3 years of PP returns

General Discussion on the Permanent Portfolio Strategy

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modeljc
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3 years of PP returns

Post by modeljc » Sat Jun 08, 2019 6:31 pm

PP Returns:

Last 12 months 6.6%

Last 24 months 4.8%

Last 36 months 4.9%

YTD 7.9%

If you take out inflation of 2% or so these returns appear to be about 1% or 2% LOW vs history.

If we have had actual DEFLATION of 1% maybe we are OK?

Anybody Happy?
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Re: 3 years of PP returns

Post by pmward » Sun Jun 09, 2019 9:16 am

I'm not sure how much one can judge a portfolio on just 3 years time... There's not a portfolio in the world that doesn't have 3 year+ cold streak. It could be worse, you could be not diversified all in on stocks and suffer decade long+ timeframes of being negative.
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Re: 3 years of PP returns

Post by Tortoise » Sun Jun 09, 2019 2:39 pm

Agreed, three years is too short of a timeframe from which to judge the PP.

As has been noted in discussions on this forum over the years, the PP can have (and actually has had, once or twice) negative returns for rolling time windows of up to about three years.

If I recall, there are very few portfolios, if any, that have a better track record than that of the PP in terms of minimizing the worst-case duration of negative returns in a rolling time window.

What the PP lacks in offense, it makes up in defense.
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Re: 3 years of PP returns

Post by modeljc » Sun Jun 09, 2019 5:43 pm

Tortoise wrote:
Sun Jun 09, 2019 2:39 pm
Agreed, three years is too short of a timeframe from which to judge the PP.

As has been noted in discussions on this forum over the years, the PP can have (and actually has had, once or twice) negative returns for rolling time windows of up to about three years.

If I recall, there are very few portfolios, if any, that have a better track record than that of the PP in terms of minimizing the worst-case duration of negative returns in a rolling time window.

What the PP lacks in offense, it makes up in defense.
It was med. tex or the book that did 3 year rolling returns. A great time frame in my view when you have 40 year of history. These returns look lower than 40 year of history after adjusting for real returns. Are they? They used year end. But these look 1 or 2% lower than 40 year of history.

My book is out with a friend so I can't check. But some of us think deflation has come in to play.
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Re: 3 years of PP returns

Post by flyingpylon » Mon Jun 10, 2019 8:59 am

Tortoise wrote:
Sun Jun 09, 2019 2:39 pm
What the PP lacks in offense, it makes up in defense.
Offense sells tickets, defense wins championships.
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Re: 3 years of PP returns

Post by mathjak107 » Tue Jun 11, 2019 5:18 am

what i find funny is when there is a short term market downturn everyone seems to cheer about how the pp did so well by not falling but when the results are weak for 3 years all of a sudden you can't tell much from the short term .
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Re: 3 years of PP returns

Post by Kriegsspiel » Tue Jun 11, 2019 7:23 am

I'm getting 10.24% as the YTD nominal returns using VTI, VGLT, VGSH, and IAU.

The PP is due for a good year since the CAGR has been trending lower than the 3-4% real returns I expect from it. Medium Tex said he'd reevaluate the PP if it had a 3 year negative real return:
MediumTex wrote:
Tue May 03, 2011 12:24 pm
gizmo_rat wrote: The question that I can't answer is at what point would I know if I'm in trouble with the PP ?
As far as how to determine when the permanent portfolio is no longer working, I would say that a rolling three year period of losses would be cause for a re-evaluation of the strategy.  As it is, however, the permanent portfolio has worked almost absurdly well.  I mean, the chart really says it all.  It works (or at least it has worked for almost 40 years). 

I think that the problem people have is they get tangled up in their own analysis--first, they think the PP shouldn't work at all, then they may concede that it appears to have worked in the past, then they say that it will probably stop working soon, but they aren't exactly sure why, and then they start offering their personal analysis of each asset class...and so on.

For people who pride themselves on being sophisticated, clever, intelligent, experienced, etc., I think the permanent portfolio just feels strange, and many of these people simply have no reference point for something so counterintuitive that apparently works so well. 

People often fancy themselves to be humble, but when faced with the real humility that the permanent portfolio asks the investor to embrace, many people struggle, and I think that's why so few investors will ever actually use the PP strategy.
"You haven't, I suppose, ever mixed with politicians at close quarters. They're awful. I think some of these must have been the dregs anyhow, but I've discovered, what previously I didn't believe possible, that politicians behave in private life and say exactly the same things as they do in public. Their stupidity is inhuman.
- John Maynard Keynes
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Re: 3 years of PP returns

Post by Cortopassi » Tue Jun 11, 2019 8:07 am

mathjak107 wrote:
Tue Jun 11, 2019 5:18 am
what i find funny is when there is a short term market downturn everyone seems to cheer about how the pp did so well by not falling but when the results are weak for 3 years all of a sudden you can't tell much from the short term .
My last 3.5 years:

6.17%
12.97%
-4.09%
8.17%

I don't think I'd call that weak?
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Re: 3 years of PP returns

Post by Tortoise » Tue Jun 11, 2019 12:31 pm

mathjak107 wrote:
Tue Jun 11, 2019 5:18 am
what i find funny is when there is a short term market downturn everyone seems to cheer about how the pp did so well by not falling but when the results are weak for 3 years all of a sudden you can't tell much from the short term .
That’s not a contradiction. Short-term volatility and long-term CAGR are two different things.

We cheer the PP’s low short-term volatility because it protects us from the stomach-churning stress of sharp stock market downturns, and we understand that we sometimes have to consider a timeframe of up to a few years for the PP’s CAGR to be positive.

These are both known behaviors of the PP, and they are entirely consistent with each other.
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Re: 3 years of PP returns

Post by pmward » Tue Jun 11, 2019 12:37 pm

mathjak107 wrote:
Tue Jun 11, 2019 5:18 am
what i find funny is when there is a short term market downturn everyone seems to cheer about how the pp did so well by not falling but when the results are weak for 3 years all of a sudden you can't tell much from the short term .
How is this view different from the view anybody has on any portfolio that they feel strongly about? If someone is a big supporter of 100% stocks, they are going to cheer when stocks are doing great and justify when they are doing poor. Portfolio construction is inherently a task in weighing tradeoffs. There is no perfect portfolio. Every portfolio is going to have short term times they outperform and short term periods they underperform. It HAS to be this way because of how we judge over/under performance. We judge performance by weighing it against other options. Since it's virtually impossible for any single portfolio to always be the winner, there will always be both short and long term periods of both over and under performance no matter which portfolio you choose. Humans are funny creatures, as our expectations are impossible to satisfy in just about everything, investing especially so. We expect always to have the best performing portfolio all the time, no matter how unrealistic that truly is. Choosing a portfolio really is an exercise in defining what one's subjective idea of "good enough" is.
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Re: 3 years of PP returns

Post by modeljc » Tue Jun 11, 2019 4:11 pm

In 47 years the PP has made plus 3% REAL 77% of the time using a 3 year rolling average. 11 years or 23% they have made less. Here are the 11 years:

1977 2.8%
1990 1.1%
1994 2.1%
2000 2.6%
2001 .2%
2002 2.3%
2008 2.8%
2014 2.9%
2015 1.5%
2017 2.6%
2018 2.8%

These numbers are from a friend and not from the book. Still seems a little low since 2014. If you use 2.6% real the PP has done that 89% of the time.
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Re: 3 years of PP returns

Post by PP67 » Tue Jun 11, 2019 5:02 pm

Taylor's portfoliocharts site is an incredibly informative resource for seeing the expected range of performance of the PP and a good many other portfolios after 3 years. For the PP, the historic real CAGRs after 3 yrs is -0.4% minimum, 4.4% median and 11.2% maximum so really anything between a -0.4% and 4.4% might be seen as low but not unprecedented. By comparison, for the Golden Butterfly, the 3 yr returns are 0.5% minimum, 6.3% median and 11.6% maximum while the 60/40 is a much more volatile -10.7% minimum, 6.6% median and 18.85 maximum.

Place your bets and spin the wheel...
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Re: 3 years of PP returns

Post by Kbg » Tue Jun 11, 2019 11:10 pm

modeljc wrote:
Tue Jun 11, 2019 4:11 pm
In 47 years the PP has made plus 3% REAL 77% of the time using a 3 year rolling average. 11 years or 23% they have made less. Here are the 11 years:

1977 2.8%
1990 1.1%
1994 2.1%
2000 2.6%
2001 .2%
2002 2.3%
2008 2.8%
2014 2.9%
2015 1.5%
2017 2.6%
2018 2.8%

These numbers are from a friend and not from the book. Still seems a little low since 2014. If you use 2.6% real the PP has done that 89% of the time.
I get an average 3 yr real return of 2.83%.

By year real return
2014 8.80%
2015 -3.30%
2016 3.40%
2017 8.90%
2018 -3.50%

5yr Avg 2.76%
3yr Avg 2.83%

These returns are computed using SPY, SHY, GLD, TLT with costs included (e.g. management fees, trading commissions, buy at the opening price) Add .1% back if you don't include commissions.

If 3% is what is advertised, then I'd say we are pretty much "by the book" net of costs.
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Re: 3 years of PP returns

Post by modeljc » Wed Jun 12, 2019 5:16 pm

No one is picking up on we may be OK with recent PP returns if DEFLATION has started.

https://www.thinkadvisor.com/2019/02/16 ... 0512161205
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Re: 3 years of PP returns

Post by Kbg » Thu Jun 13, 2019 1:19 pm

Real is real, that’s why we use it and not nominal.
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Re: 3 years of PP returns

Post by modeljc » Thu Jun 13, 2019 5:21 pm

Kbg wrote:
Thu Jun 13, 2019 1:19 pm
Real is real, that’s why we use it and not nominal.
"Shilling notes that U.S. inflation numbers don’t register the full impact of falling prices because the Bureau of Labor Statistics has not kept up with the explosion of new technology products."

The goverment can't measure inflation but deflation is real! Wages are flat. China is real and so is Amazon. Prices have a lid in my view.
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Re: 3 years of PP returns

Post by Kbg » Fri Jun 14, 2019 12:34 am

modeljc wrote:
Thu Jun 13, 2019 5:21 pm
Kbg wrote:
Thu Jun 13, 2019 1:19 pm
Real is real, that’s why we use it and not nominal.
"Shilling notes that U.S. inflation numbers don’t register the full impact of falling prices because the Bureau of Labor Statistics has not kept up with the explosion of new technology products."

The goverment can't measure inflation but deflation is real! Wages are flat. China is real and so is Amazon. Prices have a lid in my view.
On the wage front, the data says else wise overall. (there is a reason why the Walmarts and McDonalds of the world are no longer fighting the $15 minimum wage...the average retail wage paid in the US is now $18.73 according to the BLS)

I'm more of a data guy now for things I care about because the news just plain sucks in the United States. I watch a short list of economic indicators/measures and I find I have relatively good clarity on the here and now, though I would claim no insight into the future. Saturday I'll pull the latest data and refresh my assessment...however, the economy has been really, really good for a very very long time which has shown up in wages. Recently the news has been blathering about the economy turning over finally. That may very well be accurate, or it could be pure BS (and often is).

If you like facts vs. opinion...here's a pretty good source. https://www.yardeni.com/

Most of it is public data pulled from various locations, but most of the good stuff can be found here in a pre-generated form. Peruse his wages section.
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Re: 3 years of PP returns

Post by sophie » Fri Jun 14, 2019 7:02 am

The low 2018 return is a bit artificial. If the year had ended a few weeks later or earlier, it would be a whole different story. The YTD 2019 returns reflect the deep transient market dive at year's end: the PP stands at 7.8% and GB at 9% - and this is just for the first half of the year!

Even though the PP is still doing its thing, it generates enough angst that it should be considered a significant disadvantage of the portfolio. If you'd have less angst with a traditional stock/bond portfolio with the cash on the side (and thus not counted in total returns), then maybe that would be better despite the occasional steep drawdowns. That's because when those happen, you have a massive support group e.g. the entire Bogleheads platform and its prolific collection of authors. With the PP's "tracking error", in which it lags traditional portfolios when stocks are doing well and includes your cash savings in the mix, there's not much beyond this forum and a couple of books for consolation.

The whole point of the PP is to reduce investing stress by increasing portfolio safety, but not everyone values that. It defeats the purpose if you end up increasing your stress by holding the PP. FWIW, the angst passes after a few years for most people, judging by the experience on this forum. I've even gotten to the point where what stresses me the most is the traditional three fund portfolio that I hold in my 403b accounts. That doesn't happen for everyone though, and for some people the PP is just not a good idea.
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Re: 3 years of PP returns

Post by modeljc » Fri Jun 14, 2019 10:25 am

Kbg wrote:
Fri Jun 14, 2019 12:34 am
modeljc wrote:
Thu Jun 13, 2019 5:21 pm
Kbg wrote:
Thu Jun 13, 2019 1:19 pm
Real is real, that’s why we use it and not nominal.
"Shilling notes that U.S. inflation numbers don’t register the full impact of falling prices because the Bureau of Labor Statistics has not kept up with the explosion of new technology products."

The goverment can't measure inflation but deflation is real! Wages are flat. China is real and so is Amazon. Prices have a lid in my view.
On the wage front, the data says else wise overall. (there is a reason why the Walmarts and McDonalds of the world are no longer fighting the $15 minimum wage...the average retail wage paid in the US is now $18.73 according to the BLS)

I'm more of a data guy now for things I care about because the news just plain sucks in the United States. I watch a short list of economic indicators/measures and I find I have relatively good clarity on the here and now, though I would claim no insight into the future. Saturday I'll pull the latest data and refresh my assessment...however, the economy has been really, really good for a very very long time which has shown up in wages. Recently the news has been blathering about the economy turning over finally. That may very well be accurate, or it could be pure BS (and often is).

If you like facts vs. opinion...here's a pretty good source. https://www.yardeni.com/

Most of it is public data pulled from various locations, but most of the good stuff can be found here in a pre-generated form. Peruse his wages section.
If wages are moving it probably just catch with inflation.

https://www.pewresearch.org/fact-tank/2 ... r-decades/
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Re: 3 years of PP returns

Post by jacksonM » Sat Jun 15, 2019 4:15 pm

I am now more than a decade into using the PP and am satisfied with the results (although I did switch to the Golden Butterfly a few years ago).

It actually saw me through to my retirement and helped me meet my goals during that time so it's kind of like my old Dodge Caravan which I bought right around the same time I started the PP. It's been a dependable car that gets the job done and I don't have to do much but routine maintenance to keep it going.
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Re: 3 years of PP returns

Post by drumminj » Sat Jun 15, 2019 9:07 pm

jacksonM wrote:
Sat Jun 15, 2019 4:15 pm
it's kind of like my old Dodge Caravan
Let's make sure you don't get put in charge of marketing :)
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Re: 3 years of PP returns

Post by modeljc » Sun Jun 16, 2019 9:28 am

For May 2016-May 2019 Bureau of Labor Statistics report the U.S. Consumer price index as up 6.6%. So inflation has averaged +2.2% over three years. A little more than I thought!

I am happy with the PP

I think since 2014 the returns are lower than history

I think some deflation is in the system but can't be measured
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Re: 3 years of PP returns

Post by pmward » Sun Jun 16, 2019 9:51 am

I have started to separate the terms "deflation" and "disinflation" just for clarity. When you mention the term "deflation" people think of 2008 or 1929. We definitely do not have that going on right now. But we definitely do have some disinflationary pressures in the economy right now. It's not just a U.S. phenomenon either, it's a global disinflationary trend, but we are at the moment still the cleanest dirty shirt. Whether that disinflation turns into true deflation ???
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Re: 3 years of PP returns

Post by dualstow » Sun Jun 16, 2019 5:00 pm

drumminj wrote:
Sat Jun 15, 2019 9:07 pm
jacksonM wrote:
Sat Jun 15, 2019 4:15 pm
it's kind of like my old Dodge Caravan
Let's make sure you don't get put in charge of marketing :)
O0
traveling...
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Re: 3 years of PP returns

Post by modeljc » Fri Jun 21, 2019 9:18 am

sophie wrote:
Fri Jun 14, 2019 7:02 am
The low 2018 return is a bit artificial. If the year had ended a few weeks later or earlier, it would be a whole different story. The YTD 2019 returns reflect the deep transient market dive at year's end: the PP stands at 7.8% and GB at 9% - and this is just for the first half of the year!

Even though the PP is still doing its thing, it generates enough angst that it should be considered a significant disadvantage of the portfolio. If you'd have less angst with a traditional stock/bond portfolio with the cash on the side (and thus not counted in total returns), then maybe that would be better despite the occasional steep drawdowns. That's because when those happen, you have a massive support group e.g. the entire Bogleheads platform and its prolific collection of authors. With the PP's "tracking error", in which it lags traditional portfolios when stocks are doing well and includes your cash savings in the mix, there's not much beyond this forum and a couple of books for consolation.

The whole point of the PP is to reduce investing stress by increasing portfolio safety, but not everyone values that. It defeats the purpose if you end up increasing your stress by holding the PP. FWIW, the angst passes after a few years for most people, judging by the experience on this forum. I've even gotten to the point where what stresses me the most is the traditional three fund portfolio that I hold in my 403b accounts. That doesn't happen for everyone though, and for some people the PP is just not a good idea.
Like Sophie said a few weeks later it would be a whole different story:

13 days later

1 year PP= 8.6%

2 year rolling returns = 6.1%

3 year returns = 5.3%

YTD = 10.0.

After 2.2% of inflation and 13 days later the PP is back to it's historial returns.
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