Permanent Portfolio Mutual Fund

[craigr]

Welcome to the Permanent Portfolio Mutual Fund (Ticker: PRPFX) discussion forum. This area is to discuss the Permanent Portfolio Mutual Fund.

[Roy]

PRPFX had its biggest loss that year.  Over a 16% difference between the HB PP (which was up a bit) and PRPFX—the largest difference since inception.

The broad stock index was up and so were all Treasuries.  Gold was down 18% but I'm trying to figure why PRPFX lost so much.  Did PRPFX hold lots of small caps then?  REITS?  Maybe just a lot of bad luck with individual stock picks?  Silver go bust or Francs?

PRPFX Market Capitalization today is not very high;  I assume that applies to only its 30% or so in equities.  It is quite different from the S&P whose Market Cap is more than quadruple that of PRPFX.

Roy

[pplooker]

Maybe just a lot of bad luck with individual stock picks? 

I don't know if this is why, but this is one reason why I don't think the mutual fund and the PP are the same thing at all and I'm loathe to suggest the mutual fund as a substitute.  The active stock picking really bothers me.

[Roy]

Maybe just a lot of bad luck with individual stock picks?

I don't know if this is why, but this is one reason why I don't think the mutual fund and the PP are the same thing at all and I'm loathe to suggest the mutual fund as a substitute.  The active stock picking really bothers me.

Agreed.  Always thought about PRPFX in just the same way and always said so.  Even still, the differences between funds are not so acute in other years, especially if you add Tex's suggestion—a dollop of LT Treasuries.  But the more I study this, and I have for some time, the more I believe that all HB's asset class implementations were, and remain, superior, safer.  

For me, that now includes holding physical Gold even as the convenience of ETFs is attractive.  And it includes a broad market approach, vice anything that smacks of sector plays (which I think have their place in some strategies or for particular investors);  there is a huge difference in the capitalization weights between the funds. And if It were to deviate from the broad market, I'd rather do it myself as we have all discussed in the Stock section.  That aside, I'd prefer to adhere to Harry's Rule 17--and play it safer if in doubt.

Roy  

[MediumTex]

Maybe just a lot of bad luck with individual stock picks?

I don't know if this is why, but this is one reason why I don't think the mutual fund and the PP are the same thing at all and I'm loathe to suggest the mutual fund as a substitute.  The active stock picking really bothers me.

Agreed.  Always thought about PRPFX in just the same way and always said so.  Even still, the differences between funds are not so acute in other years, especially if you add Tex's suggestion—a dollop of LT Treasuries.  But the more I study this, and I have for some time, the more I believe that all HB's asset class implementations were, and remain, superior, safer.

Here is one small illustration of the problems with what might otherwise be a good strategic approach to equities:

PRPFX holds 15% of its equities in natural resource-related stocks.  Over time, these stocks provide an additional inflation hedge and are one of my personal favorites for lots of reasons....BUT, note how this basically sound investment thesis can be completely obliterated by a "black swan" event such as a Gulf of Mexico deepwater drilling rig accident and oil spill in an ecologically sensitive area.  Such an unexpected event can trigger a series of additional industry costs, additional (and unpredictable) regulatory requirements, and additional taxation on the industry to fund cleanup funds and pay for additional regulatory oversight.  All of these factors can mess up the business plans and P&L models for the whole industry, and completely eclipse the basically sound underlying investment thesis.

I could make a similar argument about the gold miners and the punitive tax Australia just imposed.  Suddenly, mining for gold just got a lot less profitable in Australia, even though the gold miners investment thesis suggests that miners are the place to be.

[rdelamont]

Has anyone done a thorough analysis comparing The Permanent Portfolio mutual fund with Harry Brown's version of the permanent portfolio?

[MediumTex]

Has anyone done a thorough analysis comparing The Permanent Portfolio mutual fund with Harry Brown's version of the permanent portfolio?

The short answer is that PRPFX has exhibited greater volatility while providing similar returns to the HB PP, though there have been significant periods during which PRPFX has underfperformed the HB PP.  Additionally, PRPFX will always be at a disadvantage to the HB PP because you are paying much higher fees for PRPFX than the HB PP.  However, PRPFX is a very tax efficient fund, which can be a plus for taxable account investors.

PRPFX "leans" toward the inflation thesis, and thus, IMHO, has a significant blind spot when it comes to deflation protection.

The long answer is to look in the Bogleheads thread, where the question you pose has been discussed from countless angles and perspectives.

[Wonk]

I'm curious if anyone works in finance and can comment on what it would take to create an honest, 4 x 25 permanent portfolio fund with low ER.  Seems to me it could be a set-it-and-forget-it fund with an autopilot re-balance.

Obviously, an investor can do a 4 x 25 themselves quite easily.  However, most people like the idea of dumping fresh funds into a one-stop place.  I don't think PRPFX is that place. 

A true 4 x 25 fund could also be a beautiful solution to the plague of 401k options out there....

[Indices]

I'm curious if anyone works in finance and can comment on what it would take to create an honest, 4 x 25 permanent portfolio fund with low ER.  Seems to me it could be a set-it-and-forget-it fund with an autopilot re-balance.

Obviously, an investor can do a 4 x 25 themselves quite easily.  However, most people like the idea of dumping fresh funds into a one-stop place.  I don't think PRPFX is that place. 

A true 4 x 25 fund could also be a beautiful solution to the plague of 401k options out there....

I think this would be a great idea. I believe I posited it on the Bogleheads board as well but got no response. By buying gold, bonds and stocks in bulk we could drive down expense ratios tremendously. We could have one fund, it would be tax efficient, and so it could be held in a taxable account as well.

[MediumTex]

I'm curious if anyone works in finance and can comment on what it would take to create an honest, 4 x 25 permanent portfolio fund with low ER.  Seems to me it could be a set-it-and-forget-it fund with an autopilot re-balance.

Obviously, an investor can do a 4 x 25 themselves quite easily.  However, most people like the idea of dumping fresh funds into a one-stop place.  I don't think PRPFX is that place. 

A true 4 x 25 fund could also be a beautiful solution to the plague of 401k options out there....

I think this would be a great idea. I believe I posited it on the Bogleheads board as well but got no response. By buying gold, bonds and stocks in bulk we could drive down expense ratios tremendously. We could have one fund, it would be tax efficient, and so it could be held in a taxable account as well.

I'm sort of surprised that Cuggino and Co. haven't come up with something like this as an alternative to PRPFX.  Then again, PRPFX has seen its assets grow so quickly they may not see it as an opportunity.

I wouldn't hold your breath for something like this.  Remember, most people think the HB PP is crazy.

[Pkg Man]

My guess is that it just doesn't sell.  Can you imagine a real Permanent Portfolio fund manager being interviewed on Squawk box?

Joe: "So what stocks look attractive to you"?
PP mngr: "I have no idea, we recommend VTI".

Joe: "Where are long term interest rates headed"?
PP mngr: "I'm no soothsayer".

Joe: "Is gold the next bubble to burst"?
PP mgnr: "I don't know or really even care".

Joe: "Thanks for coming on the show. Carl, back to you".

"Squawk Box" is the ultimate "pre-market" morning news and talk program, where the biggest names in business and politics bring their most important stories. "Squawk"'s unique sense of street smarts and wit, mix business news with an unscripted and fast-paced exchange of banter.


Since the PP is not exactly a new idea, I think that if there were a demand for a true 4x4 PP fund that it would have already been created.

[MediumTex]

Pkg Man, that's hilarious.

It would be like a game to try to get him to crack, and he would just sit there sphinx-like refusing to speculate or make any comment about the future of any asset.

They could introduce the segment by saying "Folks, you're about to meet a man who has never made an inaccurate prediction about the future.  In fact, he's never made any prediction at all.  He calls market commentators 'a bunch of clowns looking for a circus to join.' But get this, his fund has returned an average of over 9% a year for the last 40 years."

[Roy]

Pkg Man, that's hilarious.

It would be like a game to try to get him to crack, and he would just sit there sphinx-like refusing to speculate or make any comment about the future of any asset.

This is why they regret Bogle appearances on CNBC.  Last time I saw Bogle, he said the recent market movements "signified nothing" and one gal wigged out on him saying they HAD to signify something.

Cuggino plays ball with them, quite possibly because he is much like them, and speculates, albeit in a smaller arena. They also let him have his Permanent Portfolio banner up when he talks.  Surprisingly, I have not seen him lately with the Gold fun.  They never talk about the strategy that makes possible those 5 Stars, even in its watered-down form.  It is always speculative BS, as it must be for him to get invited back.  Those are the rules...

Consider the marketing horror alternative from the CNBC viewpoint:  buy and hold advice for any portfolio—let alone just 4 asset classes—and you're done.  Or invest with PRPFX—and only PRPFX.  But even there, Cuggino can't say that.  His firm does have other funds, but these don't have banners, apparently.  Maybe paying 70 BPs for T-Bills is too expensive for the cheapskates on this forum, but apparently that fund has 40 million of somebody's money.  Or his "versatile" Corporate Bond portfolio—yours for 88 BPs.  Or the "Aggressive Growth" portfolio at 121 BPs.  (God, I love that "aggressive growth" concept, whatever it means.)

This is all part of the reason (even in perception) why you don't see a HB version for, say, 50 BPs (I know because I have talked with huge money managers over drinks and lunch who have the power to create such a fund).  Now, they are fully unaware of the HB PP, but when made aware, perceptions are as follows:  

I can make more $ selling something else.  This is true but nobody says it is mutually exclusive to other products.  They can make some $ selling to institutional investors, and safeguard their high net worth clients.  And if they were really bright, they'd save a ton in NON-management costs.  After thought, they agree on this.

Too simple and not actively managed—even as they admit it (active management) has underperformed.  It is the hope (a very American/Human? thing) that outperformance will happen and momentary tactical control is necessary for this.  (Recall Bogle's first index fund was called UNAmerican in ads.)  I have no response to this beyond simple math;  I can't compete with the strategy of hope.  They laugh.  I laugh.  We order food.

Fear of underperformance in Bull markets.  Yep.  That's the price of staying alive long enough to care about a Bull market.

The above is all said with sheepish grins as they can not nay-say the results.  These are very bright boys, too.  They agree the argument is "right" and ask me why I don't get into investing myself.  I'd do it myself but it was pointed out one needs a large "back office" to handle money at this level.  They think I'm funny.  We laugh some more over a nice lunch and the conversation shifts to something more practical, like hobby interests:  their aircraft;  their antique toy train collections.


Roy

[MediumTex]

Roy,

An interesting comparison to the investment community and the PP is to the pharmaceutical industry and personal health.

If you went to a drug company and told them you had this great idea to improve personal health through changes in diet, exercise and a simple group of daily supplements, they would probably give you the sheepish grin act and maybe finally tell you that their business model is actually based upon people getting sicker, not healthier (with a preference for chronic illnesses that are debilitating, but not fatal).

Similarly, telling a master of the universe type about a way to get great returns with no active management and a static allocation formula probably sounds about like Kryptonite-flavored breakfast cereal would to Superman.

[Pkg Man]

Not sure if you all have seen this or not, but a nice article on the fund and the PP concept recently appeared in the WSJ.

http://online.wsj.com/article/SB1000142 ... _LeadStory

[craigr]

Not sure if you all have seen this or not, but a nice article on the fund and the PP concept recently appeared in the WSJ.

http://online.wsj.com/article/SB1000142 ... _LeadStory

Nice write up. Many investors performance chase. But for some the lower volatility of the strategy may be just what they want.

[MediumTex]

Not sure if you all have seen this or not, but a nice article on the fund and the PP concept recently appeared in the WSJ.

http://online.wsj.com/article/SB1000142 ... _LeadStory

Nice write up. Many investors performance chase. But for some the lower volatility of the strategy may be just what they want.

That's a pretty good article.

The growth in PRPFX's assets has been remarkable ($50 million in 2000 to $7 billion today).

[craigr]

Not sure if you all have seen this or not, but a nice article on the fund and the PP concept recently appeared in the WSJ.

http://online.wsj.com/article/SB1000142 ... _LeadStory

Nice write up. Many investors performance chase. But for some the lower volatility of the strategy may be just what they want.

That's a pretty good article.

The growth in PRPFX's assets has been remarkable ($50 million in 2000 to $7 billion today).

Yes. I wonder how Cuggino will handle the outflows when the hot money departs.

[Snowman9000]

I read the prospectus last year.  There is some sort of redemption in kind possibility that might come into play during a big selloff.  Wouldn't that be a surprise to the sellers?  Also, there is something in it that gives clues as to the difficulties of having a 4x25 fund.  Just can't remember what it was.  :/

[MediumTex]

I read the prospectus last year.  There is some sort of redemption in kind possibility that might come into play during a big selloff.  Wouldn't that be a surprise to the sellers?   Also, there is something in it that gives clues as to the difficulties of having a 4x25 fund.  Just can't remember what it was.  :/

I wouldn't worry about that.  I believe the prospectus says that it may elect to distribute precious metal redemptions in kind (or as the shareholder elects), but I don't know why it would do that with the precious metals market being the way it is right now.

As far as the difficulties of the fund go, you may be remembering the excise tax the fund pays to make it more tax efficient.  I don't recall the details, but the fund pays a small excise tax every year that permits it to retain more earnings and thus make the fund more tax efficient.  All of the details of this maneuver are in the prospectus.