Purpose of the PP

General Discussion on the Permanent Portfolio Strategy

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Xan
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Re: Purpose of the PP

Post by Xan » Sat Dec 08, 2018 3:02 pm

I also hope that both Budd and Mr Vacuum stick around. But if they don't, they're making the right choice for them.

I think Budd's is a cautionary tale. Rationally or not, I believe (and I bet many others here do too) that if I could only hit X million dollars in the brokerage account, then I wouldn't have to worry about money anymore. I could do something more productive and interesting with my life.

Budd has enough saved up for several lifetimes of comfortable living. Yet he's completely bent out of shape at the slightest loss. Not even loss: at the underperformance of his assets against some other asset he could have owned instead.

As an outsider to this situation, I can say that the right answer to Budd's money situation is to put it into, well, largely anything (apart from things that can really go to zero like a small number of individual stocks, junk bonds, etc) and then forget about it.

But would I really be able to do that if I were in that situation? Or would I be like Ebeneezer Scrooge, counting my millions every day to make sure I hadn't lost any? Or worse, counting to make sure I am growing richer as fast as I possibly can, and lamenting if otherwise?

What a pitiable life.

One thing the PP does for me is bring this "don't care" attitude into the here and now, without the millions in the bank. It's simple, it won't lose much, it will recover quickly, and its historical returns are respectable. Also because it's so smooth, I can plan on it being there in case I need to withdraw, whenever that might be. I still have to keep earning and saving, but I certainly hope that when that time is over, I will be doing other things with my life than worrying about not having maximized the gains in my savings.
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Re: Purpose of the PP

Post by pugchief » Sat Dec 08, 2018 4:47 pm

Xan, well said. Thanks for posing that.
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Re: Purpose of the PP

Post by Cortopassi » Sat Dec 08, 2018 5:16 pm

Xan wrote:
Sat Dec 08, 2018 3:02 pm
if I could only hit X million dollars in the brokerage account, then I wouldn't have to worry about money anymore.

One thing the PP does for me is bring this "don't care" attitude into the here and now, without the millions in the bank. It's simple, it won't lose much, it will recover quickly, and its historical returns are respectable. Also because it's so smooth, I can plan on it being there in case I need to withdraw, whenever that might be.
There are so many lessons on this forum I only wish I had back when I graduated college...and not taken until my 40s to figure out!
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Re: Purpose of the PP

Post by Smith1776 » Sat Dec 08, 2018 6:39 pm

One of the fellows on the Bogleheads forums has posted recently about how the Permanent Portfolio is probably the best portfolio allocation for those wanting to setup a family trust -- a portfolio to last indefinitely. I've done some thinking on the issue, and I'm inclined to do the same thing for my children and theirs with the same goal.

If we're talking about the purpose of the PP, it seems to me that time horizon plays a huge role. People like Budd might lament at the PP's short term performance, but I'm beginning to see that the word permanent in the name of the portfolio isn't just for alliteration. If you want to preserve wealth for your heirs and to have the most bulletproof strategy (without crazy complexity), it seems to me that the PP is pretty much where it's at.
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Re: Purpose of the PP

Post by dualstow » Sat Dec 08, 2018 9:06 pm

Smith1776 wrote:
Sat Dec 08, 2018 6:39 pm
One of the fellows on the Bogleheads forums has posted recently about how the Permanent Portfolio is probably the best portfolio allocation for those wanting to setup a family trust -- a portfolio to last indefinitely.
I think that’s why I don’t mind holding gold. I’m not wealthy by many (most?) people’s standards, but I’ll be ok if gold does nothing in my lifetime. It may perform for my heirs one day.
Venezuela’s Gold is Vanishing into Africa
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Re: Purpose of the PP

Post by Smith1776 » Sat Dec 08, 2018 9:23 pm

Yes, me too.

One thing I want to touch on. A lot of people say that gold probably won't do as well if a 70s inflationary environment comes back. They cite that the discoupling from the gold standard and the subsequent price explosion was a one-time event.

I'd submit that if the 70s happens again, gold's price doesn't have to skyrocket to show that its inclusion was worthy. All it has to do is even just maintain purchasing power, which I suspect it would in such a scenario.

Here the key point: it's not just that the 70s was great for gold, it's that it was astonishingly bad for just about everything else. Even if the 70s price spike doesn't happen again, it can still make for an effective diversifier.

Image

The above, as i'm sure we're all familiar with, is the PP (blue) vs a 50/50 (red) portfolio of stocks and bonds in real returns. The 50/50 is underwater for about 12 years. Yes, the PP went up because of the price explosion in gold. However, again, the next time such a scenario happens all gold has to do is just maintain purchasing power and you'll be ahead of the typical boglehead portfolio.

As for TIPS? I still don't like them for the same reasons Craig articulated.
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Re: Purpose of the PP

Post by I Shrugged » Sun Dec 09, 2018 9:27 am

For me, the hope is that the PP avoids big losses and beats inflation by a decent amount. I have a big nest egg too, and the PP gives me a lot of peace of mind. Let's say a person has 10 million hard-earned dollars. Then imagine losing 4 or 5 million of them in a stock market downturn. You could say it's only temporary, ride it out and they will return. Yeah, that's pretty easy to say in abstract. But in real life, hoo boy. I'm down about 800K from the peak early this year. It's a little uncomfortable but I'm not panicking. My 10 year IRR is 6.5% as of today. And for that whole time I've split stocks between US and foreign, and that has cost me.

I will admit to dissonance when a normal stock portfolio beats the PP. It's only natural. The one thing I don't like to see is a negative year. As Budd I think pointed out, there have been more of them lately than advertised. But I think it's because cash has been worthless for several years. To me that is the biggest bug that I have uncovered.
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Re: Purpose of the PP

Post by Tortoise » Sun Dec 09, 2018 11:51 am

2018 YTD performance:

4x25 PP: 1.9% loss, 5.0% volatility
60/40 All-world benchmark: 3.8% loss, 8.0% volatility

What’s not to like about the PP in the comparison above? Lower loss and lower volatility. I’ll take it!

As others have pointed out, it’ll be fun to watch the influx of new and old members flood into this forum the next time the stock market has a really bad year and the PP surprises the BH community by holding steady or even rising.
Last edited by Tortoise on Sun Dec 09, 2018 11:54 am, edited 1 time in total.
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Re: Purpose of the PP

Post by Tortoise » Sun Dec 09, 2018 11:51 am

Oops, accidentally replied to my post when I meant to edit it. Looks like you can’t delete posts on this forum...
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Re: Purpose of the PP

Post by Kriegsspiel » Sun Dec 09, 2018 11:59 am

Nonsense, I delete like half my posts. There's a little 'x' in the top right corner of the post, beside the edit pencil.
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Re: Purpose of the PP

Post by Smith1776 » Mon Dec 10, 2018 12:19 am

I must say, after an absence from the forums for a while, I've quite enjoyed reading Budd's posts since coming back.

Budd's negativity towards the PP always forces me to reconsider my thinking and my position. I believe in one of the posts he mentioned groupthink. Budd has forced me to be introspective and really consider whether the PP is the best choice for me. And for me, I still believe it is.
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Re: Purpose of the PP

Post by Tortoise » Mon Dec 10, 2018 2:31 am

Kriegsspiel wrote:
Sun Dec 09, 2018 11:59 am
Nonsense, I delete like half my posts. There's a little 'x' in the top right corner of the post, beside the edit pencil.
Weird, on my new posts like this one I do see the ‘x’ delete-post button, but on my previous two posts I don’t. (I’m using the mobile version of the site, for what it’s worth.)
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