Nobody believes in the Permanent Portfolio

General Discussion on the Permanent Portfolio Strategy

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mathjak107
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Re: Nobody believes in the Permanent Portfolio

Post by mathjak107 » Tue Apr 04, 2017 3:04 am

JFP_SF wrote:Given the big run-up in stocks over the last 8 years (and bonds too), most investors aren't really worrying about risk right now. Investing has fashions like everything else in human affairs.

Me, I worry all the time :)


so when all the assets move in the same direction as they have been every time there is a sniff of rate increase you must still worry all the time .

with the historical interest rate average of 6.30% on the us bond index from 1963 to 2016 which stands at 2.48% today , if you believe in reversion to the means you may still got a whole lot of worrying to do . i know my golden butterfly has been moving as much as a 100% stock portfolio at times .

in fact my golden butterfly now holds the distinction of racking up the biggest one day loss and the biggest one day gain in dollars i have experienced since toning my portfolio down for retirement more than 10 years ago ,

these kind of risk paired portfolio's only do their job when conditions are such that assets don't move together .

the catch 22 situation is that long term these things smooth out and eventually the draw down shrinks . but we use these portfolio's because we are not really interested in the long term gains as much as we are the shorter term and mitigating those temporary drops and swings . .

long term over decades equity's almost always win out . but we want to avoid the wild swings in the shorter term so we are not 100% equity's .

but think about the logic .

we are trying to mitigate the temporary short term drops and swings with assets that can try do that but if you are a longer term investor that mitigation permanently hurts long term gains .

so if these risk paired portfolio's do swing as much in the short term when assets correlate then we are not getting what we signed on for and are merely just giving up long term gains in the end from other assets like equity's . .

these are really unconventional times and we don't really know what to expect from our investments anymore . nothing can be counted on to act like it used to as we have some awful strange bedfellows now .

to be honest , i signed on to the butterfly concept because of all the uncertainty and i wanted to mitigate the shorter term volatility while holding on to the lovely gains i had accumulated in my other portfolio over the last few years . but so far in the months i have been using it i have seen more volatility and less gains than my other model i typically follow . so , the jury is still out as far as the portfolio doing it's job over the time frames you would want it to do it's job best .

i find the dilemma is you want the portfolio because you are more interested in the short term volatility than maximizing gains in the long term yet right now you are getting the volatility of going for maximum gains but not getting them so you say to yourself "whats the point ?" i may as well do what i always did if i have to wait for the long term for the volatility to smooth out anyway . . .

these risk paired portfolio's seem to be more a fair weather friend that stays a friend as long as the expectations are not for continuing of rising rates going back towards the historical norm . otherwise they can't do some of their job's properly like mitigating that volatility in the short term . .
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Re: Nobody believes in the Permanent Portfolio

Post by modeljc » Tue Apr 04, 2017 9:34 am

mathjak107 wrote:
JFP_SF wrote:Given the big run-up in stocks over the last 8 years (and bonds too), most investors aren't really worrying about risk right now. Investing has fashions like everything else in human affairs.

Me, I worry all the time :)


so when all the assets move in the same direction as they have been every time there is a sniff of rate increase you must still worry all the time .

with the historical interest rate average of 6.30% on the us bond index from 1963 to 2016 which stands at 2.48% today , if you believe in reversion to the means you may still got a whole lot of worrying to do . i know my golden butterfly has been moving as much as a 100% stock portfolio at times .

in fact my golden butterfly now holds the distinction of racking up the biggest one day loss and the biggest one day gain in dollars i have experienced since toning my portfolio down for retirement more than 10 years ago ,

these kind of risk paired portfolio's only do their job when conditions are such that assets don't move together .

the catch 22 situation is that long term these things smooth out and eventually the draw down shrinks . but we use these portfolio's because we are not really interested in the long term gains as much as we are the shorter term and mitigating those temporary drops and swings . .

long term over decades equity's almost always win out . but we want to avoid the wild swings in the shorter term so we are not 100% equity's .

but think about the logic .

we are trying to mitigate the temporary short term drops and swings with assets that can try do that but if you are a longer term investor that mitigation permanently hurts long term gains .

so if these risk paired portfolio's do swing as much in the short term when assets correlate then we are not getting what we signed on for and are merely just giving up long term gains in the end from other assets like equity's . .

these are really unconventional times and we don't really know what to expect from our investments anymore . nothing can be counted on to act like it used to as we have some awful strange bedfellows now .

to be honest , i signed on to the butterfly concept because of all the uncertainty and i wanted to mitigate the shorter term volatility while holding on to the lovely gains i had accumulated in my other portfolio over the last few years . but so far in the months i have been using it i have seen more volatility and less gains than my other model i typically follow . so , the jury is still out as far as the portfolio doing it's job over the time frames you would want it to do it's job best .

i find the dilemma is you want the portfolio because you are more interested in the short term volatility than maximizing gains in the long term yet right now you are getting the volatility of going for maximum gains but not getting them so you say to yourself "whats the point ?" i may as well do what i always did if i have to wait for the long term for the volatility to smooth out anyway . . .

these risk paired portfolio's seem to be more a fair weather friend that stays a friend as long as the expectations are not for continuing of rising rates going back towards the historical norm . otherwise they can't do some of their job's properly like mitigating that volatility in the short term . .

I think you need to worry ALL THE TIME if rates ever go back to the 6% level. Cash will lose the least but that won't save us.
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Re: Nobody believes in the Permanent Portfolio

Post by dualstow » Tue Apr 04, 2017 9:46 am

When it comes to investments, I don't worry at all.
I'll leave that to the wise folks.
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Re: Nobody believes in the Permanent Portfolio

Post by farjean2 » Tue Apr 04, 2017 9:54 am

I looked at my Golden Butterfly portfolio yesterday and it was up 2.7% on the year which is just fine with me. If there were a lot of up and down swings on the way I didn't notice and don't care. I also don't care if it's losing out to other portfolios YTD right now (the pure HBPP is probably beating it).

When you say "shorter term volatility" just what time frame are you talking about?
mathjak107 wrote:
JFP_SF wrote:Given the big run-up in stocks over the last 8 years (and bonds too), most investors aren't really worrying about risk right now. Investing has fashions like everything else in human affairs.

Me, I worry all the time :)
in fact my golden butterfly now holds the distinction of racking up the biggest one day loss and the biggest one day gain in dollars i have experienced since toning my portfolio down for retirement more than 10 years ago ,

these kind of risk paired portfolio's only do their job when conditions are such that assets don't move together .

the catch 22 situation is that long term these things smooth out and eventually the draw down shrinks . but we use these portfolio's because we are not really interested in the long term gains as much as we are the shorter term and mitigating those temporary drops and swings . .

long term over decades equity's almost always win out . but we want to avoid the wild swings in the shorter term so we are not 100% equity's .

but think about the logic .

we are trying to mitigate the temporary short term drops and swings with assets that can try do that but if you are a longer term investor that mitigation permanently hurts long term gains .

so if these risk paired portfolio's do swing as much in the short term when assets correlate then we are not getting what we signed on for and are merely just giving up long term gains in the end from other assets like equity's . .

these are really unconventional times and we don't really know what to expect from our investments anymore . nothing can be counted on to act like it used to as we have some awful strange bedfellows now .

to be honest , i signed on to the butterfly concept because of all the uncertainty and i wanted to mitigate the shorter term volatility while holding on to the lovely gains i had accumulated in my other portfolio over the last few years . but so far in the months i have been using it i have seen more volatility and less gains than my other model i typically follow . so , the jury is still out as far as the portfolio doing it's job over the time frames you would want it to do it's job best .

i find the dilemma is you want the portfolio because you are more interested in the short term volatility than maximizing gains in the long term yet right now you are getting the volatility of going for maximum gains but not getting them so you say to yourself "whats the point ?" i may as well do what i always did if i have to wait for the long term for the volatility to smooth out anyway . . .

these risk paired portfolio's seem to be more a fair weather friend that stays a friend as long as the expectations are not for continuing of rising rates going back towards the historical norm . otherwise they can't do some of their job's properly like mitigating that volatility in the short term . .
Last edited by farjean2 on Tue Apr 04, 2017 1:58 pm, edited 3 times in total.
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Re: Nobody believes in the Permanent Portfolio

Post by Cortopassi » Tue Apr 04, 2017 9:59 am

dualstow wrote:When it comes to investments, I don't worry at all.
I'll leave that to the wise folks.
Yes. I read these comments by MJ and others thinking that any of us have the skill to know what bucket to place our money into given the current state of the world and think they are fooling themselves. For sure, I know people who've done it successfully. Not me, and that's why I am here.

Can rates ever get back to 6%+? I personally think long before that we will be in another recession/collapse and the Fed will need to drop rates again.
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Re: Nobody believes in the Permanent Portfolio

Post by mathjak107 » Tue Apr 04, 2017 10:03 am

i don't think we will see 6% for a while but all we need is just to keep seeing these tiny hikes and that may keep assets moving together .

it isn't a question of guessing what is next . it is merely the fact that the volatility is there no matter what you do it seems , like it or not . in the short term it is what it is and longer term protecting against short term dips becomes irrelevant since it is the short term we would like to mitigate . .

my point is that we can't control the potential scenario's and there will be times like now that these risk pairing portfolio's are actually more volatile than conventional portfolio's .
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Re: Nobody believes in the Permanent Portfolio

Post by dualstow » Tue Apr 04, 2017 10:38 am

mathjak107 wrote:these risk pairing portfolio's
I like it! I mean, I think it's supposed to be risk-paring, cutting down risk as with a paring knife.
But in a way, we're pairing risks against each other. You accidentally invented a cool new term.
We won't get into the apostrophe. :(
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Re: Nobody believes in the Permanent Portfolio

Post by Jack Jones » Tue Apr 04, 2017 12:37 pm

dualstow wrote:
mathjak107 wrote:these risk pairing portfolio's
We won't get into the apostrophe. :(
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Re: Nobody believes in the Permanent Portfolio

Post by Cortopassi » Tue Apr 04, 2017 1:31 pm

A major part of the PP is to specifically invest in volatile assets, and rebalance out of one into others based off bands or time.

I started buying gold in 2008. If instead of the investing I did, I went right into the PP in 2008, peak to trough shows that I would have rebalanced because of:

Bonds in 11/2008, due to increase
Gold in 4/2011, due to increase
Stocks in 7/2015, due to increase

This is telling me that the rebalancing bands are working to everyone's favor in the PP and volatility should be welcomed.

The bond rebalance came at a transitory top in late 2008. The gold rebalance ticked nearly the exact top of gold around $1900. The most recent stock rebalance captured a lot of the gain along the way.

Sure, Jan 2008 is arbitrary, and I chose it because that's when I made my first gold purchase.
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Re: Nobody believes in the Permanent Portfolio

Post by dualstow » Tue Apr 04, 2017 1:40 pm

Cortopassi wrote: I started buying gold in 2008. If instead of the investing I did, I went right into the PP in 2008, peak to trough shows that I would have rebalanced ...
I think I get it but could you clarify? Does this mean you eased into the PP because you were easing into gold?
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Re: Nobody believes in the Permanent Portfolio

Post by Cortopassi » Tue Apr 04, 2017 1:58 pm

I got sick of my investing style from 1989 to 2008 (one word: haphazard) and a buddy turned me onto gold, so I started buying it, since I had none, and miners (stupid). Went great for quite some time, until 2011, when I was riding high, and then gold started dropping like a rock and has yet to recover.

I spent 2011-2014 pretty much in cash, watching the market rise. Getting burned in 2008 and dumping most everything at the exact wrong time and buying into the "sure thing" of gold at the time made a lot of sense, until getting burned from gold and miners.

In late 2013 I happened upon Craig's book, changed all holdings into the PP in early 2014 and have been in the PP ever since.

It doesn't matter that I am giving up potentially larger gains by not being in stocks, or that I should have less bonds because of interest rates having nowhere to go but up, or why am I holding a barbarous relic.

Everyone I have ever listened to, and adjusted my strategy because of, has been lopsided wrong, either in the stock, bond or gold direction. You can still find hundreds of shills out there telling the latest sucker the end of the world is coming, you need to get into gold and silver. Or conversely, get out of bonds. Or the market can't go any higher (or won't stop going up ever).

Figured it was time in 2014 to drop the emotions and get a little piece of the action in all those assets, and I can attest under oath that I have never been calmer or less stressed when it comes to money.

I applaud those who have been able to make the right calls, or have the balls to stick it out through a rough patch like 2008. That is not me, and the PP has saved my ass.

When I'm driving home and the business report comes on to try to explain what drive the latest rise or fall in the markets, I just laugh.
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Re: Nobody believes in the Permanent Portfolio

Post by mathjak107 » Tue Apr 04, 2017 2:11 pm

well it does not mean today you are any better insulated . like i said with all asset classes moving together in these big up swings or down swings the volatility and losses may be worse .

as i said the growth and income model i follow as well as the butterfly is doing better and so far has smaller swings .

in the end discipline will determine how you do . to date over the long term no one would have lost a penny in the markets over a typical accumulation stage except for poor investor actions
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