Nobody believes in the Permanent Portfolio

[modeljc]

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.

[Cortopassi]

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.

[ochotona]

Never take your validation from numbers. That's classic herding behavior.

[Libertarian666]

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.

[mathjak107]

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]

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.

[dualstow]

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.

[buddtholomew]

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.

[stuper1]

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.

[buddtholomew]

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.

[dualstow]

I do think it's kind of funny that the OP's friend thinks we're doomers but he's all in CD's.
Not exactly a bet on prosperity.

[dualstow]

Jack Bogle believes the stock market will return only 4% annually over the next decade
http://www.cnbc.com/2017/03/22/jack-bog ... ecade.html

[eufo]

I do think it's kind of funny that the OP's friend thinks we're doomers but he's all in CD's.
Not exactly a bet on prosperity.

Ha! Good point.

There's a point I haven't seen mentioned here, but when those doom days happen, it's way more than discipline you need to avoid selling your equities. Most working folks end up feeling the pinch in some kind of meaningful way, up to losing multiple income streams at once. When this happens and you need money... guess what you eventually end up digging into. Not a big deal at first, but it can exacerbate equity selling if the recession is a longer one. Would you rather be selling your bonds and gold at their highs or your stocks at half their pre-recession value? PP saves you in this scenario while also allowing you to ride your equities back up afterwards.

The obvious tradeoff is that your non-recession returns are weak as hell... but I think PP is more a place to HOLD wealth than to create it.

[eufo]

I think the point in your first paragraph is critical. When the market plunges, there are often other bad events going on, including job loss. So it's not always the case that investors "panic" and sell in downturns (though they often do); some sell because they simply need the money. The HBPP with 25% in cash provides a nice cushion in such events.

Way more succinct than my rambling thoughts! Yes!

This is a fact that is easier to understand for those of us that have been impacted by a downturn. During the Great Recession I took a roughly 35% pay cut, but was happy to keep my job as I saw many lose theirs. When money gets tight, options decrease and it becomes necessity instead of irrationality. After going through that, I will always have substantial cash reserves in my portfolio... returns be damned! Lol!

[mathjak107]

you guys are getting to wrapped up in this cash thing . the fact is even a retiree who spent down from 100% stock would have had a high success rate of it not being a problem . the higher gains in the up markets allow a bigger cushion for spending in the down markets .

you would really have to have some pretty bad luck of needing that money awfully quick before your first up blast . in which case you should have had an emergency fund regardless .

in the end likely much ado about not much in practice from a cash stand point . before i ran the gb i could have sold some bonds once i ran out of cash from my conventional model with no ill effects . .it is not important that the model hold cash for emergency spending . like i said the higher gains without holding the cash will make up for it .

the cash is an integral part of the pp or gb and not for spending reasons but because it balances out the barbell with the long term bonds creating a duration in the middle . the cash acts as stock options to buy stocks at lower prices but with no expiration date .

the cash is there for a reason and should be no part of your "spending " anymore than any other piece of it . if you need it , it is there in a pinch but so is every other asset that can be sold in a pinch and odds are one of them had a higher run up than cash and could be easily drawn from instead .

you don't need to invent reasons for holding the cash , a diversified portfolio with no cash can always sell some bonds , so spending is not really one of the reasons nor would i say a benefit in the pp or gb , it is just another asset that is a needed piece of the pie and should not be a first line source of funds anymore than any other part . if it is needed , well it is not going to be any better of a choice than someone who draws an income from a conventional portfolio and maintains a constant allocation by selling off equal parts of the total portfolio pie when needed , whether up or down .

cash buckets provide no advantage over systematically withdrawing from the pie in up or down markets which is what you are trying to reinvent here by rationalizing uses for the cash portion of the pp . ...

[barrett]

My friend Charles (Retired) asked me why we only have about 600 registered members. For a world wide forum and a recent book he suggested we were very much on the fringe of the investment world. Charles just can't buy the idea of Cash not earning anything. Long bonds scare him to death. Also he can't own gold as there is no return, and no one knows how to value it.

ARE WE WRONG? And are we on the Fringe? And why don't we have more Believers?

Almost all investors (except our good friend Libertarian666) want to hold stocks because they allow one to benefit from economic growth. For those of us who believe it's wise to mitigate the risks of being 100% in equities, there is then a decision to be made about how to go about doing that. Bogleheads do it with bonds (I believe it's generally TBM). That is a fine solution most of the time, but that mix can do poorly for rather extended periods as Tyler's work has shown. I get what mathjak is saying when he talks about one's pucker factor, but I think most on here want a smoother, more boring path.

If an investor is going to hold an asset at all, it never made sense to me that it would be less than 10% or so. For example, the standard advice on gold, if it's even considered at all, is just to hold a tiny bit... maybe 5% at the most. The problem is that if gold actually does have a role to play in a portfolio, then 5% is probably too small an allocation. If one accepts that everything up to this point isn't just BS, then there are choices regarding how to go about truly diversifying away from stocks and TBM.

The PP, GB, Desert, etc. are just variations on a theme. Probably none of them are right for Charles. As for no one knowing how to value gold, does anyone know how to value the USD? The value of it is likely going to be quite a bit lower 20 years from now than it is today. But now I am biting off more than intended for one post.

[Thomas Hoog]

Back to topic ?

No, we are not wrong, because we believe in passive, low-expense-ratio, well-diversified investing. In fact, our investing is actually better diversified than the typical stock/bond portfolio, because we also hold a valuable commodity (gold) which is uncorrelated with stocks/bonds. You only have to look back to the period of say 2000 to 2010 to see the positive impact of gold on the portfolio.

Yes, we are on the fringe, because most people think we are crazy. Let them think whatever they want, but when the stock market hits the skids for several years in a row, they may think a little differently. And if TEOTWAWKI happens, they may think a lot differently, but those of us with physical gold will have something to preserve wealth through to the other side.

We don't have more believers, because most people just trust what the "experts" tell them, rather than digging into things themselves. But of course the experts often have hidden agendas.

Because it is a intriguing question. Agree with the last opion. However that does not answer the question why we are different ? There was once a topic about Brigss Meyer archtypes. And I remember that there was a huge majority on INTP profile ( not sure ?). So maybe it just a Pyschogic answer. So all to human.

[Libertarian666]

Back to topic ?

No, we are not wrong, because we believe in passive, low-expense-ratio, well-diversified investing. In fact, our investing is actually better diversified than the typical stock/bond portfolio, because we also hold a valuable commodity (gold) which is uncorrelated with stocks/bonds. You only have to look back to the period of say 2000 to 2010 to see the positive impact of gold on the portfolio.

Yes, we are on the fringe, because most people think we are crazy. Let them think whatever they want, but when the stock market hits the skids for several years in a row, they may think a little differently. And if TEOTWAWKI happens, they may think a lot differently, but those of us with physical gold will have something to preserve wealth through to the other side.

We don't have more believers, because most people just trust what the "experts" tell them, rather than digging into things themselves. But of course the experts often have hidden agendas.

Because it is a intriguing question. Agree with the last opion. However that does not answer the question why we are different ? There was once a topic about Brigss Meyer archtypes. And I remember that there was a huge majority on INTP profile ( not sure ?). So maybe it just a Pyschogic answer. So all to human.

Certainly most PPers will be NT types, although not necessarily INTP specifically. I'm an ENTP, for example, but of course I'm not a "real" PPer, although I was in the past and still think it is fine for people who don't have my specific concerns.

[sophie]

Jack Bogle believes the stock market will return only 4% annually over the next decade
http://www.cnbc.com/2017/03/22/jack-bog ... ecade.html

Interesting statement worth resurrecting for further discussion!

What struck me about this is that it's not really fair to judge the stock market by a 10 year (decade) time horizon. If the stock market returns 4% annually over the next decade, it will have beat many past 10 year periods. Historically, stocks have had losing periods lasting up to 15 years.

The article suggests that Jack Bogle thinks we are due for a big correction in stocks sometime in the next 10 years, and he may well be right. I guess the message is "don't get too carried away with stocks", as many are currently doing because of the recent outperformance. They'll be in for a shock eventually. Why is it that despite 2008-9, 2000-2001, 1987 etc, people are STILL surprised when this happens?

[Libertarian666]

Jack Bogle believes the stock market will return only 4% annually over the next decade
http://www.cnbc.com/2017/03/22/jack-bog ... ecade.html

Interesting statement worth resurrecting for further discussion!

What struck me about this is that it's not really fair to judge the stock market by a 10 year (decade) time horizon. If the stock market returns 4% annually over the next decade, it will have beat many past 10 year periods. Historically, stocks have had losing periods lasting up to 15 years.

The article suggests that Jack Bogle thinks we are due for a big correction in stocks sometime in the next 10 years, and he may well be right. I guess the message is "don't get too carried away with stocks", as many are currently doing because of the recent outperformance. They'll be in for a shock eventually. Why is it that despite 2008-9, 2000-2001, 1987 etc, people are STILL surprised when this happens?

Recency bias.

One clue that the stock market is due for a good thumping is threads on bogleheads about how people are wussies for not being 100% in stocks. Or in some cases "just" 100%!

[Xan]

It may be that those are the people attracted to investment forums. It may be that the PP is not unique in this regard.

Also, the respondents to that survey are not necessarily representative of everybody on this forum. Those are the subset of people here who happen to know their Myers-Briggs type. Seems to me (but maybe it's not true) that the "I"s are more likely to fit that description.

[Tyler]

Also, the respondents to that survey are not necessarily representative of everybody on this forum. Those are the subset of people here who happen to know their Myers-Briggs type. Seems to me (but maybe it's not true) that the "I"s are more likely to fit that description.

In my own unscientific experience, whenever I see a reference to Myers-Briggs there's a 99% chance the author identifies as INT*. Rationally categorizing everything is part of the personality trait, after all.

[l82start]

i have seen the topic of myers brigs come up on other forums over the years and the results are similar to here, it may be that "forum posting" itself as a form of communication is the draw to intj as much or more than the forums topics are.

[Libertarian666]

i have seen the topic of myers brigs come up on other forums over the years and the results are similar to here, it may be that "forum posting" itself as a form of communication is the draw to intj as much or more than the forums topics are.

INTx are about 10x as common in online fora than in real life.

[tim47]

Well, here is one ENFP... now I know why I do not contribute to the ongoing dialogue....