PP Hedge Fund

General Discussion on the Permanent Portfolio Strategy

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pugchief
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PP Hedge Fund

Post by pugchief » Tue Dec 15, 2015 7:54 am

With all the whining about sub-par performance on the forum lately, it got me thinking about hedge funds. People had been clamoring for years [maybe not so much now?] to invest in these 2/20 monstrosities, yes for higher returns, but also for smaller losses [the hedge]. Isn't this basically what the PP does, for a fraction of the cost? You may get higher returns [probably not, but at least comparable], and you get a great 'hedge'. What's not to like?  8)
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Re: PP Hedge Fund

Post by Cortopassi » Tue Dec 15, 2015 2:50 pm

I think the hedge is more that these hedge funds are allowed to go short things, which neither the PP nor most any (if any) regular mutual funds do.

A perfect hedge for me, if it existed or can come close is to 100% invest in a high yield fund that has options.  If the fund typically pays dividends of say, 7%, and put protection on the amount you've invested can be, say 2%, you have 5% free and clear with no risk.  But I don't think that's allowed. ;D

For example, SDIV, an ETF I used to be in, is paying 7.09% currently.  Protection with puts through June 2016 (7 months) will cost you 6.8% of the current share value, so you are spending about 2x per year protecting the underlying as you are getting from the dividend.  Darn
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Re: PP Hedge Fund

Post by technovelist » Tue Dec 15, 2015 4:38 pm

Cortopassi wrote: I think the hedge is more that these hedge funds are allowed to go short things, which neither the PP nor most any (if any) regular mutual funds do.

A perfect hedge for me, if it existed or can come close is to 100% invest in a high yield fund that has options.  If the fund typically pays dividends of say, 7%, and put protection on the amount you've invested can be, say 2%, you have 5% free and clear with no risk.  But I don't think that's allowed. ;D

For example, SDIV, an ETF I used to be in, is paying 7.09% currently.  Protection with puts through June 2016 (7 months) will cost you 6.8% of the current share value, so you are spending about 2x per year protecting the underlying as you are getting from the dividend.  Darn
Obviously that cannot work or "everyone" (at least hot shot speculators) would do it, and that would drive the option prices through the roof.
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Re: PP Hedge Fund

Post by buddtholomew » Tue Dec 15, 2015 5:00 pm

Options are priced with dividends included.
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pugchief
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Re: PP Hedge Fund

Post by pugchief » Tue Dec 15, 2015 8:41 pm

Cortopassi wrote: I think the hedge is more that these hedge funds are allowed to go short things, which neither the PP nor most any (if any) regular mutual funds do.

A perfect hedge for me, if it existed or can come close is to 100% invest in a high yield fund that has options.  If the fund typically pays dividends of say, 7%, and put protection on the amount you've invested can be, say 2%, you have 5% free and clear with no risk.  But I don't think that's allowed. ;D

For example, SDIV, an ETF I used to be in, is paying 7.09% currently.  Protection with puts through June 2016 (7 months) will cost you 6.8% of the current share value, so you are spending about 2x per year protecting the underlying as you are getting from the dividend.  Darn
There are a whole bunch of closed-end funds that specialize in covered calls. I'm not sure if that is close enough for you or not.
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Re: PP Hedge Fund

Post by dutchtraffic » Tue Dec 15, 2015 9:57 pm

Cortopassi wrote: I think the hedge is more that these hedge funds are allowed to go short things, which neither the PP nor most any (if any) regular mutual funds do.

A perfect hedge for me, if it existed or can come close is to 100% invest in a high yield fund that has options.  If the fund typically pays dividends of say, 7%, and put protection on the amount you've invested can be, say 2%, you have 5% free and clear with no risk.  But I don't think that's allowed. ;D

For example, SDIV, an ETF I used to be in, is paying 7.09% currently.  Protection with puts through June 2016 (7 months) will cost you 6.8% of the current share value, so you are spending about 2x per year protecting the underlying as you are getting from the dividend.  Darn
Obviously dividends are priced into put options.
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Re: PP Hedge Fund

Post by rickb » Wed Dec 16, 2015 8:25 am

dutchtraffic wrote: Risk free returns do not exist in this world*

*unless you are in the club and can cheat/frontrun
But then your risk is that you might go to jail. 

And if you're Too Big To Jail, then you have to spend some percentage of your profits buying politicians to keep it that way which reduces your overall return, and also risk the peasants revolting and figuratively or literally cutting off your head.
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Re: PP Hedge Fund

Post by technovelist » Wed Dec 16, 2015 9:56 am

rickb wrote:
dutchtraffic wrote: Risk free returns do not exist in this world*

*unless you are in the club and can cheat/frontrun
But then your risk is that you might go to jail. 

And if you're Too Big To Jail, then you have to spend some percentage of your profits buying politicians to keep it that way which reduces your overall return, and also risk the peasants revolting and figuratively or literally cutting off your head.
Yes, but it is much cheaper to buy politicians than to deal with the free market.
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Re: PP Hedge Fund

Post by Cortopassi » Wed Dec 16, 2015 10:30 am

pugchief wrote: There are a whole bunch of closed-end funds that specialize in covered calls. I'm not sure if that is close enough for you or not.
Tried covered calls in the past too.  If you are trying to do that in a declining market, the premium (esp. now with Vix having been so low for years) only very minimally covers the loss in the underlying.  And then once the underlying is underwater, invariably(!!) you write a covered call on it at a lower strike and you screw yourself out of gains as the underlying rises up again, and you are forced to buy back your call or sell the underlying at a loss.

Happened to me time and again!  Goddamn I made every mistake in the book in the past!

Long live the PP!
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Re: PP Hedge Fund

Post by blackomen » Wed Jan 06, 2016 10:29 am

Bridgewater's All Weather fund is one of the closest implementations of the PP although I never seen any mention of the PP or Harry Browne in any of the literature they've publicized.
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