Staying the course with LTTs

Discussion of the Bond portion of the Permanent Portfolio

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Re: Staying the course with LTTs

Post by dualstow » Wed Dec 01, 2021 7:35 am

Kbg wrote:
Tue Nov 30, 2021 6:00 pm

nuthing surprising about the PP way underperforming in a strong bull market.
Yup
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Re: Staying the course with LTTs

Post by jhogue » Wed Dec 01, 2021 9:14 am

Is the PP under-performing, or is the stock market over-performing?
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Staying the course with LTTs

Post by Kbg » Wed Dec 01, 2021 10:47 am

jhogue wrote:
Wed Dec 01, 2021 9:14 am
Is the PP under-performing, or is the stock market over-performing?
It's all relative, right? :-)
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Re: Staying the course with LTTs

Post by vincent_c » Wed Dec 01, 2021 11:22 am

Is a speculative premium considered over performance?

But if you believe in a long term average growth trend and that there will be reversion to that mean then is it fair to say that anything above that is considered performance or just that if you have exposure above fair value then you're taking on additional speculative risk?
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Re: Staying the course with LTTs

Post by Kbg » Wed Dec 01, 2021 11:35 am

vincent_c wrote:
Wed Dec 01, 2021 11:22 am
Is a speculative premium considered over performance?

But if you believe in a long term average growth trend and that there will be reversion to that mean then is it fair to say that anything above that is considered performance or just that if you have exposure above fair value then you're taking on additional speculative risk?
Personally I do think the stock market is quite pricey.

Conceptually though, what is value? I'd argue at its core it's nothing more than pure human perception. There are quantitative measures of perceived "value", some of which are more rational than others, but at the end of the day value is an opinion.
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Re: Staying the course with LTTs

Post by vincent_c » Wed Dec 01, 2021 7:32 pm

Fair value can be modelled (basically an educated guess) and then confirmed in hindsight by evaluating whether there was a mean. Fair value is market value less speculative excess. The PP allows you over time to essentially be holding assets at their fair value and reducing the speculative excess across the asset classes. I'm not sure if this is just my opinion or not.
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Re: Staying the course with LTTs

Post by mathjak107 » Thu Dec 02, 2021 3:06 am

it is your opinion
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Re: Staying the course with LTTs

Post by vincent_c » Thu Dec 02, 2021 8:45 am

I suppose it is but I am just trying to be logical about it.

A value assessment by one individual is a statement of their opinion. A value assessment by a group of people is the opinion of the group. A value assessment by the market as a whole forms market value.

This market’s opinion of value is constantly changing but when we look at it in hindsight, we can determine averages over time and over volume of trading and an evaluation of that past data are facts.

Which means that volatility surrounding those averages can be called speculation referring to market participants who had a differing opinion to the average market opinion.
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Re: Staying the course with LTTs

Post by Kbg » Thu Dec 02, 2021 9:09 am

vincent_c wrote:
Wed Dec 01, 2021 7:32 pm
Fair value can be modelled (basically an educated guess) and then confirmed in hindsight by evaluating whether there was a mean. Fair value is market value less speculative excess. The PP allows you over time to essentially be holding assets at their fair value and reducing the speculative excess across the asset classes. I'm not sure if this is just my opinion or not.
Yes, but identifying value in hindsight doesn't help you make money. The CAPE ratio is a great poster boy/example of this. If one went with staying out of the market when the C.R. said the market was "expensive" historically then what, you would have been out of the stock market for like the last two decades?

Our good ole HBPP gold component...good luck coming up with anything that indicates "value" and works in a forward test.

Another example...when is a company that is going to go out of business ever a good value? Lots of people try to figure that out and make money off of it, but if the company ends up toast then nothing previous to zero could in hindsight be considered a good value.

On the PP and rebalancing...for me a more technically correct explanation is that we have a set of assets that have low or negative correlations. We hope they increase in value, but we know we can make money mathematically if they go up and down relative to each other (unless the slope for all or a majority of them is down simultaneously).

It's all basically an educated guess (with emphasis on the guess part).
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Re: Staying the course with LTTs

Post by vincent_c » Thu Dec 02, 2021 10:30 am

There are probably certain things that you can say that for sure makes one model better than another when trying to come up with an educated guess about the value of something. At some point you get diminishing returns and errors that make any modelling that educated guess but if you're modelling various assets and those errors cancel each other out in the long term (which we know for example if you own part of a business that makes a profit in nominal terms then you should receive a positive cash flow in nominal terms), I think that's as close as you can get.

So in my opinion the PP is a good enough proxy for this allocation that we think represents fair value ownership in the underlying assets in the long term and so it can be used as a benchmark if you wished and so any under or out-performance of a manager can be measured against a benchmark and only if that alpha was created deliberately.

Just saying stocks had better return vs the PP as a whole doesn't mean it outperformed the PP. An outperformance to me ought to only be used to refer to someone's action that they deliberately took that goes against the benchmark they are measuring themselves. Is it rational to choose any other benchmark other than the PP or similar enough allocations?

Some on here would prefer to take the best returning asset class and measure the PP's return against that and say that those of us who use the PP have underperformed. My opinion is that using the PP as a benchmark is closer to an objective measure, what do you guys think?
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Re: Staying the course with LTTs

Post by Kbg » Thu Dec 02, 2021 11:04 am

v_c,

Agree on all points.

I use the PP as a benchmark for a similar though leveraged portfolio.

I chuckled on your last two sentences...very true. Kinda like using Formula 1 racing speeds to evaluate rally car race speeds. Yes, they both have engines but not really the same thing.
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Re: Staying the course with LTTs

Post by vincent_c » Thu Dec 02, 2021 2:30 pm

I think it's interesting to note that TLT is trading near the lows of the week of March 1 2020 and even eyeing the levels at the close of the following week which kind of puts into perspective our current situation.
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Re: Staying the course with LTTs

Post by vnatale » Fri Dec 03, 2021 9:44 am

vincent_c wrote:
Thu Dec 02, 2021 10:30 am

There are probably certain things that you can say that for sure makes one model better than another when trying to come up with an educated guess about the value of something. At some point you get diminishing returns and errors that make any modelling that educated guess but if you're modelling various assets and those errors cancel each other out in the long term (which we know for example if you own part of a business that makes a profit in nominal terms then you should receive a positive cash flow in nominal terms), I think that's as close as you can get.

So in my opinion the PP is a good enough proxy for this allocation that we think represents fair value ownership in the underlying assets in the long term and so it can be used as a benchmark if you wished and so any under or out-performance of a manager can be measured against a benchmark and only if that alpha was created deliberately.

Just saying stocks had better return vs the PP as a whole doesn't mean it outperformed the PP. An outperformance to me ought to only be used to refer to someone's action that they deliberately took that goes against the benchmark they are measuring themselves. Is it rational to choose any other benchmark other than the PP or similar enough allocations?

Some on here would prefer to take the best returning asset class and measure the PP's return against that and say that those of us who use the PP have underperformed. My opinion is that using the PP as a benchmark is closer to an objective measure, what do you guys think?


This happens all the time with sports fans, particularly Yankees fans.

The Yankees have not had a losing team for about 30 years. But each year the Yankees get compared to the most successful teams of the day. There is never a comparison to how these today successful teams compare to the Yankees over the long run.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Staying the course with LTTs

Post by mathjak107 » Fri Dec 03, 2021 10:52 am

however with portfolios it is very easy to compare over any time frames you like
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Re: Staying the course with LTTs

Post by vincent_c » Fri Dec 03, 2021 1:24 pm

Do you have an opinion on whether the PP is agnostic to future economic trends?

That's a yes or no answer really and if the answer is yes, then it is a good benchmark.

If it were true (which it isn't) that the PP had too much exposure to interest rates, then that would mean your answer is no. I think a lot of us are waiting to see when you'll finally realize your mistakes especially when it comes to the specific claim you made about how the PP is impacted by interest rates.
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Re: Staying the course with LTTs

Post by mathjak107 » Fri Dec 03, 2021 2:25 pm

wait for it then ..if i am wrong i will admit it but i dont think so ..three out of 4 assets are bet on rates and or inflation and gold does not respond well to plain low to moderate inflation , as far as my opinion goes. so it will likely follow rates inversely until real returns are poorer than now
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Re: Staying the course with LTTs

Post by vincent_c » Fri Dec 03, 2021 2:33 pm

The only reason you think 3 out of 4 assets are bets on rates is because you're thinking in short term, almost day trading type of bets.

Please be more specific when you refer to "rates" because short term rates, long term rates, and real rates can have their own long term trends and you seem to often group them all together.
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Re: Staying the course with LTTs

Post by mathjak107 » Fri Dec 03, 2021 3:30 pm

bond investors will want to be compensated when this inflation stays and is not just a flash in the pan …whether the fed can keep bond investors at bay with short term hikes remains to be seen.
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Re: Staying the course with LTTs

Post by Cortopassi » Fri Dec 03, 2021 3:48 pm

vincent_c wrote:
Thu Dec 02, 2021 2:30 pm
I think it's interesting to note that TLT is trading near the lows of the week of March 1 2020 and even eyeing the levels at the close of the following week which kind of puts into perspective our current situation.
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Re: Staying the course with LTTs

Post by mathjak107 » Fri Dec 03, 2021 4:37 pm

those lows back then were with no where near the inflation issues today
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Re: Staying the course with LTTs

Post by vincent_c » Fri Dec 03, 2021 6:29 pm

This is what I see from IBKR
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Re: Staying the course with LTTs

Post by ppnewbie » Wed Dec 15, 2021 9:47 pm

If my understanding of the PP is correct is that you have three violative assets and 4 non correlated assets. It works because you have big swings down but even bigger swings up (which moves the portfolio forward at about a 4 percent real return rate). So my question is how far can LTT’s swing UP from a mathematical stand point? Basically is there enough upside volatility left in LTT to counteract a downward force in stocks and gold.

I know Tyler wrote about bond convexity in a negative interest rate environment but I have some dissonance around this concept.

Quick edit here. I just looked at the 30 year rates at 1.857 which tell me they still have some juice left to swing up.
Last edited by ppnewbie on Wed Dec 15, 2021 9:50 pm, edited 1 time in total.
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Re: Staying the course with LTTs

Post by vincent_c » Wed Dec 15, 2021 9:49 pm

The answer is yes it can.
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Re: Staying the course with LTTs

Post by ppnewbie » Thu Dec 16, 2021 2:45 am

Mathkak - if you dont mind can you throw out the name of the commodities etf you are using?
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Re: Staying the course with LTTs

Post by mathjak107 » Thu Dec 16, 2021 4:10 am

DBC for commodities , gbtc for bitcoin
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