Purpose of the PP

General Discussion on the Permanent Portfolio Strategy

Moderator: Global Moderator

User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Purpose of the PP

Post by buddtholomew » Tue Nov 13, 2018 2:04 pm

Thanks for the thoughtful responses.
For the record I am invested 70/30 in retirement accounts so don’t feel I have missed the rise in equities by any means.
I have just lost faith in the portfolio to provide stability during market fluctuations (10% or greater) and it has failed to do so during the recent pullback in stocks.
When stocks enter a correction or bear market I want to buy stocks and not sit in Gold and LTT’s.
Hope that makes sense.
DragonJoey3
Full Member
Full Member
Posts: 56
Joined: Wed Dec 05, 2012 3:00 pm

Re: Purpose of the PP

Post by DragonJoey3 » Tue Nov 13, 2018 2:19 pm

buddtholomew wrote:
Tue Nov 13, 2018 2:04 pm
Thanks for the thoughtful responses.
For the record I am invested 70/30 in retirement accounts so don’t feel I have missed the rise in equities by any means.
I have just lost faith in the portfolio to provide stability during market fluctuations (10% or greater) and it has failed to do so during the recent pullback in stocks.
When stocks enter a correction or bear market I want to buy stocks and not sit in Gold and LTT’s.
Hope that makes sense.
I think looking at the data shows that the recent declines in the HBPP are well within the error bounds for the portfolio. It's still been stable as far as I can tell. I think the main beef you have which is accurate is that the returns can be higher with only slightly more risk. I came to that conclusion as well, and hence I'm more along the lines of the Golden Butterfly.

I still think it's a good portfolio for preservation of capital you don't want to lose, and always happy to banter with someone as successful as yourself budd.

~DragonJoey3
User avatar
Kriegsspiel
Executive Member
Executive Member
Posts: 4052
Joined: Sun Sep 16, 2012 5:28 pm

Re: Purpose of the PP

Post by Kriegsspiel » Tue Nov 13, 2018 4:06 pm

I'm with you here DragonJoey3. Like I said, I think of the PP more like cash. The PP is the safe side of my barbell, and the other side has been 100% stocks (and now I'm getting into more real estate). So I don't even bother taking more risk in the safe side by tilting towards riskier assets, I just put more in my VP bucket if I want to take more risk. Very simple, and it fits my personality.

I figure having at least 10 years of expenses in the PP bucket will let you ride out any disasters wrought in the VP. Or at least give you some runway to get another job if you're really ruined.
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Purpose of the PP

Post by buddtholomew » Tue Nov 13, 2018 5:14 pm

Kriegsspiel wrote:
Tue Nov 13, 2018 4:06 pm
I'm with you here DragonJoey3. Like I said, I think of the PP more like cash. The PP is the safe side of my barbell, and the other side has been 100% stocks (and now I'm getting into more real estate). So I don't even bother taking more risk in the safe side by tilting towards riskier assets, I just put more in my VP bucket if I want to take more risk. Very simple, and it fits my personality.

I figure having at least 10 years of expenses in the PP bucket will let you ride out any disasters wrought in the VP. Or at least give you some runway to get another job if you're really ruined.
You describe what I hope to accomplish in a single taxable portfolio - incorporate the VP into the PP.
Maybe for me thats 35/15/15/35
User avatar
dualstow
Executive Member
Executive Member
Posts: 14232
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Purpose of the PP

Post by dualstow » Tue Nov 13, 2018 6:51 pm

Great stuff, Dragon Joey.
I started the pp in late 2010 so I like a pep talk, too, once in a while.
So far so good, though. I am just glad I didn't take all my money and invest it in sapphire screens for iPhone.
Sam Bankman-Fried sentenced to 25 years
User avatar
Kriegsspiel
Executive Member
Executive Member
Posts: 4052
Joined: Sun Sep 16, 2012 5:28 pm

Re: Purpose of the PP

Post by Kriegsspiel » Tue Nov 13, 2018 7:25 pm

buddtholomew wrote:
Tue Nov 13, 2018 5:14 pm
Kriegsspiel wrote:
Tue Nov 13, 2018 4:06 pm
I'm with you here DragonJoey3. Like I said, I think of the PP more like cash. The PP is the safe side of my barbell, and the other side has been 100% stocks (and now I'm getting into more real estate). So I don't even bother taking more risk in the safe side by tilting towards riskier assets, I just put more in my VP bucket if I want to take more risk. Very simple, and it fits my personality.

I figure having at least 10 years of expenses in the PP bucket will let you ride out any disasters wrought in the VP. Or at least give you some runway to get another job if you're really ruined.
You describe what I hope to accomplish in a single taxable portfolio - incorporate the VP into the PP.
Maybe for me thats 35/15/15/35
To be clear, I meant that I use a simple implementation of the vanilla 4x25. I don't have to think about it at all, no decisions to be made. The VP is where I do all of my deciding. AFAICT I'm doing what Harry believed one should do.

I think ocho or mathjak would read that and tweek out ("Agghh it's all one portfolio! All one risk profile! Arggg!") but I don't (mentally) incorporate my VP into my PP like you said.
flyingpylon
Executive Member
Executive Member
Posts: 1102
Joined: Fri Jan 06, 2012 9:04 am

Re: Purpose of the PP

Post by flyingpylon » Wed Nov 14, 2018 10:07 am

Shown below is a chart of the S&P 500 during my "investing life". Got laid off in 2002 for 7 months. Started PP in early 2012 figuring that the market can fool me once, fool me twice, but I'm not going to take it in the shorts a third time. I have since migrated to a GB allocation and have done away with the concept of a VP.

I share this only to point out that those of us that started investing before 2009 may have a very different perspective than those that did not, and for good reason. Everyone will get their "smackdown" eventually, in one form or another. I didn't seriously consider protecting against it until I got older and wiser and had a lot more to lose.

Image
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Purpose of the PP

Post by buddtholomew » Wed Nov 14, 2018 10:51 am

flyingpylon wrote:
Wed Nov 14, 2018 10:07 am
Shown below is a chart of the S&P 500 during my "investing life". Got laid off in 2002 for 7 months. Started PP in early 2012 figuring that the market can fool me once, fool me twice, but I'm not going to take it in the shorts a third time. I have since migrated to a GB allocation and have done away with the concept of a VP.

I share this only to point out that those of us that started investing before 2009 may have a very different perspective than those that did not, and for good reason. Everyone will get their "smackdown" eventually, in one form or another. I didn't seriously consider protecting against it until I got older and wiser and had a lot more to lose.

Image
Maybe missing the point but you increased your stock allocation AFTER experiencing 2008/2009. That is what I am advocating as well. I’ve experienced a 25% decline as well as a 20% decline in...wait for it...gold and LTT’s. Yup, biggest losses have come in those assets. Id rather experience this volatility in an asset class that actually pays you for the risk.
User avatar
Cortopassi
Executive Member
Executive Member
Posts: 3338
Joined: Mon Feb 24, 2014 2:28 pm
Location: https://www.jwst.nasa.gov/content/webbL ... sWebb.html

Re: Purpose of the PP

Post by Cortopassi » Wed Nov 14, 2018 10:58 am

Image
flyingpylon
Executive Member
Executive Member
Posts: 1102
Joined: Fri Jan 06, 2012 9:04 am

Re: Purpose of the PP

Post by flyingpylon » Wed Nov 14, 2018 11:44 am

buddtholomew wrote:
Wed Nov 14, 2018 10:51 am
Maybe missing the point but you increased your stock allocation AFTER experiencing 2008/2009. That is what I am advocating as well. I’ve experienced a 25% decline as well as a 20% decline in...wait for it...gold and LTT’s. Yup, biggest losses have come in those assets. Id rather experience this volatility in an asset class that actually pays you for the risk.
I was essentially 100% stocks, then PP with a VP in stocks, then stopped fooling myself and just moved to GB with no VP. So at least in my little reality bubble, I don't consider that to be an increase in stocks.

Perhaps you view volatility differently because you haven't really been burned yet and also because you're starting from a far larger base to begin with. I was pretty cavalier about stock volatility until 2008-9. But experiencing a decline in one or two components of a larger portfolio that is doing "okay" overall is not what I'd call getting burned or smacked down.

One of the larger points made about the PP is to not fixate on individual components but to consider the performance of the portfolio as a whole. That's what I try to do, and the only time it seems to bother me much is when I have to rebalance cash contributions.
jacksonM
Executive Member
Executive Member
Posts: 364
Joined: Wed Sep 26, 2018 1:59 pm

Re: Purpose of the PP

Post by jacksonM » Wed Nov 14, 2018 12:29 pm

The year that gold had it's major meltdown helped convince me to stick with the PP. Unlike Bud, I just don't look when I suspect I won't like what I see so when I finally did I was pleasantly surprised to see that the whole portfolio was down only about 2%. Contrast this with 2008 when stocks had a major meltdown and I was down about 40%. So in my mind, the PP was serving it's purpose.
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Purpose of the PP

Post by buddtholomew » Wed Nov 14, 2018 1:10 pm

Haha, so the PP wakes up today...
I’m not abandoning the PP, just changing the percentages to suit my temperament.
Stocks are down, Gold and LTT’s are up and I am down .05%. That works for me.
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Purpose of the PP

Post by buddtholomew » Mon Nov 19, 2018 10:55 am

But alas it was not meant to be.
Gold and LTT’s just sitting there while market down 1.6%
We should change the name to the Perplexed Portfolio

But Budd, the PP doesn’t work on a daily basis...
You’re right, it doesn’t work on a daily, weekly, monthly, annual or decade basis either.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14232
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Purpose of the PP

Post by dualstow » Mon Nov 19, 2018 1:17 pm

Wow, stocks are broadly down 2%.
Sam Bankman-Fried sentenced to 25 years
User avatar
Cortopassi
Executive Member
Executive Member
Posts: 3338
Joined: Mon Feb 24, 2014 2:28 pm
Location: https://www.jwst.nasa.gov/content/webbL ... sWebb.html

Re: Purpose of the PP

Post by Cortopassi » Mon Nov 19, 2018 1:51 pm

budd, not perfect but for most, ~50% of their portfolio is doing a halfway decent job buffering a bad day in stocks. So it is working as a diversifier.
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Purpose of the PP

Post by buddtholomew » Mon Nov 19, 2018 1:57 pm

Cortopassi wrote:
Mon Nov 19, 2018 1:51 pm
budd, not perfect but for most, ~50% of their portfolio is doing a halfway decent job buffering a bad day in stocks. So it is working as a diversifier.
Yes that is true, but come on .26% and .17% for gold and LTT’s respectively. Not only that but these investments are -ve YTD so should be attractive when stocks are down 2%. Yet no, they aren’t.
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: Purpose of the PP

Post by Kbg » Mon Nov 19, 2018 2:32 pm

buddtholomew wrote:
Mon Nov 19, 2018 10:55 am
But alas it was not meant to be.
Gold and LTT’s just sitting there while market down 1.6%
We should change the name to the Perplexed Portfolio

But Budd, the PP doesn’t work on a daily basis...
You’re right, it doesn’t work on a daily, weekly, monthly, annual or decade basis either.
The decade statement, demonstrably, factually wrong. Daily, weekly, monthly, annual...concur.
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Purpose of the PP

Post by buddtholomew » Mon Nov 19, 2018 2:55 pm

Kbg wrote:
Mon Nov 19, 2018 2:32 pm
buddtholomew wrote:
Mon Nov 19, 2018 10:55 am
But alas it was not meant to be.
Gold and LTT’s just sitting there while market down 1.6%
We should change the name to the Perplexed Portfolio

But Budd, the PP doesn’t work on a daily basis...
You’re right, it doesn’t work on a daily, weekly, monthly, annual or decade basis either.
The decade statement, demonstrably, factually wrong. Daily, weekly, monthly, annual...concur.
Well as long as it is demonstrably...
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Purpose of the PP

Post by buddtholomew » Tue Nov 20, 2018 10:20 am

Wow, so glad I invested in the Perplexed Portfolio.
Don’t worry, by end of year I am gone permanently.
Good luck with this piece of shit.
jacksonM
Executive Member
Executive Member
Posts: 364
Joined: Wed Sep 26, 2018 1:59 pm

Re: Purpose of the PP

Post by jacksonM » Tue Nov 20, 2018 11:01 am

buddtholomew wrote:
Tue Nov 20, 2018 10:20 am
Wow, so glad I invested in the Perplexed Portfolio.
Don’t worry, by end of year I am gone permanently.
Good luck with this piece of shit.
I think it's a wise thing that you are finally going to abandon it. A portfolio that causes you such angst is obviously not the right one for you. Hopefully you will find one that gives you more peace of mind. If you do, please come back and tell us about it. We'll promise not to tell you what a bad portfolio it is.
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Purpose of the PP

Post by buddtholomew » Tue Nov 20, 2018 12:08 pm

So it’s meeting everyone’s expectations?
Come on, you’re not serious or lying to yourself if you’re not surprised at how poor the PP is responding.
There have been 3 or 4 negative years for the PP in history and another is on the way...
barrett
Executive Member
Executive Member
Posts: 1982
Joined: Sat Jan 04, 2014 2:54 pm

Re: Purpose of the PP

Post by barrett » Tue Nov 20, 2018 12:48 pm

buddtholomew wrote:
Tue Nov 20, 2018 12:08 pm
So it’s meeting everyone’s expectations?
Come on, you’re not serious or lying to yourself if you’re not surprised at how poor the PP is responding.
There have been 3 or 4 negative years for the PP in history and another is on the way...
In real terms it's actually been negative about a quarter of the time. See here:

https://portfoliocharts.com/portfolio/p ... portfolio/

Ditto for a Bogleheads-style 60/40 with the highs being higher and the lows lower. Here is that link:

https://portfoliocharts.com/portfolio/classic-60-40/

budd, honestly I wish that the PP were doing better during my time frame (2014 to present) but I think there are a lot of funky economic headwinds that we are faced with at the moment and I'm not willing to go stock heavy. We are emerging from a long period of ZIRP and serious Fed stimulation that was intended to push up stock and bond prices. The 2017 tax cuts helped stocks a lot as well, at least until recently.

From my point of view only cash looks very attractive because holding a big slice allows me to continue on with my life while the mayhem of gold, stocks and treasuries get sorted out. From a starting point of 3% or so there is just not a lot of potential upside on 30-year treasuries. Absent any kind of sustained USD weakness I don't expect gold to do much. Looks like the CAPE 10 is just under 30 which could portend a stretch of mediocrity (or worse) for stocks. Add in the fact that this recovery has only been strong for wealthier Americans and, well, I guess I just don't see that a concentrated bet on stocks is prudent for me. Your situation/personality are probably different from mine and you should just go with an investment mix that you are more comfortable with.

With invested cash yields being cancelled out by inflation and my low short to mid-term expectations for the other three assets being poor, I expect any balanced approach to struggle for a few years. Portfolios are only capable of providing the returns of their underlying assets. I mean, I think that's obvious but sometimes we feel like we "deserve" more than the markets are capable of delivering.

Just my two cents worth. If you decide to go 70/30, 60/40 or whatever and it works out great for you, that's good for me as well as I'll at least be holding some of the same stuff.

Life is short. Your income makes it obvious that you are contributing something of value to society. Crappy skills are seldom rewarded. It just doesn't make sense to have an asset mix that pisses you off.
jacksonM
Executive Member
Executive Member
Posts: 364
Joined: Wed Sep 26, 2018 1:59 pm

Re: Purpose of the PP

Post by jacksonM » Tue Nov 20, 2018 1:36 pm

buddtholomew wrote:
Tue Nov 20, 2018 12:08 pm
So it’s meeting everyone’s expectations?
Come on, you’re not serious or lying to yourself if you’re not surprised at how poor the PP is responding.
There have been 3 or 4 negative years for the PP in history and another is on the way...
Speaking only for myself, I don't have any short term expectations for the portfolio and as a matter of fact I wouldn't have even known it was doing so badly if it wasn't for your posts. The last time I looked at it was in January when I re-balanced. Like with with any portfolio I've seen negative years before but never anything like I saw when I was stock heavy. I think one of the authors of the book who used to post here once said that he would consider abandoning the PP if it had several negative years in a row. I would probably do the same but I would have to find another strategy that worked better without the risk of large draw downs.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Purpose of the PP

Post by ochotona » Tue Nov 20, 2018 6:59 pm

I think it's as timely a time to enter the PP as I have seen in my four years of watching it.

Stocks starting to get beat up, long bonds have gotten beaten up, gold bouncing along possibly along the bottom after getting smacked down, cash finally paying interest.

Why not now?
User avatar
Tortoise
Executive Member
Executive Member
Posts: 2751
Joined: Sat Nov 06, 2010 2:35 am

Re: Purpose of the PP

Post by Tortoise » Tue Nov 20, 2018 8:12 pm

ochotona wrote:
Tue Nov 20, 2018 6:59 pm
I think it's as timely a time to enter the PP as I have seen in my four years of watching it.

Stocks starting to get beat up, long bonds have gotten beaten up, gold bouncing along possibly along the bottom after getting smacked down, cash finally paying interest.

Why not now?
Yup.

It’s darkest before the dawn.

The time to buy is when there’s blood in the streets.

Everyone hates the PP right now. Even PP investors. This is when the smart money enters.
Post Reply