Stock Picking in the PP

Discussion of the Stock portion of the Permanent Portfolio

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Stock Picking in the PP

Post by Jack Jones » Wed Jul 20, 2022 4:42 pm

Anyone doing it? Buy and hold high beta stocks across the broad market. I went back in the old threads where this was raised and the primary objection was cost. Well, times have changed and now with free trades, it’s cheaper to run your own index. Say 25-50, equally weighted, across the broad market. This seems better diversified than having almost a quarter of ones equities in Apple, Microsoft, Amazon, Google, and Tesla in a SP500 fund.
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Re: Stock Picking in the PP

Post by Kbg » Wed Jul 20, 2022 5:22 pm

I do but I wouldn't suggest it for most folks...if anything it is relentless and demanding work.

However, M1, Schwab stock slices and others are making the trading much easier.

What to pick, why and when to sell are still challenging issues however and fraught with psychological errors just waiting to happen.

I'd suggest QQQ, QQQE or an S&P 600 based index fund...or as suggested earlier, 50% of each and call it a day.

You will beat the SPY over time and likely sufficiently to make it well worth your time.
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Re: Stock Picking in the PP

Post by jalanlong » Thu Aug 18, 2022 11:27 am

Jack Jones wrote:
Wed Jul 20, 2022 4:42 pm
Anyone doing it? Buy and hold high beta stocks across the broad market. I went back in the old threads where this was raised and the primary objection was cost. Well, times have changed and now with free trades, it’s cheaper to run your own index. Say 25-50, equally weighted, across the broad market. This seems better diversified than having almost a quarter of ones equities in Apple, Microsoft, Amazon, Google, and Tesla in a SP500 fund.
I do, but I do not hold high beta stocks. I use M1 to construct a portfolio of old, stodgy dividend stocks to hold and pass on to my son. Think companies like Utilities, Colgate, 3M, Medtronic, things like that. I don't hold it in a PP either.
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Re: Stock Picking in the PP

Post by Jack Jones » Tue Jan 31, 2023 12:22 pm

Just an update on this, I went through with it, and it's been fun. Unexpected joys like proxy voting and buying products from companies that I own. It's been interesting to see the winners and losers of companies I selected from across the economy.

I tried to focus on high-beta companies (HB) that also pay a dividend (belangp). I got some ideas from the guy running the growth fund for PRPFX.

Big winners (since July 2022):
HCA (+51%)
FCX (+43%)
PH (+34%)
NWS (+32%)
MS (+32%)
AES (+31%)
NVDA (+31%)

Losers:
CIGI (-19%)
FRC (-17%)
AAPL (-16%)
TAC (-15%)
FDX(-14%)
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Re: Stock Picking in the PP

Post by Maddy » Sat Feb 25, 2023 7:28 am

I am also interested in converting my stock funds to individual stocks--mostly for the purpose of reducing the number of intermediaries between me and my money.

As I recall, Harry Browne envisioned the use of individual growth stocks in Failsafe Investing, mentioning index funds only as a no-muss, no-fuss, alternative. I wish I had the book here to refer to, but I do not recall him ever talking about the mechanics of picking those stocks or how, once acquired, they should be managed.

Jack, do you manage your individual stocks according to any particular rules? Do you trade them around a core holding? Attempt to mirror what PRPFX is doing at any particular time?
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Re: Stock Picking in the PP

Post by dualstow » Sat Feb 25, 2023 9:01 am

Maddy wrote:
Sat Feb 25, 2023 7:28 am
I am also interested in converting my stock funds to individual stocks--mostly for the purpose of reducing the number of intermediaries between me and my money.

As I recall, Harry Browne envisioned the use of individual growth stocks in Failsafe Investing, mentioning index funds only as a no-muss, no-fuss, alternative. I wish I had the book here to refer to, but I do not recall him ever talking about the mechanics of picking those stocks or how, once acquired, they should be managed.
From the kindle version, I see:
“Harry” wrote:To profit when stocks are in a broad upward market, your holdings must represent the entire market—not selected industries, which might happen to be left behind. The easiest and most effective way to do this is to split the 25% stock-market portion among three mutual funds.1
In Best Laid Plans, I think he had a list of a few growth stock mutual funds, because that’s what was available back then.
If I recall correctly, in the Money Show radio archives he recommended the S&P 500 fund.

I do like holding individual stocks and always have, but those are relegated to my vp.
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Re: Stock Picking in the PP

Post by Smith1776 » Sat Feb 25, 2023 10:52 am

I don't do individual stock picking for my PP but I do use factor funds, so definitely not a pure vanilla implementation here.
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Re: Stock Picking in the PP

Post by coasting » Sat Feb 25, 2023 8:04 pm

dualstow wrote:
Sat Feb 25, 2023 9:01 am
If I recall correctly, in the Money Show radio archives he recommended the S&P 500 fund.
Yes, S&P 500 fund for the stock allocation is my recollection from multiple episodes of the radio show.

Below is my "strict" interpretation of the Permanent Portfolio philosophy:

In October 10, 2004 episode Harry Browne explains how he defines the difference between investing and speculating. To invest is to accept the market return available to anyone who asks for it. To speculate is to try to beat the market return via timing, security selection, etc. - thinking you can do better than others. For the stock allocation, HB considered the S&P 500 representative of the "stock market", and so to accept its return can be considered investing rather than speculating.

To attempt security selection (stock picking) is speculation by HB's definition. Speculation is perfectly OK, but should be done within the Variable Portfolio not in the Permanent Portfolio. The PP is for money that is precious to you. The VP is for money you can afford to lose.

I've heard others offer alternative definitions for investing vs. speculating. For example, many will not accept that you can invest in gold - it can only be a speculation due to greater fool theory and such. Or a proper investment must have some kind of a return stream, or a productive business behind it, etc. HB's definition appeals to me better than any others I have heard so far.
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Re: Stock Picking in the PP

Post by boglerdude » Sun Feb 26, 2023 2:29 am

When rates are below inflation, gold and index funds are morlike just saving. "Investment" implies a constructive effort eg you can beat the real estate market, if you can physically be there and research the neighborhood. Competing with millions of investors using internet-only data is gambling/speculation. But its fun so knock yourself out.

I have a little in Vanguard manged growth. Dont want dividends, I'm not giving companies my money so they can give it back to me. I want them to scale up. Vanguard IS The Machine, and too big to fail. And there's too many eyes on them, for them to play games with fees, like a single celebrity manager could (Asness, Dalio, Ackman)
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Re: Stock Picking in the PP

Post by Jack Jones » Wed Mar 01, 2023 12:44 pm

Here is what HB has to say on the topic. All HB quotes from Why The Best Laid Investment Plans...:
For the Permanent Portfolio, a stock-market investment should have these attributes:
  • Market relationship: The investment should have a strong tendency to move in the same direction as the general stock market, so that you can count on the investment profiting from general prosperity. The Permanent Portfolio's stock-market investments, as a group, should reflect a broad spectrum of American enterprise; they shouldn't be tied to a signle industry or narrow group of industries.
  • Volatility: The investment should move further and faster than the general stock market. With this volatility, a small budget can earn a large profit -- more than offsetting the losses prosperity would inflict upon other parts of the portfolio.
...
How well does the SP500 reflect the broad spectrum of American enterprise?
https://www.thebalancemoney.com/what-is-the-sector-weighting-of-the-s-and-p-500-4579847 wrote: Information technology: 28.1%
Health care: 13.3%
Consumer discretionary: 11.8%
Financials: 11.5%
Communication services: 9.6%
Industrials: 8%
Consumer staples: 6.2%
Energy: 3.7%
Real estate: 2.6%
Materials: 2.6%
Utilities: 2.6%
1. Blue-Chip Stocks

The straightforward way to invest in the stock market is to buy a selection of blue-chip stocks -- shares of large, well-established companies.

But a Permanent Portfolio requries stocks with high price volatility, so that a small portion of the portfolio can pull the entire portfolio upward during a bull market. Blue-chip stocks don't have the volatility of smaller or more adventurous companies....

2. Volatile Stocks

Some stocks are especially volatile by nature. They go way up in bull markets and way down in bear markets. Such stocks enable you to get more power from a small stock-market budget...A list of highly volatile stocks appears on page 336.

Choices
For the Permanent Portfolio, the best alternatives are volatile stocks, volatile mutual funds, and warrants...Most investors should find mutual funds to be the most convenient and efficient medium for the Permanent Portfolio....

Volatile stocks are advantageous for the Variable Portfolio. They are convenient, since they can be purchased through any stockbroker. They also make sense for a Permanent Portfolio, but you need to buy at least twenty to have sufficient diversification.
The list of volatile stocks from 1987 is interesting in that there are so few companies that are still relevant. E.g., the computer section comprises, Apple, Ashton-Tate, Compaq, Cray, Cullinet Software, Gerber Scientific, Lotus, NCR, Prime Computer, Storage Technology, Telex Corp, and Wang Labs.

The table lists companies and their Betas (e.g. Merrill Lynch & Co. (1.75)) Beta is a measurement of volatility compared to the market as a whole (usually the SP500).
Maddy wrote:
Sat Feb 25, 2023 7:28 am
Jack, do you manage your individual stocks according to any particular rules? Do you trade them around a core holding? Attempt to mirror what PRPFX is doing at any particular time?
I used Fidelity's stock screener to show Betas > 1. Then I picked 2-3 stocks from each industry. The planned upkeep is to reevaluate my holdings yearly and remove anything that is no longer high Beta, replacing w/ something that is.
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Re: Stock Picking in the PP

Post by Maddy » Wed Mar 01, 2023 5:23 pm

Jack Jones wrote:
Wed Mar 01, 2023 12:44 pm
Here is what HB has to say on the topic. . .
For the Permanent Portfolio, a stock-market investment should have these attributes:
The Permanent Portfolio's stock-market investments, as a group, should reflect a broad spectrum of American enterprise; they shouldn't be tied to a signle industry or narrow group of industries. . .
How well does the SP500 reflect the broad spectrum of American enterprise?
https://www.thebalancemoney.com/what-is-the-sector-weighting-of-the-s-and-p-500-4579847 wrote: Information technology: 28.1%
Health care: 13.3%
Consumer discretionary: 11.8%
Financials: 11.5%
Communication services: 9.6%
Industrials: 8%
Consumer staples: 6.2%
Energy: 3.7%
Real estate: 2.6%
Materials: 2.6%
Utilities: 2.6%


It's been a while since I looked at the sector breakdown of the S&P 500, and, wow. What are we doing using this in the PP?

Is there a mutual fund or ETF that better represents what Harry had in mind?
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Re: Stock Picking in the PP

Post by Jack Jones » Thu Mar 02, 2023 5:50 am

Maddy wrote:
Wed Mar 01, 2023 5:23 pm
Jack Jones wrote:
Wed Mar 01, 2023 12:44 pm
Here is what HB has to say on the topic. . .
For the Permanent Portfolio, a stock-market investment should have these attributes:
The Permanent Portfolio's stock-market investments, as a group, should reflect a broad spectrum of American enterprise; they shouldn't be tied to a signle industry or narrow group of industries. . .
How well does the SP500 reflect the broad spectrum of American enterprise?
https://www.thebalancemoney.com/what-is-the-sector-weighting-of-the-s-and-p-500-4579847 wrote: Information technology: 28.1%
Health care: 13.3%
Consumer discretionary: 11.8%
Financials: 11.5%
Communication services: 9.6%
Industrials: 8%
Consumer staples: 6.2%
Energy: 3.7%
Real estate: 2.6%
Materials: 2.6%
Utilities: 2.6%
It's been a while since I looked at the sector breakdown of the S&P 500, and, wow. What are we doing using this in the PP?

Is there a mutual fund or ETF that better represents what Harry had in mind?
https://www.permanentportfoliofunds.com ... folio.html

But the fees are higher than you may be used to. I'm not in it. Is anyone else? I'm wondering if you can see the full contents of the fund if you are a member.
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Re: Stock Picking in the PP

Post by dualstow » Thu Mar 02, 2023 6:28 am

Maddy, I edited another end quote tag into your post so the last two lines come out as yours, and not part of your quoting of Jack. Hope I got it right.
Maddy wrote:
Wed Mar 01, 2023 5:23 pm

It's been a while since I looked at the sector breakdown of the S&P 500, and, wow. What are we doing using this in the PP?

Is there a mutual fund or ETF that better represents what Harry had in mind?

The short answer to your first question is: listening to latter day Harry.

@Jack : correct me if I’m wrong, but PRPFX represents early day Harry. While ‘Best Laid Plans’ was well worth reading, Harry evolved from that point: decided that gold did all the work that silver might do; concluded that a cheap S&P 500 fund was perfectly fine for the stock portion; etc. (See also, coasting’s comment above)

I remember Browne being excited about TLT for long bonds as well, but he was going by a description from someone who told him about it. I don’t recall a radio episode in which he had examined it himself and got back to it, but maybe.

I owned PRPFX for several years and dumped it once I took the plunge and bought physical gold.It doesn’t seem like a terrible option for those who don’t want to mess with owning physical gold, except for that expense ratio! (0.83%) One could probably do better now that gold ETFs abound and one can buy 30-year treasury bonds for free, even without using Treasury Direct.
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Re: Stock Picking in the PP

Post by Maddy » Thu Mar 02, 2023 6:48 am

Permanent Portfolio Funds Aggressive Growth Portfolio Top 10 Holdings (as of 1/31/23):
Freeport McMoran
NVIDIA Corp.
Broadcom, Inc.
Lockheed Martin
Costco
Morgan Stanley
Air Products & Chemicals, Inc.
Autodesk, Inc.
HF Sinclair Corp.

Could we, by consensus, build something of our own?
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Re: Stock Picking in the PP

Post by Maddy » Thu Mar 02, 2023 10:24 am

I dumped a bunch of VTSAX today and substituted for it about 20 individual stocks picked to roughly mirror what's going on in PRPFX and the Permanent Portfolio Aggressive Growth Fund. It's one of the few moves I've felt really good about lately. And I'm loving having individual companies to root for.
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Re: Stock Picking in the PP

Post by Mark Leavy » Thu Mar 02, 2023 11:00 am

Nice move, Maddy. Congratulations.
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Re: Stock Picking in the PP

Post by vnatale » Thu Mar 02, 2023 11:38 am

Over 20 years ago I was (good) brainwashed by William Bernstein's books that in the long run one will be better off by using index funds rather than to select individual stocks that are in the index fund's sector of investing.

One is far better off accepting the market average than trying to beat the average.

Less than 50% of managed funds beat the results of the index fund that are in the same investing sector.

Plus, though, this year that managed fund may outperform the index probably the next year or the prior year it did not.

When one chooses one's own set of stocks one is, in effect, creating one's own managed fund.

You are competing against you do not know who. Most likely someone who is a better stock picker than you.
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Re: Stock Picking in the PP

Post by boglerdude » Thu Mar 02, 2023 5:48 pm

A basket of large stocks is close enough to an index fund. Just have to resist the temptation to trade because you know better than the market. Even when a stock is "clearly" overvalued, you dont know when to get in or out
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Re: Stock Picking in the PP

Post by whatchamacallit » Thu Mar 02, 2023 6:33 pm

+1 with Vinny.

I have also had a lot of hand wringing recently on what would be the best fund to use for stocks but have settled on a total stock index fund. I was looking hard at some active funds as potential candidates but I didn't have enough faith they would out perform. I leaned more toward finding a good value fund since that is more opposite the momentum of an index fund.


If you want some more convincing arguments to use a total stock market index fund.

A Random Walk Down Wall Street
https://www.amazon.com/Random-Walk-Down ... 1324051132


I am sure you could find a version at a library even if it is an older edition.

I quite enjoyed listening to the audio book if you can find that.



If anything, the Permanent Portfolio Funds Aggressive Growth Portfolio is an example of failure versus the index.

https://www.portfoliovisualizer.com/bac ... ion1_1=100
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Re: Stock Picking in the PP

Post by Kriegsspiel » Thu Mar 02, 2023 8:26 pm

I've also been trading out chunks of the index for individual companies. I base things loosely on Joel Greenblatt's Magic Formula (such a cheesy name: it's a value screen) method as a starting point, mostly to screen the SP500. It's been educational and interesting (and fun) to read through corporation's and investor's stuff.
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Re: Stock Picking in the PP

Post by dualstow » Thu Mar 02, 2023 9:16 pm

Maddy wrote:
Thu Mar 02, 2023 10:24 am
I dumped a bunch of VTSAX today and substituted for it about 20 individual stocks picked to roughly mirror what's going on in PRPFX and the Permanent Portfolio Aggressive Growth Fund. It's one of the few moves I've felt really good about lately. And I'm loving having individual companies to root for.
Individual stocks are definitely more fun, but Maddy didn’t you say that you’ve never made money trading stocks? Maybe it was something else.

Well, I guess if you hold on long enough, it should be alright.
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Re: Stock Picking in the PP

Post by Maddy » Fri Mar 03, 2023 6:53 am

dualstow wrote:
Thu Mar 02, 2023 9:16 pm
Maddy wrote:
Thu Mar 02, 2023 10:24 am
I dumped a bunch of VTSAX today and substituted for it about 20 individual stocks picked to roughly mirror what's going on in PRPFX and the Permanent Portfolio Aggressive Growth Fund. It's one of the few moves I've felt really good about lately. And I'm loving having individual companies to root for.
Individual stocks are definitely more fun, but Maddy didn’t you say that you’ve never made money trading stocks? Maybe it was something else.

Well, I guess if you hold on long enough, it should be alright.
Yes, I absolutely did say that. In the 2007-08 era, I was the proverbial 18-year-old who sits down at the poker table for the first time and just keeps winning, and who actually thinks he's got some talent. . . until he puts down his gold watch and the other, more seasoned, players suddenly get lucky. I learned plenty from that period of time, and I've become just about as risk averse as an investor can be.

That said, in the last year, I've lost plenty of money with the S&P index funds. AND with bonds. And I've come to question whether the inverse correlations we've counted on all these years have run their course.

I don't know near enough about the financial markets to have an educated opinion, but the idea that an index can allow everyone to win, ad infinitum, just doesn't make sense. How is it any different than the situation where everybody bets on the same horse? I wonder whether the S&P 500 has become something more along the lines of a pyramid scheme, that depends upon a constant influx of new money to keep everybody winning.

It's pretty clear that an awful lot of money found its way into the high-tech stocks such as Apple, Amazon, Microsoft, Google, Pfizer and Tesla during a period of unprecedented government largesse. I'm not sure how that party, in particular, keeps going. And when I realized how much of the S&P 500 is parked in exactly those stocks, I just wanted off that train. And Pfizer, which seems to hold the #1 spot in many indexes, can just go to hell.

By attempting to duplicate what what PRPFX and its related aggressive growth fund are doing, I have a much broader, more representative, sample of the total stock market than does the S&P 500, which is what Harry was looking to achieve.
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Re: Stock Picking in the PP

Post by dualstow » Fri Mar 03, 2023 8:43 am

I see what you mean.
I’m holding VTSAX (broad index) too, so I lost right along with you, but I’m glad you didn’t sell the whole thing. One year is a short time, and whether it’s a pyramid or not, I definitely believe it’s going to come back. I am buying very small pieces on autopilot once a week in the meantime.
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Re: Stock Picking in the PP

Post by Jack Jones » Fri Mar 03, 2023 11:03 am

Maddy wrote:
Thu Mar 02, 2023 10:24 am
I dumped a bunch of VTSAX today and substituted for it about 20 individual stocks picked to roughly mirror what's going on in PRPFX and the Permanent Portfolio Aggressive Growth Fund. It's one of the few moves I've felt really good about lately. And I'm loving having individual companies to root for.
Nice! Enjoy that 0% ER and proxy voting!

I think the SP500 is fine for the PP, but it should underperform in times of prosperity. I think Harry endorsed it as a simplification, not necessarily as an improvement to the portfolio.

If you find yourself wanting to tinker w/ the PP, this seems to be the place to do it.
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Re: Stock Picking in the PP

Post by Jack Jones » Fri Mar 03, 2023 11:05 am

vnatale wrote:
Thu Mar 02, 2023 11:38 am
Over 20 years ago I was (good) brainwashed by William Bernstein's books that in the long run one will be better off by using index funds rather than to select individual stocks that are in the index fund's sector of investing.

One is far better off accepting the market average than trying to beat the average.

Less than 50% of managed funds beat the results of the index fund that are in the same investing sector.

Plus, though, this year that managed fund may outperform the index probably the next year or the prior year it did not.

When one chooses one's own set of stocks one is, in effect, creating one's own managed fund.

You are competing against you do not know who. Most likely someone who is a better stock picker than you.
Note that in the approach that Harry is advocating here (volatile stocks), we are not selecting stocks to beat the market. We are selecting stocks w/ high Beta, that is, stocks that have historically moved in the same direction as the market, more forcefully than the market.
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