Pkg Man wrote:
I think one can make a similar, although less serious, analogy to changes to the PP. I am sure Harry Browne spent far more time thinking through portfolios and what can happen to them than I ever will. As we stray from the original design we should do so advisedly.
That's a great point, and one that people often seem to overlook.
One of the most common responses to the PP strategy is something along the lines of "That's a great idea. I think I might use the strategy, except I'm going to underweight bonds because I know interest rates are going up, and I'm going to hold off on buying any gold until it corrects by at least 20%..."
I'm in complete agreement as well. Unless the changes are backed up with very specific research into the risks involved it shouldn't be done. IMO. Not only has the portfolio had a group of smart people look into it from just about every angle from the very beginning, it's also had over 30 years of refinement through empirical testing. I too urge people to be very cautious about changing something that seems to be working well enough as is.
When I initially started the site about the portfolio concept I exchanged e-mails with Harry Browne's widow. In one exchange she was very specific that Harry Browne thought that the Variable Portfolio was an important part of the concept. Reason being that he knew people would want to tinker with things. He felt that the core holding should always be the assets he advised in the Permanent Portfolio and if people wanted to play around they should only do it with money they can afford to lose in the Variable Portfolio.
MediumTex wrote:
- The PP really is a PERMANENT allocation method.
I'll play the role of devil's advocate for a moment. I think the faith and perhaps lack of full understanding of the permanent portfolio is ok for beginners at the start, but it's important to learn as much as possible for the inevitable changes that will likely occur.
What I mean is that I don't think the permanent portfolio will be permanent in my lifetime (although I'd prefer it that way). I think it's likely some changes will need to be made due to factors outside our control. Possible factors:
-Gold is impractical (prohibitively taxed) or illegal to own as in 1933-1972.
-30 year bonds are no longer issued and the longest duration is less than 20 years.
Both changes require some critical thinking on the part of the investor. I'm not sure if HB referenced what an investor were to do between 1933-1972, but it would be nice to have a seance and ask.
If gold were illegal to own again I would probably replace it with some type of commodities, real estate, timber and other hard assets. They won't react like gold in a crisis, but I think all portfolios should have some type of exposure to hard assets because they do offer some protection against sudden and/or high inflation.
craigr wrote:
If gold were illegal to own again I would probably replace it with some type of commodities, real estate, timber and other hard assets. They won't react like gold in a crisis, but I think all portfolios should have some type of exposure to hard assets because they do offer some protection against sudden and/or high inflation.
Hi, Craigr,
Using one of the "Wayback Machines" I found the following for comparison, substituting Commodities for Gold and still using TSM and ST Treasuries (2-year). Seems similar in big picture to the Permanent Portfolio as correlations are also stark (Returns and SD) but differs in details, especially in 2008.
Yes I remember that now. If inflation is bad, it is a natural reaction for people to want to get rid of paper money and buy "stuff" to protect purchasing power. Commodities will rise in response to high inflation like gold, but perhaps not as strongly as the monetary component isn't present as it is with gold.
For a follow up on Ben's comments about gold by an economist I have a ton of respect for, check out a recent post on Econbrowser http://www.econbrowser.com/archives/201 ... lat_1.html. He basically says Ben has it right. For some really confused statements about gold, make sure to read through all the postings.
In case you haven't heard of Econbroswer, it is a great blog on mostly economic topics run by James Hamilton and Menzie Chinn. I tend to prefer the posts by Hamilton, as Chinn is IMHO a bit too political, at least for my political tastes.
"Machines are gonna fail...and the system's gonna fail"
Bernanke, et al. seem to also be disregarding the problems in Europe that are potentially panicking people. If the Euro has big problems there is no telling where gold will go if people do not think the dollar is a safer place to be.
I was contacted by someone living in Greece recently and he was not interested in buying dollars, but was very interested in buying gold to protect himself for instance. I suspect this feeling is widespread in many countries over the pond.
Last edited by craigr on Tue Jun 15, 2010 7:38 pm, edited 1 time in total.
I am currently on a "news fast", which I do periodically to clear my head. I read no news about anything for a while. It's sort of like a mental colon cleanse.
Yet another benefit of the PP is that I can do my news fasts without having to worry about something happening to my investments while I am clearing my mind.
For anyone who hasn't tried it, a news fast can be an amazing experience. You don't realize how much of the information you expose yourself to is just pure garbage until you take a break from it.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
MediumTex wrote:For anyone who hasn't tried it, a news fast can be an amazing experience. You don't realize how much of the information you expose yourself to is just pure garbage until you take a break from it.
I did news fast a couple weeks ago. About to do another. You're right about the PP and news. You just learn to ignore these types of articles eventually. The more of an expert the person is writing their opinion about the future, the more I ignore it.
The news is designed to stir people up because that's what makes money for the news providers. Nobody wants to read about how great things are going because that's just mundane. They want the meat and blood and that's what the media provides. I think news fasts are a great idea. It's a great way to lower your level of stress without taking any meds.
Last edited by craigr on Wed Jun 16, 2010 11:30 am, edited 1 time in total.
This reminds me of the time I had an unscheduled "news fast" in Sep 08 caused by Hurricane Ike. By the time the power came back on and the local stations stopped running Ike stories all day long, everyone in the city came out of the haze to the biggest financial crisis in generations, already well in progress. I remember watching the national news for the first time in a while and they were talking about WAMU and AIG, and we were like, huh?
The news fast did it's job though. After being sick of being stuck at home for 2 weeks cooking everything on the grill, everyone was so happy to get back to normal and have power and mundane things like working stop lights, no one cared about what was happening on Wall Street. All the restaurants seemed packed for months as the crisis ground on in the background. In the end though, there's another reason to use the PP - you never know when a natural disaster will strike and leave you cut off at the same time a major financial event unfolds.
