understatement of the year.

I think we've got your point by now.  You'd accomplish a lot more good in the investing world by focusing your energies on the much larger group of people who are doing stupid things like wasting their money on market timing, high expense-ratio mutual funds, etc.  Us PP people just happen to have a different philosophy than you do, maybe a bit less certain about the future, and willing to put up with lower returns to have better insurance for possible black swan events.  I'm not saying that you should leave, but it does get a bit tiresome to hear the same spiel from you every day.

+++1 

More close-up bug photos and less PP heckling please!!!

[Reub]

at the risk of sounding like a broken record

That gets my vote for understatement of the year.

I think we've got your point by now.  You'd accomplish a lot more good in the investing world by focusing your energies on the much larger group of people who are doing stupid things like wasting their money on market timing, high expense-ratio mutual funds, etc.  Us PP people just happen to have a different philosophy than you do, maybe a bit less certain about the future, and willing to put up with lower returns to have better insurance for possible black swan events.  I'm not saying that you should leave, but it does get a bit tiresome to hear the same spiel from you every day.

Who are you to tell him to leave? What mathjak107 does is make us reexamine our own preconceived ideas and biases and that's a very healthy function. Thank you, mathjak!