PRPFX Back Testing

[BugMan]

I am a holder of PRPFX in a taxable account and I thought other holders of the fund may be interested in this.

I am a firm believer in avoiding large losses especially close to and in retirement (one of the reasons I am using this fund).

I did a 20 year back test for this fund. I intend on taking 4% of the yearly ending balance of this fund in retirement. I wanted to see how that would have held up using the last 20 years of data for the fund.

To summarize...I started with a fund balance of 500K. I then went through the funds performance data and figured the yearly balances, withdrawals amounts (again 4% of the balance) and the ending balance (after the yearly withdrawal). The results...

In 1989 the first withdrawal would have been $21240...in 2009 the last withdrawal would have been $36812.

In 1989 the first ending balance (after withdrawal) would have been $509760...in 2009 the last ending balance would have been $883481.

Things I learned...

losses have a tremendously bad effect on the portfolio

I basically kept up with inflation with my withdrawals and my ending balance was almost $375000 higher than my first year balance.

Any thoughts? 

[MediumTex]

Add some EDV or TLT to dampen PRPFX's volatility and reduce losses in the bad years.

PRPFX is a great fund, though, especially since Cuggino took over.

[LNGTERMER]

Add some EDV or TLT to dampen PRPFX's volatility and reduce losses in the bad years.

I have read a few posts along the same lines of thought that the addition of 10% EDV along with the fund would do the trick. I searched for a post that explains the rational behind this strategy but could not find it. If possible can you elaborate a bit on this, and is this conclusion supported by testing, data or other reasons as to why it is a good compliment for the fund. I do hold the fund in my taxable account as well and do see a divergence between it and my regular PP in my IRA.

[MediumTex]

Add some EDV or TLT to dampen PRPFX's volatility and reduce losses in the bad years.

I have read a few posts along the same lines of thought that the addition of 10% EDV along with the fund would do the trick. I searched for a post that explains the rational behind this strategy but could not find it. If possible can you elaborate a bit on this, and is this conclusion supported by testing, data or other reasons as to why it is a good compliment for the fund. I do hold the fund in my taxable account as well and do see a divergence between it and my regular PP in my IRA.

Take a look in the Bogleheads thread.  As far as I know, I am the one who came up with this strategy and after posting the rationale, others have backtested it and it looks pretty good.  There are some charts with a comparison of the two approaches and how well EDV dampens the volatility of PRPFX.

The basic idea is that PRPFX doesn't hold anywhere near 25% in long term treasurys (it's more like 10%).  Thus, if long term treasurys are doing well, PRPFX may lag the HB 25%x4 allocation.  By adding 10% EDV to your PRPFX holding, the overall allocation more closely resembles an HB 25%x4 approach, while still preserving PRPFX's convenience and tax efficiency.  As far as how to rebalance when using this approach, I would suggest rebalancing annually, or whenever the percentages get to 85%/15% or 95%/5%.

I suggested EDV because it gives you a lot of volatility in a small package.

Think of EDV as a side order of safety when making a large commitment to PRPFX.

[BugMan]

MT, While I am the first to admit that PRPFX is not perfect (active manager, expenses, not enough long term bonds, etc.) I find holding 100% PRPFX much easier than the 4 x 25. Again this is a taxable account but in the past I have held the 4 x 25 and seeing all of the moving parts was unsettling to me. Just holding PRPFX keeps all of that turmoil "hidden" from the shareholder. I like the fund, the manager and hitting singles year after year is doing the trick.

[MediumTex]

MT, While I am the first to admit that PRPFX is not perfect (active manager, expenses, not enough long term bonds, etc.) I find holding 100% PRPFX much easier than the 4 x 25. Again this is a taxable account but in the past I have held the 4 x 25 and seeing all of the moving parts was unsettling to me. Just holding PRPFX keeps all of that turmoil "hidden" from the shareholder. I like the fund, the manager and hitting singles year after year is doing the trick.

At one point during the 2008-2009 crisis, PRPFX was down 26% from its high of a few months before (it went from $38.69 to $28.59).

Would you have been able to hang on during a 26% decline?  I wouldn't.

EDV was up 50% during that period.

[SmallPotatoes]

PRPFX is great and does have a historically bright record. I do believe that a tax-advantaged PP is the best way to go for any number of reasons listed on this forum.

PRPFX is ideal for a standard brokerage account and has up days when the 4x25 has down days (at least this has been my occasional observation).

It sounds like you're on the right track using PRPFX as a primary holding and slowly building a PP in your IRA. For all but the grimmest of Doomsdayer's this is probably the best way to adopt the PP.

[MediumTex]

It sounds like you're on the right track using PRPFX as a primary holding and slowly building a PP in your IRA. For all but the grimmest of Doomsdayer's this is probably the best way to adopt the PP.

I don't think it's simply a matter of whether one is optimistic or pessimistic about a given scenario. 

PRPFX is fundamentally an allocation that leans toward an inflationary world.  The HB PP, however, doesn't lean in any particular direction--it just takes what the market gives and rebalances as needed.

PRPFX is a good fund, but there is a blind spot in its allocation of which many investors are unaware--i.e., a lack of sufficient exposure to long term treasurys.  As a result, people who like the HB PP will purchase PRPFX without fully appreciating that they are taking on a lot more risk than they would with the HB PP.

If the additional risk of PRPFX over the HB PP is something an investor is comfortable with, I say go for it, but I just want to make sure it is an informed decision.

For those who like the simplicity and tax efficiency of PRPFX but want the warranty that comes with the HB PP, I suggest the PRPFX/EDV mix.

[SmallPotatoes]

Tex, your perspective seems right on. 

I actually like the PRPFX+4x25. It enables you the features of the HB PP; holding gold and individual long bonds, which is great and saves a lot, and the ease of a one (or two) fund solution.

As I've posted before, it seems that on days when the PP stocks are up, but the portfolio as a whole is down, PRPFX is up half a point or more. It adds some balance to a 4x25 approach… for better or worse I know not.

[foglifter]

I think EDV does more than just improving LTT balance. It also lowers the equities share a bit from the current ~29%. However the gold and cash portions also shrink, and while this may be less of a problem for the gold portion which (including 5% of silver) is 25% in the original PRPFX, cash portion (currently ~13%) gets watered down the most of all 4 buckets.

I'm not trying to compare the incomparable, just found it interesting to analyze EDV's influence on the other 3 parts of PP in under the PRPFX shell. As MediumTex mentioned with regards to 2008-09 period, the biggest benefit is reducing volatility, especially in the down markets.

BTW, looking at PRPFX stock allocation I found 1.98% in emerging markets amusing  :).

[MediumTex]

BTW, I own PRPFX as the sole fund in my kids' Coverdell accounts, so I mean it when I say I like the fund.

[SmallPotatoes]

Cuggino has created a genius allocation scheme with PRPFX. If I could only own one fund this would be it.

I wonder if applying a SL7 or 200-ma with this fund might even bolster returns more. Time for more back testing. 

[MediumTex]

Cuggino has created a genius allocation scheme with PRPFX. If I could only own one fund this would be it. 

Harry Browne and his associate Terry Coxon actually came up with the strategy and Terry Coxon created the fund.

Coxon managed the fund from its inception until 2000 or so when he was forced to resign as part of an SEC investigation which reads a bit like a witch hunt.

Cuggino just happened to be in the right place at the right time to get the job, because it was very much Coxon's baby from 1982 until the date he resigned.

Cuggino may be a good stock picker, but I wouldn't give him credit for any more than that (though he is certainly a good caretaker of the fund and the strategy and seems like a good guy).

[SmallPotatoes]

Cuggino for Pres. 2012, maybe?

In all seriousness, Cuggino was not even mentioned in HB's book (Coxon is).  I don't know enough about his picking to remark on his choice securities.  Surley, had I been chosen to manage PRPFX I might seem like a genius right now too.