Nobody believes in the Permanent Portfolio

General Discussion on the Permanent Portfolio Strategy

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Cortopassi
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Re: Nobody believes in the Permanent Portfolio

Post by Cortopassi » Tue Mar 21, 2017 3:19 pm

WORST DAY OF 2017 FOR STOCKS. Extra, extra, read all about it.

A slightly more than 1% drop in stocks for the biggest loss all year and it is the end of the world on some finance sites.

And the PP was up quite a bit today.
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"The Dow Jones Industrial Average and the S&P 500 index halted a monthslong streak without a 1% decline.

The Dow Jones Industrial Average DJIA, -1.14% closed 237points, or 1.2%, at 20,668 on Tuesday, while the S&P 500 index SPX, -1.24% finished off 1.2% at 2,344. The two main stock-market gauges hadn’t finished with a decline of 1% or more for a history-setting 110 trading days."
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dualstow
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Re: Nobody believes in the Permanent Portfolio

Post by dualstow » Tue Mar 21, 2017 3:29 pm

Yep, gold and bonds were up, right?
It figures. I unloaded more Sprott yesterday but neglected to buy alternate gold at the same time. Image
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modeljc
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Re: Nobody believes in the Permanent Portfolio

Post by modeljc » Tue Mar 21, 2017 3:49 pm

Cortopassi wrote:I'd be interested in what your friend did during/after the tech bust in 2000/2001 and the RE bubble in 2008? Just hang on to whatever he had? Sold? Bought? Does he have an advisor recommending things or does it himself?

Cash not earning anything, long bonds scare him, gold has no return, yet he's comfortable with 100% (or whatever high amount) in a never ending stock market bull?
My friend Charles was 100% invested in little Shit houses. He bought them cheap and fixed them up little by little. The rents went up every year and he has made a lot of money over the last 45 years.
He has sold the houses and has a ladder of CD's.

I recently let him read the PP book and he called us a lot of funny names: Doomers, Gold bugs, way outside of the investment world, and very much on the Fringe.

He dismissed the 45 year investment record by saying the recent returns and the 1990's were poor.

He would be happy with 4% real returns but said we are all smoking something. He suggested that the wind has been at our backs for 35 years and rates will rise in the future.

We ride bikes once a week and that is the story on Charles.
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Cortopassi
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Re: Nobody believes in the Permanent Portfolio

Post by Cortopassi » Tue Mar 21, 2017 3:59 pm

That is a smart move, buying RE low, fixing up and renting out. It is probably ideal, esp. if you don't have to spend all your time answering house calls. Nearly guaranteed income and building equity.

If I could go back I'd do that. One of the first investing classes I went to was taught by a guy, then in his 40s and retired who simply bought 6/12/24+ flats, built equity, and then started an investment group where people would buy in at high levels (more than I had at the time) and get a cut of the profits from the rentals, generally 15%+ a year. They have thousands of units now.
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ochotona
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Re: Nobody believes in the Permanent Portfolio

Post by ochotona » Tue Mar 21, 2017 7:13 pm

Never take your validation from numbers. That's classic herding behavior.
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technovelist
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Re: Nobody believes in the Permanent Portfolio

Post by technovelist » Tue Mar 21, 2017 10:36 pm

Cortopassi wrote:That is a smart move, buying RE low, fixing up and renting out. It is probably ideal, esp. if you don't have to spend all your time answering house calls. Nearly guaranteed income and building equity.

If I could go back I'd do that. One of the first investing classes I went to was taught by a guy, then in his 40s and retired who simply bought 6/12/24+ flats, built equity, and then started an investment group where people would buy in at high levels (more than I had at the time) and get a cut of the profits from the rentals, generally 15%+ a year. They have thousands of units now.
If I could go back I would invest in whatever stocks were going to go up the most.

But maybe that's just me. :P
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mathjak107
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Re: Nobody believes in the Permanent Portfolio

Post by mathjak107 » Wed Mar 22, 2017 4:21 am

the reality is for a long term investor , long term meaning a typical accumulation period spanning decades mitigating temporary short term dips with assets other than equity's that permanently reduce your long term gains has always made little sense financially .

the short term mitigation is not needed and hurts you over the long term .

but having said that , if you don't have the stomach for volatility and or have shorter time frame constraints on the money then mitigating those dips becomes a factor or bad investor behavior is likely .

there are all kinds of ways of designing a portfolio to strike a balance between the various assets and their risk vs rewards .

it can take as much as 3x the dollars in intermediate term bonds to offset a 1 dollar investment in equity's as far as mitigating power .

that is why the larry portfolio is 70% intermediate term bonds vs 30% in equity's . the golden butterfly only requires 20% in long term bonds to do it's heavy lifting so more money can go in to other assets than larry's model .

some portfolio's will offer better gains , some better protection under different outcomes . it all depends what is more important to you .

when it is the wrong scenario for any of them and rather than move opposite they move together the pp can be as volatile short term as any stock portfolio . just ask those who fled equity's after brexit for something like the pp and they had close to double digit losses by years end as gold and long term bonds reversed direction together .

personally i was never a fan of the pp because it''s equally weighted to events that stand anything but a equal chance of playing out as well as rising rates can really make it very volatile when all assets powerfully move down together like they have been doing every time the fed hints about another rate increase .

i much prefer the prosperity weighting in the golden butterfly which performs more in line with other portfolio's weighted for prosperity that are not 100% equity .

however i will caution you that the volatility on thepp and gb can be wild on the days all assets move together easily exceeding the moves 100% equity portfolio's can make . while that volatility smooths out over the long term it can make for some white knuckles if you watch it on volatile days everything moves together .the small cap value portion moves 2 to 3x what the s&p 500 does in a day .

so low volatility in the pp and gb does not mean "daily low volatility" and bad investor behavior can be just as likely .either because in a bull market you are left behind or because of the high volatility of the pp and gb on those white knuckle days assets correlate . .

i can easily see the gb substituting for more conventional portfolio's , despite the fact it uses more unconventional assets .

whether to use the pp or not really depends on your own goals and temperament not the user group size . in reality the pp and gb are not all that different than other models but the fact it uses what some consider unconventional investments scares them away
LazyInvestor
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Re: Nobody believes in the Permanent Portfolio

Post by LazyInvestor » Wed Mar 22, 2017 7:17 am

Bernstein was right that it's not easy sticking to PP when everyone else around you is getting rich in the equity market heavy portfolios.
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dualstow
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Re: Nobody believes in the Permanent Portfolio

Post by dualstow » Wed Mar 22, 2017 8:06 am

LazyInvestor wrote:Bernstein was right that it's not easy sticking to PP when everyone else around you is getting rich in the equity market heavy portfolios.
There's a friend of the family who has traditionally been more into bonds and who got into stocks in the mid-to-late 2000s at age fifty-something. Around November, though, he got skittish and wanted to sell all of his stocks. His investment guys talked him into keeping 30% in stocks. So, he's not any more loyal to stocks than people who hop in and out of the pp are loyal to it.

I guess there are a lot of investors out there who simply don't stick with anything. I would like to think that bogleheads who stick with 60/40 (stocks to bonds) are more like us, who stick with the pp. They have more in common with us than serial portfolio switchers. In that perhaps shaky sense, our numbers are greater.

Of course, this bond guy would probably never go for the pp, despite the fact that it's good medicine for skittish investors.
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buddtholomew
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Re: Nobody believes in the Permanent Portfolio

Post by buddtholomew » Wed Mar 22, 2017 4:02 pm

Adding a 3rd dimension (gold) to a traditional stock and bond investment allocation causes confusion to many.
Breaking out bonds and cash adds even more complexity for some to consider.
Investing in the most volatile asset available for the stock and bond portion sends many to run for the hills.

With the above known to many a PP investor, you can see it is not easy to adopt the approach unless you understand the philosophy.

To the stance that we should not invest in all assets equally since the chance of outcome is not 25% - The PP is designed for ALL economic environments, not only those that happen more or less frequently.
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Re: Nobody believes in the Permanent Portfolio

Post by stuper1 » Wed Mar 22, 2017 4:12 pm

buddtholomew wrote: To the stance that we should not invest in all assets equally since the chance of outcome is not 25% - The PP is designed for ALL economic environments, not only those that happen more or less frequently.
Which is why, to me, the PP seems like a great retirement portfolio. But for an accumulation portfolio, many people would be better off with something a bit more aggressive, like say the GB, which of course basically has the same components as the PP but in different proportions.
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buddtholomew
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Re: Nobody believes in the Permanent Portfolio

Post by buddtholomew » Wed Mar 22, 2017 4:17 pm

stuper1 wrote:
buddtholomew wrote: To the stance that we should not invest in all assets equally since the chance of outcome is not 25% - The PP is designed for ALL economic environments, not only those that happen more or less frequently.
Which is why, to me, the PP seems like a great retirement portfolio. But for an accumulation portfolio, many people would be better off with something a bit more aggressive, like say the GB, which of course basically has the same components as the PP but in different proportions.
I would agree that some additional SC exposure is warranted with the caveat that a downturn in stocks *could result in a larger draw-down. In the accumulation phase makes sense from a risk/reward perspective. Rather than allocate 20% to SC, why not hold between 75/25 and 25/75 S&P500/SCV and still hold 25% stocks.
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