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[moda0306]

I'd like to see a macroeconomics debate anywhere else on the internet stay as civil as the ones we have on here.  I was afraid that we'd have "strained relations" after all the political/economics debates started popping up recently but things stayed completely cool headed.  I think it has something to do with the "macroeconomic humility" it takes to own long-term treasuries and gold as 50% of a portfolio.  The PP is almost repellant to closed-minded, arrogant, jump-to-conclusions types of people that seem to hijack threads and turn debates into a race to the bottom, insults galore.

I always felt there was a huge gap between my love and interest for macroeconomics and politics, and my fear and disgust with what felt like had to be a constant gambling with investing.  They seemed like two different worlds... one occupied by academics and one occupied by used car salesman, so they could never really be reconciled (or so I thought).

The PP is the bridge for me that ties my interest in macroeconomics to the volatility in the ugly world (or what used to look so ugly) of investing and trying to safely grow your wealth.  It's so weird to feel such a solid connection between the two, when I once felt so much differently.  Now my interest in one actually feeds my interest in the other.  

It's almost like Revenge of the Nerds.  Now I feel like the "nerds" that are interested in macro-economics finally have the upper hand over the "cool-kid" used car salesman wall-street day traders (not that anyone who doesn't bathe in the PP is a day-trader).  

PS, I hope nobody on here is a used-car salesman.  I think I've used that term as a negative adjective about 50 times on this site.

[moda0306]

Rick,

I still feel that if one really wants to take on more risk, the PP still holds extremely valuable blueprints on how to do so.  For instance, before being exposed to the PP, one might think that investing in corporate or muni long-term bonds instead of treasuries, or real estate instead of gold, will properly hedge them against stock drops.  We've seen this to NOT be the case, and we know that if you set up fixed allocations and rebalance bands, even if they're not 4x25, one can create a "machine" where he takes his winners when stocks lose and purchases more stocks.

So even if I were to get more risk appetite, I don't think I'd stray into anything but treasury bonds and gold as my hedges (and cash of course as a cushion).  They work for macroeconomic reasons that other things just plain don't.  If there's anything that the PP has taught me, it's that correlation is as or more important than long-run CAGR in deciding what investments to bring into a stock-heavy portolio to properly hedge.  2008 was such a good example of this, it really hilighted gold and LT treasuries abilities to stand out from the commodity and bond crowd, respectively.

[Lone Wolf]

I think it has something to do with the "macroeconomic humility" it takes to own long-term treasuries and gold as 50% of a portfolio.  The PP is almost repellant to closed-minded, arrogant, jump-to-conclusions types of people that seem to hijack threads and turn debates into a race to the bottom, insults galore.

I'd agree that for just about anybody, it takes a lot of macroeconomic humility (and a strong stomach) to hold on to one or the other of gold or LT bonds.  (For me, it's LT bonds.)

The other factor that helps here is that someone who embraces the Permanent Portfolio is usually an investment enthusiast who has taken a look at the markets and said three simple words: "I don't know."  I usually find that it's most fun to interact with people who know a lot but yet have divorced themselves from this need to have all the answers.  By definition, every PP adherent has admitted to themselves that they don't have all the answers.

That also makes the "prediction" threads fun.  I don't mind sucking at the predictions game when you're I'm in a crowd of people that has acknowledged how uncertain the future actually is.

[moda0306]

LW,

I'm in the opposite boat, where gold is the tough one for me to swallow (there's just GOT to be a better way to hedge against inflation than a yellow metal sitting in a safe, right? (rhetorical)).  But I also think of the year 2000, where gold had just experienced 12 of 13 years of straight decline.  Would I have been comfortable buying then?  Would I have been comfortable selling stocks then?  We just simply don't know.

And your point about uncertainty is huge.  You could be the most knowledgeable investor, and studious in all sorts of foreign affairs, politics, climate science, etc, and think you have it all figured out, but then 20 guys with box-cutters deliver a giant blow to our security directly, and indirectly pull our government into 2 expensive occupational wars.  The things you don't know always eclipse the things you do... and the things you DO know are usually pretty well known by everyone else too.

[TBV]

LW,

I'm in the opposite boat, where gold is the tough one for me to swallow (there's just GOT to be a better way to hedge against inflation than a yellow metal sitting in a safe, right? (rhetorical)).  But I also think of the year 2000, where gold had just experienced 12 of 13 years of straight decline.  Would I have been comfortable buying then?  Would I have been comfortable selling stocks then?  We just simply don't know.

And your point about uncertainty is huge.  You could be the most knowledgeable investor, and studious in all sorts of foreign affairs, politics, climate science, etc, and think you have it all figured out, but then 20 guys with box-cutters deliver a giant blow to our security directly, and indirectly pull our government into 2 expensive occupational wars.  The things you don't know always eclipse the things you do... and the things you DO know are usually pretty well known by everyone else too.

And therein lies the secret of the PP.  Whooda thunk that the events of the last two months would play out as they did?  We've had revolutions, earthquakes, tsunamis, nuclear disasters.  What next, a plague of locusts??  Remember when LT bonds were about to be eclipsed by rising inflation?  Well inflation is upon us, but yields are going down.  HUH??  How nice to have some gold. You know, that stuff that couldn't possibly go any higher.  And what about the S&P 500? Looked like a winner, but now we're back to where we were at the start of the year.  Go figure.

The detachment that the PP offers from day-to-day market chatter/hysteria provides a calming effect.  Its track record provides a sense of stability and conviction, very necessary when you're buying LT's at the same time that PIMCO is dumping them.  And it causes you to think macro, which in turn leads you to look at the economy in a fundamentally different way. Which leads to such nice discussions here.

The PP is well worth the price of admission.

[Rick S]

Moda,

I completely agree that LTGB and gold are the secret to the PP.  I just think that most people won’t agree.  I get a grilling from my broker every time I buy 30 year treasuries.  If he wasn’t part of the family then I’d move along…but that’s another story.  My point is that selling the PP concept is an uphill road. If you like gold or LTGB then you’re nut…or so they say.  With the PP, you are also put into the position of investing in one or more bubbles.  This might be a turn-off for most people.
Having said that, the PP is an easier sell now given the last decade of poor results in the stock market.  If we have another bull run and the PP averages 4% vs. 10% in the equities market the most of the folks currently following the PP will be long gone.
Wide scale adoption of the PP will be difficult.  Thus, if this site is dedicated to carrying the PP torch then it should be expected to have a smaller share of the audience.  This may, or may not, be at odds with the goal of the site.

I love that this forum takes a strategic position.  Most portfolios (and competing forums) are constrained by hindsight.  They get too involved in the tactics (slice and dice, timing, trends, precise allocations, etc) and ignore the larger questions.  The PP, on the other hand, is a forward looking strategy for wealth preservation based on an unknown future.  It would be nice to carry on the discussion of strategic wealth preservation without always be compelled to defend the 4X25. 

[craigr]

Thanks for the comments.

I think MediumTex and I are both very happy with the discussions we have here. Very civil and intelligent. The forum was really made to be a focused discussion of all things Permanent Portfolio. It would be cool to have these other topics, but moderation can become a very big problem. We are fortunate so far that there have been no problems except the occasional spammer. Thanks to all for participating here.

[AdamA]

I was afraid that we'd have "strained relations" after all the political/economics debates started popping up recently but things stayed completely cool headed.  

I think this is in part because most of the people on this website debate topics because they want to hear the other side of the argument.  Also, if someone is using the PP, his or her investment future isn't attached to his or her predictions about markets, which tends to keep things a bit less emotional.  

[moda0306]

I think the "4x25" gets so much attention when it's the asset classes that should get it to newcomers.  Ok, so if my financial advisor says because I'm 26 I should be in 75% stocks and 25% bonds (let's assume total bond fund), then I'd say "no, if I'm going to have 75% stocks, I want the remainder to be things that oppose it for fundamental macroeconomic reasons, and history and macroeconomics show that LT treasuries and gold, whith a dash of cash, will do that better than any total bond fund."  Maybe then I'd show him the performance and logic of a 75/10/10/5 portfolio.

This isn't me suggesting to slice and dice the PP into other things than 4x25, but when trying to compare it to more aggressive portfolios to focus on how stock-opposing assets in ANY amount do a much better job of eliminating volatility and improving growth than assets that don't differ from stocks for fundamental macroeconomic reasons.  I'll probably never look at corporate bond/muni bond/preferred stock/commodity funds ever again because I know that stocks won't go down hard unless something is going on in the economy that would make LT bonds and/or gold explode.  That can't be stressed enough: Stock indexes don't just drop for no reason.  There is something serious going on in the economy if stocks drop 10% or more in a year.  Why would you hold anything like stocks as a hedge against such unstable events?

Once one has an appreciation for the nature of the assets involved, and how great LT bonds and gold are as your stock hedge, they can then look at how little one gains in CAGR by trying to over-weight towards stocks instead of just sticking with the 4x25.  If Rick's advisor is right and LT bonds perform like gold did from 88-2000, fine (but still, when one looks at Japan, it's easy to give up the fear of LT bonds).  Gold's lack of performance then was what allowed stock sales to mop up the pathetic prices gold was going for until the crap finally hit the fan again.

[moda0306]

Rick,

Did your broker say that about bonds before 2008?  Have you tried to explain the PP to him?  What does/would he say about Japan?

Funny how + or - bonds are at about now what they were at before the crash (yield wise), but their value in the past few years has hardly been that of a stable cushion.  Some people just don't understand that assets can be more than a sum of their parts.

It's unfortunate to have an akward family obligation like that.

[l82start]

Thanks for the comments.

I think MediumTex and I are both very happy with the discussions we have here. Very civil and intelligent. The forum was really made to be a focused discussion of all things Permanent Portfolio. It would be cool to have these other topics, but moderation can become a very big problem. We are fortunate so far that there have been no problems except the occasional spammer. Thanks to all for participating here.

thanks for the site,
i have to agree with what others have already said better than i can ,informative and civil discussions, good advice, unique take on economics and investing...  i would say this forum is a rousing success... 

[moda0306]

Civil political/economic discussions on an internet message board?

This is a bigger discovery than HB discovering the PP.

[Rick S]

My advisor, although he's also a family member, ulitimately does what I tell him.  I just have to take the heaping spoon of advice every time I move against his advice.  No worries.  We all understand the playing field. 

I started using the PP after 2008.  I was fortunate enough to recoup my losses from 2008 before moving to the PP.  It was lucky timing but I feel better about myself for not abandoning a previous strategy with locked in losses.  The crash in 08 forced me to do some soul searching.  I was comfortable with the risk of a 90% stock/ 10% cash approach for 15 years.  I'm in my early 40's and I still have quite a bit of time to ride things out.  The crash, however, forced me to look at bigger questions.  What is the "Long run"?  How much am I really willing to lose?  I realized that I was already comfortable in life and that I should hang on to my wealth rather than risk it.  I have no need to risk it.  I'll able to fund a very comfortable retirement with a conservative approach.  A risky approach might add a little extra but honestly I have no need for a 80' boat when a 46' will do just fine. 

[moda0306]

I wish I could have felt what few did in 2008 being in the PP (I was a 100% stock plus tiny emergency fund type of guy... though I was sure to "diversify" into REITs and EM), seeing HB's theories about gold not reacting like other commodities in an economic collapse and LT bonds being the savior (hadn't really played that role to a huge degree yet) must have been a great feeling.  To see it stiff-arm a deflationary financial crisis like that must have been something else.

I wish HB would have been around to see it.

[MediumTex]

I wish HB would have been around to see it.

Most of the models telling us what was supposed to happen in 2008 failed.

HB's model in the form of the PP succeeded brilliantly.

The longer I spend with the PP, the more I realize how stubborn certain unproductive mental habits can be.  I think most people simply don't want to see the truths that the PP embraces, namely that the world is a profoundly uncertain place, no one knows the future, and what many people think of as "investing" is really just gambling.

[6 Iron]

I must say, I am impressed that the Badger and Blade shaving forum's "general discussion" section has generated 335,000+ posts.  I didn't know there was this much to be said about separating oneself from one's body hair.

And individual contributors with 1000's of posts. Our board and this concept offers so much more to discuss, yet is not in the same ballpark in terms of appeal to "average Joe" or even "above average Joseph". I agree with those who appreciate the kindness and insight of the people that we have discussing the PP, and the troll free environment. This, and its progenitor, the HB megathread have had a huge impact on me. Still, some days, when the posting is down to a slow trickle, I just want more. More insights, more opinions, even more chaps. 

[craigr]

I wish I could have felt what few did in 2008 being in the PP (I was a 100% stock plus tiny emergency fund type of guy... though I was sure to "diversify" into REITs and EM), seeing HB's theories about gold not reacting like other commodities in an economic collapse and LT bonds being the savior (hadn't really played that role to a huge degree yet) must have been a great feeling.  To see it stiff-arm a deflationary financial crisis like that must have been something else.

I wish HB would have been around to see it.

I was there. Late October/Early November was interesting (about -15% down at the worse if I recall?). Then the LT bonds took off like a rocket once people started figuring out what was going on with housing price collapses. I was pretty relaxed the rest of the year and after that I had a pretty good feeling about HB's ideas. They worked exactly as good economic theory suggested. HB was way ahead of his time. IMO.

[HB Reader]

I wish HB would have been around to see it.

I was pretty relaxed the rest of the year and after that I had a pretty good feeling about HB's ideas. They worked exactly as good economic theory suggested. HB was way ahead of his time. IMO.

Yeah, I also wish HB was still around.  I remember going into a store in Denton, Texas in 1974 to buy HB's "You Can Profit From a Monetary Crisis" book.  The store clerk said that they didn't have it, but that I really didn't need to buy it because he could sum up HB's advice in a few words: "Buy gold, silver & Swiss francs."  I sure am glad I persisted and found the book (and his earlier ones) elsewhere.  It quickly became clear to me that HB knew more about economics than any of my college professors.

Back then, I never could have imagined that several years later he would add stocks, T-Bills and LT Treasuries to the mix.  Or that the events of 2008 would occur.  Or that there would ever be anything like the internet or this forum, for that matter.

[moda0306]

For a guy who timed getting in and out of precious metals so well, as well as advocating the perfect alternative providing amazing diversification, his humility is really something to behold.

Part of me thinks the PP will be a passing fad for most based on how it's explained in articles nowadays, as so many of them talk about back-tested returns and lack of volatility, but not some of the deep macroeconomic principals that make these assets move.  Until one understands those principals (and more importantly, how other instruments are fundamentally flawed), this portfolio may seem "lucky" or "too good to be true."  As I've mentioned, I think the two most important distinctions that need to be made is the LT treasury vs corporate or muni bonds, and gold vs commodity baskets.

It's difficult for most to invest in commodities in general, but if they do it's extremely easy to fall into the logic that a commodity basket diversifies more than gold does (in fact, I once had the attitude that because of golds lack of industrial value it'd be the LAST commodity I'd want to have in a safe).  It's tough to explain how this ISN'T true.  Further, it's difficult to get people to appreciate the volatility of long-bonds (bonds are supposed to be stable!!) and once again it's very easy to fall into the logic that a "total bond fund" or a "world bond fund" is much more diversified than buying 30-year treasuries.

Combine all the preferred stock, junk bond, muni bond, TIPS, REIT, and EM options out there, and the ability to be disguised by "mirage diversification" is extremely high to those that don't understand the PP.  Most articles that float the PP out there don't properly explain this.  They give passing mention to the 4 economic cycles, but don't explain how other assets fall-short.  I was fully comfortable considering my house my inflation hedge until maybe a year ago.  Wishful thinking and groupthink can turn investing strategy's into one giant house of cards, and it's difficult to wash away the pre-conceived notions that are reinforced by those two phsychological enemies.

[TBV]

PP adherents encounter skepticism from those who ridicule the asset mix, while ignoring the fact that it is, in fact, a mix: one which delivers returns and security not associated with its individual components in isolation.  Other skeptics point out that the PP's returns are not as good as properly timed speculative investments.  True enough, but these same people cannot explain how to successfully speculate prospectively, especially over several decades.  Looking back, it seems that the 4x25 strategy attracts more followers when times are tough, but not when prosperity reappears. So be it.

Centuries ago, some societies were convinced that human sacrifice was a reliable strategy for ensuring a bountiful harvest. Today, we take other, equally suspect measures to try to stimulate the economy.  However, in investing as with economic prognostication, only results matter.  HB's PP has done well, but perhaps not well enough to suit everyone's taste. So be it.

Just as some people spend their free time relaxing while others go bungee jumping, our risk/reward outlooks can vary substantially.  The sad thing is when people pursue an approach which fails to satisfy their needs, needs they may not have been fully aware of at the start.  So much of investing is about self-awareness.  How much risk can we tolerate?  How much are we really committed to long term results?  Is the "action" more thrilling than whether we win or lose? Is a bird in the hand really better in our minds than two in the bush?  For many who already know the answers to these questions, the PP is a wise choice.

[LifestyleFreedom]

Part of me thinks the PP will be a passing fad

I agree with you and so does noted financial author William Bernstein (http://www.efficientfrontier.com/ef/0adhoc/harry.htm): There’s nothing wrong with Harry’s portfolio—nothing at all—but there’s everything wrong with his followers, who seem, on average, to chase performance the way dogs chase cars.

Bernstein is approaching The Permanent Portfolio from Modern Portfolio Theory, where asset allocation explains much of the investment return.  Harry Markowitz wrote the defining paper on Portfolio Selection back in 1952 (http://www.gacetafinanciera.com/TEORIARIESGO/MPS.pdf) and was awarded the Nobel Prize for it in 1990 (which gave the concept a lot of publicity).  The idea is that by picking a portfolio of volatile assets that are minimally correlated, the volatility of the overall portfolio is reduced because the volatility of the various assets cancel each other out to some extent.  Some assets zig, while others zag, in other words.

Browne tried to explain the non-correlation of stocks, bonds, gold, and cash in terms of macro-economic cycles, while other practitioners of asset allocation look at historical correlation to make the portfolio selection.  Because of the madness of crowds, investors jump on something that works, which makes it not work, and then they move on.  When a lot of people buy and sell the same non-correlated assets all at the same time, the assets start become correlated to each other.

I suppose this means one should "buy and hold" the Permanent Portfolio, and re-balance accordingly, to build and preserve wealth because it means one is ignoring the crowds and their fads over a long period of time.

[brajalle]

I think part of the reasons the traffic isn't higher is because of the simplicity of the portfolio and the conversations around it.  Inevitably, once tweaks are brought up, it ends up coming back to - just stick to 4x25.  Not that it's bad, but it sort of makes lively discussion of the portfolio a bit slower and less exciting.  I mean, you can pretty much predict the content of each of our forums in large part. 

One of the reasons bogleheads has so much traffic for example, is because it covers such a broad range of topics, same with fatwallet, etc.  This site is very narrow, without much deviation beyond simple PP stuff, so the discussion and audience is much smaller. 

If the goal is a broader, more lively audience, the topics must diversify, as right now, the audience size and traffic is probably fairly appropriate when it comes to Harry Browne's Permanent Portfolio. 

[fnord123]

I'd like to add my voice to the chorus of thanks to craigr, MT, and really pretty much the entire population of the forum.  The maturity people have shown in debating some pretty hot topics continues to impress me, and it is great to have a place that is dedicated to the PP.

[steve]

Our topic should be how to not get shaved financially by brokers and high expenses and others who try to remove you from your money.

I agree. These forums are an oasis amidst a sea of cacophony!

We definitely need a shaving section though. 

For example, I saw a link on the boglehead forum to a site dedicated to safety razors,

http://badgerandblade.com/vb/