This Forum & Dissenting Opinions of the HBPP

General Discussion on the Permanent Portfolio Strategy

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Re: This Forum & Dissenting Opinions of the HBPP

Post by jafs » Sat Nov 28, 2015 10:04 am

In other online forums that I've participated in, moderators can look at members' ip addresses.

If they promise not to use/share that information in any other way, they have my permission to look at it, compare it with mathjak's, and report back to the forum that they're not the same.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by Cortopassi » Sat Nov 28, 2015 10:08 am

Funny stuff, thanks for a laugh early Saturday morning!  If jafs is mathjak, he's learned how to capitalize and punctuate.... ;D

I am kidding, of course.

Gold is a strange one, I agree.  I feel unquestionably calmer having it, but at the same time am worried that if the current state of the world/economy/interest rates can't keep it from going down, it will have a terribly difficult time when things are good.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by Libertarian666 » Sat Nov 28, 2015 10:29 am

Cortopassi wrote: Funny stuff, thanks for a laugh early Saturday morning!  If jafs is mathjak, he's learned how to capitalize and punctuate.... ;D

I am kidding, of course.

Gold is a strange one, I agree.  I feel unquestionably calmer having it, but at the same time am worried that if the current state of the world/economy/interest rates can't keep it from going down, it will have a terribly difficult time when things are good.
As soon as the current dollar strength reverses, gold will do much better.

In fact, it's doing fine in every other major currency, which is just another way of saying that it is dollar strength rather than gold weakness that is keeping the $ price of gold down.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by jafs » Sat Nov 28, 2015 10:40 am

  ;D

I did think my posts were substantially better in terms of grammar/punctuation/etc. than his.

How do you edit a post on here after posting it?  I've been posting one after another because I didn't see how to do that.

Wait, I just figured it out!
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Re: This Forum & Dissenting Opinions of the HBPP

Post by barrett » Sat Nov 28, 2015 11:05 am

jafs wrote: Gold is a bit confusing for me - maybe we have that in common. I've read a lot about it on this forum over time, but it's still not clear to me, and following HB's advice not to invest in things you don't understand (seems like sound advice), I tend to shy away from it.
Yeah, holding a 4X25 PP and following Harry Browne's advice to not invest in something you don't understand seems at first to be a bit of a contradiction. Long duration bonds are way harder to understand than stocks or cash. PS's gold summary is a nice contribution. I'll have to print that out and read it in my easy chair!
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Re: This Forum & Dissenting Opinions of the HBPP

Post by Reub » Sat Nov 28, 2015 12:50 pm

MangoMan are you really Clive? Zawahiri? Obama?
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Re: This Forum & Dissenting Opinions of the HBPP

Post by MachineGhost » Sat Nov 28, 2015 3:26 pm

jafs wrote: Wouldn't those happen in any stock fund?
No, ETF's are far more tax efficient and have less distributions than mutual funds.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by MachineGhost » Sat Nov 28, 2015 3:31 pm

jafs wrote: My possible portfolio is a 50/50 mix of PARWX/TLT, and that's what I've been testing/evaluating.  I'm not sure why you keep focusing on PARWX in isolation.  It follows the original HB idea of a "small basket of volatile stocks" with long term bonds.  It outperforms the VTSAX/TLT blend and is less volatile (over the last ten years, which is as much as I can test).
Judging by your other comments, I don't think you're quite groking that the PP is an all weather portfolio.  It's a package deal for it to work that way.  No picking and choosing.

You probably need to backtest alot further so you can include the influence of other economic environments.  A 50/50 stock/bond mix would have been destroyed in the stagflationary 1970's, although you could have still barely eeked out a 4% withdrawal retirement if only because we didn't go the way of a Banana Republic or that the USD didn't lose reserve currency status.  We might not be so lucky next time and the writing is on the wall anyway.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by MachineGhost » Sat Nov 28, 2015 3:34 pm

jafs wrote: If I understood it right, HB's idea was that gold would protect against hyperinflation or shtf scenarios - I'm pretty sure we won't have the first, given the Fed's involvement, and in the second, I'd guess that food/water/etc. would be more useful than gold.
The Fed would be powerless to prevent hyperinflation because hyperinflation is a consequence of other political economic factors, not Fed "printing money" which it does not even do in the first place.  I suggest you just ignore all the ideological doom porn and view gold as an insurance hedge against systemic government failure, since that is all it ultimately is.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by MachineGhost » Sat Nov 28, 2015 3:38 pm

Libertarian666 wrote: In fact, it's doing fine in every other major currency, which is just another way of saying that it is dollar strength rather than gold weakness that is keeping the $ price of gold down.
Don't be so shocked when both the USD and gold go up together in an extended run.  What drives up prices of anything?  More demand than supply.  Not mathematical and/or statistical "law" relationships.  Does the reason for that buying matter?  NOT ONE IOTA.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by jafs » Sat Nov 28, 2015 3:42 pm

I understand that - I was just saying that PARWX looks like a good substitute for VTSAX to me, and matches HB's original idea for the stock part of the PP.  In my earlier posts, I called my idea a "boglehead/PP" hybrid - it uses the simple two fund approach of bogleheads, with the PP idea of combining stocks with long term government bonds.

And, I agree it's possible for stocks/bonds to go down together, although they haven't over the last ten years (in this portfolio combination).  But I can't back-test my portfolio idea any farther back than that because PARWX didn't exist before 2006.

That's what I thought as well, but I'm not convinced that gold coins would be that much help given a catastrophic government failure like that.

I don't mean to be overly sensitive, but it seems that my entry into this forum has been met with varying degrees of hostility, and I'm not sure why - I prefaced my original comment with praise for the PP philosophy, and have answered all questions directly and as best I can, even when they were off-base.

I've enjoyed reading these threads for a while now, and thought it would be more fun to participate than it has been so far.  Maybe I should just go back to reading them.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by MachineGhost » Sat Nov 28, 2015 3:56 pm

jafs wrote: That's what I thought as well, but I'm not convinced that gold coins would be that much help given a catastrophic government failure like that.
Systemic failure is not a black or white situation.  There are varying degrees.  It is debatable if we can even have a systemic failure without another World War or Communist takeover.  If you look at modern day examples in Zimbabwe, Argentina and Venezuela, gold and other real assets saved your ass quite well.  A true worst of all worlds SHTF scenario needs other real assets than gold, the Mormon prepper type assets and I've discussed this elsewhere.  That shold only be a very small percentage of gold (1%) since the probability is very small you'll ever need them.  Gold has been useful about 17% of the time since 1968.
jafs wrote: I don't mean to be overly sensitive, but it seems that my entry into this forum has been met with varying degrees of hostility, and I'm not sure why - I prefaced my original comment with praise for the PP philosophy, and have answered all questions directly and as best I can, even when they were off-base.

I've enjoyed reading these threads for a while now, and thought it would be more fun to participate than it has been so far.
I'm glad you decided to stop lurking.  I'm not sure why you believe you're seeing any hostility but perhaps people here really burned out on the whole mathjak situation.  It was all quite strange, to say the least.  What gets me is that he gave off the initial impression that he got rich solely from investing in his Fidelity Insight newsletter since 1987, but no, it turns out he just got a windfall from a real estate deal about five years ago.  And all this time he was indeed in the PP until that windfall.  Whatever.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by jafs » Sat Nov 28, 2015 4:01 pm

Maybe that's it.

I also found his comments odd, and generally missing the point of the PP.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by l82start » Sat Nov 28, 2015 4:20 pm

welcome to the forum "not mathjack"  ;) 

don't sweat starting out with an asset that doesn't sit well or make total sense at first, (mine was long bonds it took about a year to wrap my mind around it and setup my portfolio to make the switch..) i think it is a "beyond common" experience, ...and gold is a tough subject.. most of what gets said is gold bug half truths and remote possibilities, so starting out from being a gold investor may be an even tougher position than the one you are in because there is a lot of nonsense baggage that has to be undone to get to the agnostic place where you aren't sure which asset is going to be the winner or savoir..
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Re: This Forum & Dissenting Opinions of the HBPP

Post by jafs » Sat Nov 28, 2015 4:33 pm

Maybe I should make that my forum name  :D

Thanks - it's not a big deal for me, since I'm not even invested in my idea yet.  We just got an IRA out of all markets and into a money market, and will do the same with our other smaller one, as we're about a year out from retirement.

It's been fun researching it though, and if we ever do have some money I can play with, I'll probably set it up.  In the meantime, I can keep watching it to see what happens from here.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by Pointedstick » Sat Nov 28, 2015 4:54 pm

For what it's worth, let me endorse your PARWX/TLT mix over a lot of alternatives. If you like it, then I say go for it, and then you can use that comfort to evaluate if you want to stay with it or investigate alternatives--but from a position of strength and comfort, not weakness and nervousness.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by jafs » Sat Nov 28, 2015 5:04 pm

Thanks - I appreciate that.

Being risk/loss averse as I am, any investment strategy makes me a bit nervous.  That's why I wouldn't use it for meeting any financial needs, just for fun.  One idea I've had is to donate gains in the portfolio to charities - the easy way to do that would be to take any distributions in cash, and then donate them.

I do think that doing well through the recent financial/economic mess does mean something, and that's comforting.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by Jack Jones » Sat Nov 28, 2015 9:08 pm

I Shrugged wrote: One prolific poster leaves, immediately replaced by another.  Hmmmmm.....
Too many capitalized letters to be MJ.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by Reub » Sat Nov 28, 2015 10:58 pm

Jafs, you're no mathjak and you'll never be mathjak! Enough said.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by sophie » Sun Nov 29, 2015 11:48 am

I took a break from the forum for a couple of days...and now glad to see things are getting back to normal now.  Prolific postings over a short period of time is nothing new!

Re PARWX, I took a look at it in case Jafs has hit on a nice new idea.  The philosophy is interesting, but the major holdings look very, very heavy into technology stocks.  It may be that they've done well over the past 10 years compared to the total market because tech stocks were absolutely decimated in the early 2000s thanks to the dot com bubble bursting.  I'd be super careful about this fund.

There's an interesting series of threads going on in the Bogleheads forum that is saying essentially what I've been trying to get across in my posts, although more eloquently:

https://www.bogleheads.org/forum/viewto ... 0&t=178376

https://www.bogleheads.org/forum/viewto ... 0&t=178173

https://www.bogleheads.org/forum/viewto ... 0&t=178541
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Re: This Forum & Dissenting Opinions of the HBPP

Post by MachineGhost » Sun Nov 29, 2015 12:33 pm

The weird irony of a non-all weather cult preaching "stay the course".  I would wager my left nut that none will "stay the course" in a high inflation or low future returns scenario.  They will have to take corrective measures.  I really liked this one comment:
I'm curious why you think that bonds are going to do so poorly going forward. How can they be worse than the last few years?

I feel like I'm missing something.
Good grief.

We could argue that our current Japanization actually IS the low future returns scenario.  At what point in terms of years gone by from "staying the course" do you wake up and then not "stay the course" because you're not getting the yearly CAGR you need to reach your goal target?  You can't just save more because the low future returns scenario is also reflecting a poor economy with no wage growth while inflationary demand continuously increases costs because supply remains constrained (i.e. real estate, medicine, etc.).  Even the cessation of breeding in Japan doesn't really help the situation all that much.  What you really need is pro-growth policies, not pro-inflationary policies.

I suspect we're going to have a A LOT of PP converts in the future.

P.S.  Reading further, I don't think Bogleheads understand that a 1% increase in yield does not offset a 10% capital loss until about ten years later.  And that precludes any further yield increases in the meantime which resets the clock and incurs further capital losses each and every time.  The trick is to get those high yields WITHOUT digging a hole so deep that you'll never recover for decades.  Bond funds don't have maturity dates and by law they are forced to sell to raise liquidity within a week.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by jafs » Sun Nov 29, 2015 12:46 pm

Thanks for looking at it sophie.

You could be right that the tech sector has done well for the reasons you give, of course.  I'm not good at analyzing things like that.  But if you look at the annual returns, they follow the general trend of the total market, just a bit better here and there, and the combination with TLT is better.

I looked into the distributions/tax implications (thanks to MG), and if you're in the lower two tax brackets, long term capital gains aren't taxable.  It turns out that the taxes on my idea are virtually identical to a VTSAX/TLT portfolio (if you're in one of those brackets), and after fees+taxes, mine has a 2% higher CAGR, right at about 9.5%/yr.

We'd be in a 15% bracket after retirement, probably for the rest of our lives.

It certainly concentrates the stock holding into a much smaller basket, which makes it far less diversified than a total market fund.  But I did think that HB's original idea was a small basket of volatile stocks, and this seems to fit that idea.

That question of "stay the course" vs. changing your approach based on various factors is an interesting one.  I've read different views on that, and there seem to be interesting/valid ideas on both sides.  Are there scenarios in which folks invested in the PP would change their allocation/approach?
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Re: This Forum & Dissenting Opinions of the HBPP

Post by MachineGhost » Sun Nov 29, 2015 1:26 pm

jafs wrote: Thanks for looking at it sophie.

You could be right that the tech sector has done well for the reasons you give, of course.  I'm not good at analyzing things like that.  But if you look at the annual returns, they follow the general trend of the total market, just a bit better here and there, and the combination with TLT is better.

I looked into the distributions/tax implications (thanks to MG), and if you're in the lower two tax brackets, long term capital gains aren't taxable.  It turns out that the taxes on my idea are virtually identical to a VTSAX/TLT portfolio (if you're in one of those brackets), and after fees+taxes, mine has a 2% higher CAGR, right at about 9.5%/yr.

We'd be in a 15% bracket after retirement, probably for the rest of our lives.

It certainly concentrates the stock holding into a much smaller basket, which makes it far less diversified than a total market fund.  But I did think that HB's original idea was a small basket of volatile stocks, and this seems to fit that idea.
Here's the problem with more active approaches.  You don't have a 95% confidence level that they will continue to outperform going forward unless they're a 100% quantitative, hands-off strategy, with no human decision-making involved.  That is not the domain expertise of mutual funds.  As Asness said: "The difficulty of sticking to the models is part of why they work."  That is why 95% of mutual funds underperform the indexes long term (10 years is NOT long term).  Indexes are more or less quantitative rebalancing models; their unerring consistency is why they're very hard to beat after transaction costs and taxes.  Now indexes have a couple of flaws that you could exploit to get more returns, but the point is even with those flaws, 95% of managers still cannot beat it.  Much of this has to do with Wall Street institutional biases (they're in a business to sell you product and collect fees, not make you high returns).

Now, be sure you also lop off another 8% of the return because the beta of PARWX is 8% higher than the S&P 500.  It's taken on more risk just to achieve 8% more return.

Another consideration is the social impact that you like.  Investing in shares offered on the secondary market has zero effect on the target companies, unless you're a large enough shareholder to be an activist investor and agitate for change at the company at shareholder meetings and/or replacing the board.  Is PARWX an active activist investor?  Otherwise they're just selling you marketing fiction.  You'd actually make more money investing in sin stocks than socially conscious, but I digress.

And finally, PARWX has a 86% R-squared correlation to the NASDAQ 100 and 84% to the Russell 2000.  That is the proportion of returns explained by tech and small cap exposure.  You undoubtedly could have those index exposures at a dramatically much less cost.

Basically, what you're doing is falling prey to a behavioral bias called the recency effect.  I think you might be well served at this point to read a book on all the behaviorlal biases that average investor's fall prey to that torpedoes their long-term returns (the average return for the past 20 years for them is only 3.5% CAGR!).  I think Jason Zweig is the author of one.
Last edited by MachineGhost on Sun Nov 29, 2015 1:40 pm, edited 1 time in total.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by jafs » Sun Nov 29, 2015 1:50 pm

I'm sure that's true, and it would definitely be a concern.

And, yes, you're right about the secondary market in that way - the thing I like about PARWX is that I'd be benefiting from companies that offer "outstanding workplaces", rather than ones that s***w their employees to do well.  I'm old enough to be saddened at the wage stagnation/reduction in benefits/disappearance of defined benefit pensions/etc. that we see now.  I would feel bad about making money because a company pays low wages/doesn't offer benefits to their employees, for example.

I'm not looking for exposure to certain market segments - it just happens that this approach has a lot of tech stocks (right now).

Ideally, I'd have a much longer time frame to evaluate this idea - I'd prefer it if I could back-test it for 50 years or more.  That's probably the biggest thing that would sway me towards a total market fund instead.
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Re: This Forum & Dissenting Opinions of the HBPP

Post by Pointedstick » Sun Nov 29, 2015 1:55 pm

jafs wrote: I'm old enough to be saddened at the wage stagnation/reduction in benefits/disappearance of defined benefit pensions/etc. that we see now.
Immigration, outsourcing, automation, and dumb federal government laws are pretty much the causes (in no particular order). Direct umbrage where appropriate.
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