"This is now the longest U.S. economic expansion in history"

General Discussion on the Permanent Portfolio Strategy

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Smith1776
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"This is now the longest U.S. economic expansion in history"

Post by Smith1776 » Wed Jul 03, 2019 2:07 am

An interesting article by CNBC and another milestone crossed in economic history.

A record expansion has led to a tremendous bull market in stocks. This has been coupled with very low interest rates this entire time.

As far as I'm concerned, these are two factors that have definitely led to the lower CAGR of the PP, and underperformance relative to more traditional portfolios.

60/40 has had the wind at its back with this incredible equity bull market. The PP on the other hand has been comparatively hampered thanks to the fact that 50% of the portfolio is cash and fixed income.

Still, the PP has met my expectations and I continue to be satisfied with it. The performance, especially relative to volatility, is admirable. In Ray Dalio's papers on risk parity he lays out this exact type of scenario in which tracking error is expected. Any portfolio heavily weighted towards the asset that just happens to be doing well will have its day... for a while.

https://www.cnbc.com/2019/07/02/this-is ... eningbrief
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Re: "This is now the longest U.S. economic expansion in history"

Post by jacksonM » Wed Jul 03, 2019 10:34 am

Smith1776 wrote:
Wed Jul 03, 2019 2:07 am
60/40 has had the wind at its back with this incredible equity bull market. The PP on the other hand has been comparatively hampered thanks to the fact that 50% of the portfolio is cash and fixed income.
Exactly the scenario warned about in the preface to the latest book on the PP. I think it was by William Bernstein. He said there was nothing wrong with it but he questioned whether people would be able to stick with it through times like this.

I have to admit he was right about me. After a year or two of negative returns while stocks were soaring I decided to transition to the Golden Butterfly a few years ago.

Gold and bonds seem to also be doing well so it could be worse for the PP. Cash remains a complete dud, of course.
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Re: "This is now the longest U.S. economic expansion in history"

Post by dualstow » Wed Jul 03, 2019 10:50 am

The earnings picture does not look bright. I have heard the same, although I think that was from the same channel. Thanks for posting!
jacksonM wrote:
Wed Jul 03, 2019 10:34 am
Exactly the scenario warned about in the preface to the latest book on the PP. I think it was by William Bernstein. He said there was nothing wrong with it but he questioned whether people would be able to stick with it through times like this.
I don't know if this is exactly the same as the preface, but since you've mentioned it before, Jackson, here's "Wild About Harry."
http://www.efficientfrontier.com/ef/0adhoc/harry.htm
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Smith1776
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Re: "This is now the longest U.S. economic expansion in history"

Post by Smith1776 » Wed Jul 03, 2019 1:18 pm

jacksonM wrote:
Wed Jul 03, 2019 10:34 am
Smith1776 wrote:
Wed Jul 03, 2019 2:07 am
60/40 has had the wind at its back with this incredible equity bull market. The PP on the other hand has been comparatively hampered thanks to the fact that 50% of the portfolio is cash and fixed income.
Exactly the scenario warned about in the preface to the latest book on the PP. I think it was by William Bernstein. He said there was nothing wrong with it but he questioned whether people would be able to stick with it through times like this.

I have to admit he was right about me. After a year or two of negative returns while stocks were soaring I decided to transition to the Golden Butterfly a few years ago.

Gold and bonds seem to also be doing well so it could be worse for the PP. Cash remains a complete dud, of course.
No, you're not running the Golden Butterfly portfolio. You have a Permanent Portfolio and a Variable Portfolio with some stocks in it. 8) ;)

For me, it's been relatively easy to hold the traditional PP, despite the underweighting in stocks compared to more traditional approaches. I have a quirk in my personality where I really don't like things that are visually or aesthetically not balanced. Whether it's home decor or whatever it may be. When I think about disturbing the aesthetically pleasing 4 x 25% split, I find it quite irksome. There's a kind of weird "beauty" to the even split I don't want to disturb.

Don't get me wrong, aesthetic appeal is never a reason to choose an investment strategy. It just makes it a bit easier for me to stick to it when you're a bit eccentric. ^-^
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jacksonM
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Re: "This is now the longest U.S. economic expansion in history"

Post by jacksonM » Wed Jul 03, 2019 2:31 pm

Smith1776 wrote:
Wed Jul 03, 2019 1:18 pm
No, you're not running the Golden Butterfly portfolio. You have a Permanent Portfolio and a Variable Portfolio with some stocks in it. 8) ;)
That's the way I thought about it too when I first started out but, truth be told, when I first started with the GB it wasn't money I could afford to lose like HB said it was supposed to be in the VP.

It's worked out well so far however and though I would still hate to lose all of the SCV stock in my "VP" (who wouldn't?) it wouldn't be as painful as it was in the beginning. The value of the remaining PP would still be around my original retirement number of a few years ago.
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Re: "This is now the longest U.S. economic expansion in history"

Post by ochotona » Fri Jul 05, 2019 8:54 am

Look at the ticker action today.

Gold, bonds, stocks all down on a good jobs report, therefore less chance of rate cuts.

The only thing that matters is more rate cuts, more financial repression.

The markets are a disgusting gambling casino.
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Re: "This is now the longest U.S. economic expansion in history"

Post by Smith1776 » Fri Jul 05, 2019 3:43 pm

Yup, it's always good to have 25% of your portfolio cash. ^-^ O0
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