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?
pmward
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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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Tortoise
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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.
To die, to sleep
To sleep, perchance to dream; ay, there's the rub
For in that sleep of death what dreams may come
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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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