Nobody believes in the Permanent Portfolio

General Discussion on the Permanent Portfolio Strategy

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dualstow
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Re: Nobody believes in the Permanent Portfolio

Post by dualstow » Wed Mar 22, 2017 5:00 pm

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.
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dualstow
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Re: Nobody believes in the Permanent Portfolio

Post by dualstow » Wed Mar 22, 2017 6:26 pm

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
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eufo
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Re: Nobody believes in the Permanent Portfolio

Post by eufo » Wed Mar 22, 2017 8:12 pm

dualstow wrote: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.
Don't agree with me too strongly or I'm going to change my mind
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Re: Nobody believes in the Permanent Portfolio

Post by Desert » Wed Mar 22, 2017 8:34 pm

eufo wrote:
dualstow wrote: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.
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.
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Re: Nobody believes in the Permanent Portfolio

Post by eufo » Wed Mar 22, 2017 8:53 pm

Desert wrote: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!
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Re: Nobody believes in the Permanent Portfolio

Post by mathjak107 » Thu Mar 23, 2017 3:33 am

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 . ...
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Re: Nobody believes in the Permanent Portfolio

Post by barrett » Fri Mar 24, 2017 8:29 am

modeljc wrote: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 technovelist) 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.
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Re: Nobody believes in the Permanent Portfolio

Post by Thomas Hoog » Wed Mar 29, 2017 4:04 am

Back to topic ?
stuper1 wrote: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.
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Re: Nobody believes in the Permanent Portfolio

Post by technovelist » Wed Mar 29, 2017 7:09 am

Thomas Hoog wrote:Back to topic ?
stuper1 wrote: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.
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Re: Nobody believes in the Permanent Portfolio

Post by sophie » Wed Mar 29, 2017 7:31 am

dualstow wrote: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?
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Re: Nobody believes in the Permanent Portfolio

Post by technovelist » Wed Mar 29, 2017 8:09 am

sophie wrote:
dualstow wrote: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%!
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Re: Nobody believes in the Permanent Portfolio

Post by tennpaga » Wed Mar 29, 2017 10:45 am

Thomas Hoog wrote: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.
About 2 years ago, there was a forum poll on this.

As you can see, 31 people participated.

There were 10 INTPs and 10 INTJs (plus 1 each ENTP and ENTJ), so NT's are common here, like technovelist said.

Only 5 extroverts.
* Gresham's Law: Bad behavior drives out good.
* Gresham's corollary: Avoid participating in systems where good behavior cannot win.

https://fs.blog/2009/12/mental-model-greshams-law/
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