The Reason to Quit PP

General Discussion on the Permanent Portfolio Strategy

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Re: The Reason to Quit PP

Post by Pointedstick » Mon Sep 28, 2015 8:51 am

mathjak107 wrote:
Pointedstick wrote: Finally, interest rates are largely driven by inflation and inflation expectations. If you are expecting the interest rate trend to reverse, what you are really saying is that you expect a period of rising inflation, which is exactly when we should expect gold to do best.
which it hasn't done and other assets ended up beating it long term  because that high inflation never  materialized .  which is my whole point here .
…Because there was no inflation. IMHO gold's run-up in the 2000s was driven by inflation expectations that proved false. If real inflation hits, gold will respond. Do you dispute this?

mathjak107 wrote: sitting in gold day in and day out  waiting for that inflation to happen  when the fed mandated inflation level has not even  been reached  and the world is slowing down may be way to much weight in that asset .
I only brought it up because you predicted rough waters when interest rates rise. You can't simultaneously say that the interest rate trend is about to reverse and also say that we'll be waiting around for long time for some inflation. The interest rate trend will reverse because there is rising inflation! If interest rates rise without any meaningful inflation, that would be a terribly irrational thing for the Fed to do. Anything's possible, of course, but that would be really, really stupid.

mathjak107 wrote: personally i can't see betting my money on a plan that never changes with the times and the bigger picture and has demonstrated that long term there is no value in holding the remote flier longer then you have to .
That's not a ding against the PP, that's a ding against most retail investors who use passive portfolios.
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Re: The Reason to Quit PP

Post by Tom » Mon Sep 28, 2015 8:54 am

mathjak107 wrote:
Pointedstick wrote:
mathjak107 wrote:
personally i can't see betting my money on a plan that never changes with the times and the bigger picture and has demonstrated that long term there is no value in holding the remote flier longer then you have to .


but it is your money , your choices  to do as you see fit .
That's because you clearly think you are smart enough to digest all of the economic information out there and act upon it prior to a long term trend setting into effect and that you can get it right most of the time.  You clearly don't put much stock in the advice that there are so many unpredictable economic, political and global events that will effect the eventual trend that you couldn't possibly be privvy to.

You're right it is our money and it is our choices, as is yours.  Good luck to you.
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Re: The Reason to Quit PP

Post by mathjak107 » Mon Sep 28, 2015 8:59 am

in the short term golds reaction to our moderate inflation is anyone guess , could be up could be down . but the long term numbers over 40 years say that trying to protect against 40 years of inflation could have been better in any other asset .

so as john templeton stated so well , the most expensive words in our language are " this time is different ".

betting as much at this point in time on the most unlikely outcome , being nothing is in place  is just  not logical at all as betting on the most likely outcomes .

yeah , i know if you are doing it you will try to justify it with no one knows what is next , but a reasonable person who is not entrenched in gold would  at least wait until some signs are in place when the trend is your friend to make a big commitment . they would likely committ no more than 10% at this point  .
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Re: The Reason to Quit PP

Post by goodasgold » Mon Sep 28, 2015 10:02 am

Hi Mathjak:

I am curious as to how many investing philosophies you have adopted over your investing lifetime, and why you decided to dump each one for another.

And why did you adopt the PP, however brief this period may have been?

Thank you.
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Re: The Reason to Quit PP

Post by Cortopassi » Mon Sep 28, 2015 10:54 am

Following up to the 30 year bond yield downtrend...

30 year US bond are about 2.9% right now.

Taiwan, Switzerland, Sweden, UK, Italy (?!), Netherlands, Japan, Germany, France and Denmark all are LOWER (!?) than the US bonds, most in the 1.xx% range.

Extrapolating out to even just above 2% shows that this bond bull could continue for 15 more years, easy, using the graph you provided.

Why can't falling yields be the status quo for the next 15 years?  Not saying they will be, but just like I am not predicting gold, I am not predicting bonds or stocks to continue their trends.

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Re: The Reason to Quit PP

Post by barrett » Mon Sep 28, 2015 11:19 am

30-year bonds in traditional safe haven Spain (sarcasm alert!) are at 3.05%.

Where would you rather have your bond money with the USD gaining strength?

Even at a 2.9% yield it's easy for me to imagine there could be a stampede into US debt.

Not making predictions either but US Treasuries would seem to be a steal at these levels.

Can't believe I'm getting excited about 2.9% bond yields.
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Re: The Reason to Quit PP

Post by Cortopassi » Mon Sep 28, 2015 11:30 am

Spain, Italy and other 30 year bonds of countries that are precarious having yields so close to the US is very curious.

I'd love for someone to explain how that is possible, unless there are severe manipulations and distortions in markets across the world.

Another reason I like the no counter party risk of gold in the PP.
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Re: The Reason to Quit PP

Post by barrett » Mon Sep 28, 2015 11:41 am

I guess if you are in the Euro Zone and stretching for yield, you might go for those Spanish or Italian bonds inasmuch as they are priced in Euros.

If the topic were "The Reason to Quit the European PP", for me it would be the crappy bond options.
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Re: The Reason to Quit PP

Post by iwealth » Mon Sep 28, 2015 11:52 am

mathjak107 wrote: yeah , i know if you are doing it you will try to justify it with no one knows what is next , but a reasonable person who is not entrenched in gold would  at least wait until some signs are in place when the trend is your friend to make a big commitment . they would likely committ no more than 10% at this point  .
So you can't understand 2 things:
1) why anybody holds gold to begin with
2) if you insist on holding gold, why don't you wait for the "trend" to reverse before committing more than 10%

I think the you still fail at times to recognize your audience. Obviously you know why people hold gold around here, so that's not worth more discussion. But to point 2), what are these signs to look for to indicate lasting trend reversals? Do you have extremely specific exit/entry criteria? If not, your advice is completely unactionable. I'd take it farther and ask why not take it a step farther and do it for individual stocks? Surely there's a LOT of money to be made out there if you can accurately predict when prices will reverse and maintain that course.

For the rest of us, it's a safer bet to follow strict guidelines such as rebalance yearly or rebalance at 35/15 bands.
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Re: The Reason to Quit PP

Post by Tom » Mon Sep 28, 2015 1:02 pm

mathjak107 wrote: in the short term golds reaction to our moderate inflation is anyone guess , could be up could be down . but the long term numbers over 40 years say that trying to protect against 40 years of inflation could have been better in any other asset .

so as john templeton stated so well , the most expensive words in our language are " this time is different ".

betting as much at this point in time on the most unlikely outcome , being nothing is in place  is just  not logical at all as betting on the most likely outcomes .

yeah , i know if you are doing it you will try to justify it with no one knows what is next , but a reasonable person who is not entrenched in gold would  at least wait until some signs are in place when the trend is your friend to make a big commitment . they would likely committ no more than 10% at this point  .
You are not getting the validity of the "you don't know whats coming" argument it in theoretical terms. Understanding a general trend is one thing - knowing the right times to act are another. I will make it real on another thread.
Last edited by Tom on Mon Sep 28, 2015 1:07 pm, edited 1 time in total.
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Re: The Reason to Quit PP

Post by mathjak107 » Tue Sep 29, 2015 3:46 am

iwealth wrote:
mathjak107 wrote: yeah , i know if you are doing it you will try to justify it with no one knows what is next , but a reasonable person who is not entrenched in gold would  at least wait until some signs are in place when the trend is your friend to make a big commitment . they would likely committ no more than 10% at this point  .
So you can't understand 2 things:
1) why anybody holds gold to begin with
2) if you insist on holding gold, why don't you wait for the "trend" to reverse before committing more than 10%

I think the you still fail at times to recognize your audience. Obviously you know why people hold gold around here, so that's not worth more discussion. But to point 2), what are these signs to look for to indicate lasting trend reversals? Do you have extremely specific exit/entry criteria? If not, your advice is completely unactionable. I'd take it farther and ask why not take it a step farther and do it for individual stocks? Surely there's a LOT of money to be made out there if you can accurately predict when prices will reverse and maintain that course.

For the rest of us, it's a safer bet to follow strict guidelines such as rebalance yearly or rebalance at 35/15 bands.
trends last years if they are really trends  and are supported by basis so there is no need to be the first one at the gate .

what i would watch for before committing more than 10% ?  signs of inflation picking up around the world , not falling in to a recession like now . i wouldn't even think about increasing while the fed is below their mandated goals .  i would watch the dollar and perhaps if it fell 10-15% .  i would watch wage increases and oil/ energy prices especially . . .

remember you are not looking to make a killing with the gold , as you tell me , you want it for protection . so as the need for protection shows itself you increase the level of protection .  you will still be way a head of the curve .

it isn't like you wake up one morning and everything is likely to be in the crapper as far as the dollar and inflation . there are always growing signs and time to act ., especially with gold .

hoping it rises out of sheer speculation  with little basis in this country  by betting so much money on it so early  , like it or not , that is a speculation .

but not only is it a speculation but so far 40 years of history  says a poor one at that .  so that is my gripe with so much gold  , thinking this time is different can be very costly and i like others believe that is a flaw in the pp design .    harry is human  as well as a gold bug and that does not mean his thinking that this model was forever was even correct logic .


if you caught a shorter term run up in gold then yes you are happy but after  30-40 years  those run ups  typically level out to just the rate of inflation  so down the road you  may not view so much  gold as such a smart use of the money  unless we have some remote flyers happen but then you would be speculating on the long shot . .

rebalancing  gold is not the answer as rebalancing may be taking money out of assets that typically have always produced better returns  over the long  haul  and sinking it in  to something that may track inflation at best  once it levels out over the years from run ups  . just way to heavy in gold  all the time instead of some of the time is where i see the flaw as well as no provisions at all for  dealing with long term treasury's getting crushed if rates should shoot up by shortening up maturity's .  in a nut shell just to inflexible  and inefficient i think for what may lie ahead with zero provisions for adjusting .

long term even a conservative fund like wellesley income surpassed the pp  and it may very well keep doing it because it stays flexible .

perhaps wellesley and a 5-10% stake in gold may make more sense  and perform better .

i thought it was interesting that in an interview yesterday  on bloomberg radio  michael cuggino  when asked how the  permanent portfolio was being positioned for the times ahead he said they were shortening up bond maturity's  .

i know the fund broke ranks on the 4x4 concept  since the beginning but they keep moving farther and farther away .  not saying they did the right thing  either the way they positioned the fund as really geared for more  inflationary times , especially so early in the game . .
Last edited by mathjak107 on Tue Sep 29, 2015 6:38 am, edited 1 time in total.
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Re: The Reason to Quit PP

Post by barrett » Tue Sep 29, 2015 7:30 am

mathjak107 wrote: rebalancing  gold is not the answer as rebalancing may be taking money out of assets that typically have always produced better returns  over the long  haul  and sinking it in  to something that may track inflation at best  once it levels out over the years from run ups.
Well, this was certainly true from 1982 until 1999. Then the opposite was true for a decade.
And not in any small way. Gold really performed and yet there weren't many people who saw
that coming. You would have been able to buy a bunch of shares of stock and long bonds when
they were at lower levels than they are now. Would you have been able to see that move coming?
If so, when? When it was already up to $500 or $600? My guess is that if you really think it was the
bigger fools driving the run up in gold, you would have never bought any. The asset that saved this
particular portfolio for a decade (OK, long bonds were pretty damn good as well) wouldn't have been
part of your mix.

Again, anyone committed to/accepting of an all-weather approach to investing knows that they are giving
up gains. They are just not sure which gains. And if you are OK with accepting lower returns than what the
hottest asset is delivering, then a balanced approach works well over time. Can you accept that most of us
don't want to have to get the timing right?
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Re: The Reason to Quit PP

Post by dualstow » Tue Sep 29, 2015 10:27 am

mathjak, you remind me of a friend who divorced his wife after six months of marriage and then devoted the rest of his life to her.  8)
I mean, you spent so little time in the pp and how much time rationalizing your exit so far?
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Re: The Reason to Quit PP

Post by ochotona » Tue Sep 29, 2015 11:56 am

I do like the idea of gold as insurance against (***insert your scenario here***) but why buy it now when you can buy it later? There is no "pre-existing conditions coverage exclusion" like there used to be on health insurance. And why not buy it at prices closer to the low prices it has been at in my lifetime?

So there's a risk it might be already at the lowest prices it will be at before whatever kerfuffle hits the fan happens? Well... maybe. Maybe not! Who the hell knows? But why lock money away from growth assets before you need to?

I really don't think we're going to have a "wake up and the world is set afire" scenario. Currency collapse will be seen from afar, for those who watch attentively. You'll see it in the gold price itself. The time to react will be at least weeks or months. Buy a gold ETF in a few seconds, then swap it out for physical as you can get the physical (supply chain will be stressed at that point).

Martial arts analogy - if you try to evade a knife blade too soon, the attacker will just track you and stick you anyway.

Why bother donning a winter coat in summer, just because we know winter is coming? Enjoy the summer, but know where the coat is.

I wonder if we shouldn't be talking more about gold options, in addition to gold.
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Re: The Reason to Quit PP

Post by barrett » Tue Sep 29, 2015 12:12 pm

ochotona wrote: So there's a risk it might be already at the lowest prices it will be at before whatever kerfuffle hits the fan happens?
Well... maybe. Maybe not! Who the hell knows? But why lock money away from growth assets before you need to?

Why bother donning a winter coat in summer, just because we know winter is coming? Enjoy the summer, but know
where the coat is.
The answer for me is that I wouldn't know where to get in. I know this about myself from past investing behavior.
So, yeah, gold might not be the best place to park 25% of my assets, but from where I stand I can't see that bonds
and stocks are clearly better options right now. Yes, they are growth assets but they don't always grow. Both could
head down X% from here.

I do like the winter coat analogy.

Ocho, how were you able to just go all short term instruments (50% cash & 50% short-term bonds)? No taxes to
worry about?

And I know you've posted roughly 1,700 and $900 as buy back in points for the S&P and gold. Do you have your
eye on a number for LTT yields as well?
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Re: The Reason to Quit PP

Post by mathjak107 » Tue Sep 29, 2015 12:18 pm

so the question remains  why not wellsley and 10% gold  ?

why bet the same amount of money equally on outcomes that are anything but equal as to odds of playing out
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Re: The Reason to Quit PP

Post by iwealth » Tue Sep 29, 2015 12:24 pm

ochotona wrote: Why bother donning a winter coat in summer, just because we know winter is coming? Enjoy the summer, but know where the coat is.
Interesting analogy, but let's take it a step farther. In the big scheme of things, our collective financial analysis knowledge is like that of a child compared to all of the math quants and PhD's and all of those super brilliant economists. And we all have these other things going on in our lives because we aren't investing professionals, and we're super distracted with those things.

My child is outside and the temperature drops, but he's playing with his friends and having a ton of fun. He knows where his coat is, but do I really trust him to put that coat on when the temperature deems it to be appropriate?
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Re: The Reason to Quit PP

Post by koekebakker » Tue Sep 29, 2015 12:32 pm

mathjak107 wrote: so the question remains  why not wellsley and 10% gold  ?

why bet the same amount of money equally on outcomes that are anything but equal as to odds of playing out
It's really simple. To be protected at all times, regardless of the odds. And by investing that way you might give up some expected return.
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Re: The Reason to Quit PP

Post by mathjak107 » Tue Sep 29, 2015 12:41 pm

protect against what ?  for as long as gold has been able to be owned by the public has any generation in this  country needed gold to protect them  over the long term ?  not that i can think of , any generation would have come out ahead in anything other than gold . in fact take any rolling 30 year period the last 40 years and has gold been better at protecting that time frame than had you not owned it and just owned stocks and bonds over your investing time frame  ?

you  now what , it is like a pp'er trying to convince someone happy with bank cd's  that there is a better way to let your money work for you and while more volatile it may not  be risky .

you will likly never convince them of that fact .

well trying to tell a pp'er that they are leaving way to much in gains on the table just for the sake of a little more volatility  with something like wellesly and 10% gold  is the same thing ..

once you start with the "what if visions " in your head  as to things playing out different this time and you need all that gold and the heavy interest rate risk ,  as  john  templeton said " this time is different can be the most costly words in the english  language . .
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Re: The Reason to Quit PP

Post by Xan » Tue Sep 29, 2015 12:46 pm

mathjak107 wrote:in fact take any rolling 30 year period the last 40 years and has gold been better at protecting that time frame than had you not owned it and just owned stocks and bonds ?
You realize there are only ten such periods, right?
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Re: The Reason to Quit PP

Post by mathjak107 » Tue Sep 29, 2015 12:49 pm

yep 40 years 10 periods .  has any played out at the end in favor of gold vs  equity's or bonds despite the events in that time frame ?
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Re: The Reason to Quit PP

Post by Xan » Tue Sep 29, 2015 12:53 pm

You realize they all overlap, right?  This is an EXTREMELY small sample.
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Re: The Reason to Quit PP

Post by mathjak107 » Tue Sep 29, 2015 12:54 pm

it is still 40 years of all kinds of events from the great recession to high inflation , from low rates to very high rates .

at the end of the day we never needed such heavy allocations to gold .

only reason i stopped at 40 years is we can't track gold accuretly prior in the usa .

so does it really make as much sense to bet as much on the favorite as the all time laggard , thinking this time is different .

perhaps to some it does but i think that is a question you really need to ask yourself  without the visions in your head .

because no one wants to spend tens if not hundreds of  thousands of dollars insuring  as much against the common things that could happen in life as they would the things that seem far more remote, it just would not make sense when you really think about it . .


the amounts given up compared to other conservative models over pretty much every 30 year retirement or 30 year accumulation stage to have that remote coverage is a lot .  just compare the long time frames between conservative wellesley  and the pp. i bet it cost tens of thousands of dollars to insure against nothing that wasn't bested by equity's and bonds . .

what did wellesley do vs the pp going back as far as you can  and then rolling a head as many years as you can get . not sure how far back wellesley goes off hand .
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Re: The Reason to Quit PP

Post by barrett » Tue Sep 29, 2015 1:27 pm

To get really meaningful numbers on these periods, it's important to agree on what percent of assets are in cash as well. For example, if you just look at 1/1/1975 to 1/1/2015, a 45% stocks/45% 10-year bonds/10% cash portfolio tramples a 4X25 PP by about 44%. If you go with 38% stocks/38% 10-year bonds/24% cash, that advantage drops to about 15%.
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Re: The Reason to Quit PP

Post by mathjak107 » Tue Sep 29, 2015 1:34 pm

well i run 8% cash so call it 10% but the fact is it is variable . it ranges from 4-8%  as it gets spent down since it used for bills as well as some sits for  emergency's .  don't forget dividends and interest are floweing all year so the need for cash to spend is not that great .
Last edited by mathjak107 on Tue Sep 29, 2015 1:37 pm, edited 1 time in total.
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