Why do you use the PP?

[mathjak107]

conventional portfolio's are neither un-safe nor reckless except in the minds of some of you here .

100% paper portfolios are reckless, no discussion possible.

i will bet they outlive you .  i would worry more about recovering from the gold prices plunging

[mathjak107]

mathjak107, I must confess that I really don't understand what you are trying to do here on this forum.

I would say that the message you have been conveying in your numerous posts across a plethora of threads is not much different than what any of us have heard from the financial services industry, or our 401k sponsors at out employers, or in the popular press.

Most of the people on this forum have heard that message, but, for whatever reason, something about it did not resonate with them.  Maybe they were burned in the past.  Maybe they have tremendous savings rates, so they have different goals for their money.  There are a whole list of possibilities.

And so they have chosen to allocate their saving (well, at least some portion of it) to the Permanent Portfolio.

Many, if not most, of your numerous (14 per day!) posts in the 1 month you've been a member here have been aimed at trying to talk people out of the PP.  As Pointedstick said above, I think we've heard your message.  But, from looking at the evolution of responses to your posts, I would say the community is growing weary of your non-stop harping.  This shouldn't be surprising -- it is a forum dedicated to the Permanent Portfolio, after all!

So, as one of the moderators here, I would respectfully ask that you take a break from trying to talk people out of the PP. 

That said, there are many other topics people here enjoy discussing.  Hot stock tip?  Post about it in the Variable Portfolio Discussion forum!  Got a hobby? Plans for what you will be doing in retirement? Want to talk politics or economics? Check out the Other Discussions forum!

I think you will find this to be a vibrant community with a wide range of interests and experiences, and one in which I think you will enjoy participating.

But constant criticism of the PP? Jeez, mon, give it a rest!

I would like to respectfully disagree with this post. I am finding mathjak107's dissenting point of view interesting and helpful. Has it convinced me to drop the Permanent Portfolio? No, but it has provided an alternate perspective which is very useful for anyone trying to make informed decisions. I don't have the benefit of an extended history of investing my hard earned money into the Permanent Portfolio, where I have many years of positive returns at my back, but my money is just that - hard earned, and so it concerns me that in the three years I have used the strategy, two of them have been money losers, and only one has been a decent return. When I started, I was very attracted to a portfolio that had only suffered annual losses three times in 40 years, and now I am facing annual losses twice in three years (admittedly, 2015 is not over yet so things could change). My point is that maybe the economic environment really is different than in the past and a diligent investor ought to consider it. I wish you wouldn't shut mathjak107 down for what you perceive as criticism and instead embrace the diversity of opinion as a moderator whether you agree with it (or like it) or not.

As HB discussed in his book, it's perfectly acceptable to maintain a variable portfolio alongside your permanent portfolio, which I have done and I am thankful I have because over the past three years I have done well with it. If the world collapsed, would my variable portfolio disintegrate while my permanent portfolio remained bulletproof? Maybe, it would. But if the world did not collapse, what's the opportunity cost that I paid for the so-called insurance, and how would that opportunity cost compound over time? I don't know the answer and neither do you because neither of us can know for certain what the future holds, but in the end, investment allocation is a personal decision and judgment call. I'm revisiting my allocation strategy at the moment, and I find the diverse points of view useful. Thank you,

thanks and very well said .

[Cortopassi]

My personal experience in 25 years of investing is I am my own worst enemy, and I have wasted 25 years of generally bull bond and stock markets.  I should have so much more return on investment than I do that it pains me.

If I read the right stuff 25 years ago, or had family members who had invested who I could have learned from, I should have simply done either a PP or 60/40 setup and just keep adding to it.

A 60/40 split would have returned nearly 2x the PP during this period, but also had 9 drawdowns greater than 10%, and a max drawdown of 26%.  PP had one drawdown of 14%.

Compared to how I did during that time, either system would have blown the pants clean off my speculation during that time. 

I am in the PP because I am terribly swayed all the time by recency bias.  Ohh, that sector/stock is doing well, I must get in.  And as we generally know, that is usually the peak.

mathjak, I completely understand your position.  It has been a great 30 years for stocks with a couple major bumps that if you weathered, you'd still be perfectly fine.  Is that the next 30 years?  Who the hell knows.  I am smart enough to see that there is recency bias here in many comments that gold will go down forever and stocks will go up forever.  Neither will.  And when those shifts occur, which given how the world is I imagine will be even more frightening than 2008 by speed and depth, I will happily give up longer term gains to get through those periods with lower drawdowns and lower stress.

But, yes, it could all be wrong.  Maybe gold has no value in the 21st century as money.  Well, then I have a lot of useless shiny stuff to look at and pass to my kids and my retirement will be less comfortable.

I should have let my wife do the investing...

[mukramesh]

but enough said , if you want to keep believing that the  investment gods will wipe out  all non believers feel free  but you likely will be once again  quite wrong   

No one here is saying that at all! Due to the diversification principles, the PP will be fine even if we are wrong. Some other asset will balance it out. But what if you're wrong? Have you even considered that? You keep going on about the 30yr rolling backtests, etc. But consider that the future doesn't look like that? Then your advice is completely horrible, correct?

it just may be the gold that does you in and never lets you see the light of day unless you have decades of time  left to recover and retrace what you gave up by  letting  that money die on the vine..
bye .

Yes, that's a risk with the PP. Agreed. One of the assets we hold can go down. But it's only 25% of the portfolio. That's on purpose.

[mukramesh]

So, as one of the moderators here, I would respectfully ask that you take a break from trying to talk people out of the PP. 

I would like to respectfully disagree with this post. I am finding mathjak107's dissenting point of view interesting and helpful.

I actually agree with both of you. I find the dissenting opinion interesting but also annoying (come on mathjak, just consider that the future doesn't look like the past for stocks!)

I'd say if mathjak just constrained himself to just a single thread (Mathjak Thread of Anti-PP), it would be much more tolerable...

[LC475]

If you want to keep believing that the investment gods will wipe out all non-believers feel free, but you likely will be once again quite wrong.

As one of the few local token PP-believers, I will reply to this one.

For me, it's not that I think that all other portfolios will crash disastrously.  Far from it.  Probably most will do well, over time, if their investors will just stick with them in a reasonably intelligent and foresighted way.

For me, the point is: the Harry Browne Permanent Portfolio is not going to fail disastrously.  It is going to continue working just fine, working as designed, protecting precious wealth by producing decent returns with low volatility.

Vindication shall not be in all the other portfolios crashing and burning.  Vindication will be in the form of steady, chugging-along progress for the PP, in the face of all its naysayers who are claiming, "Oh no, now it's different, it won't work any more going forward."  Vindication is not in other people losing money (how does that help me?).  Vindication is in me protecting my money.

I hope that helps you understand the mindset better.  Insult PPers like me as believing in the PP like a religion (and, backhandedly, insult all religious people as well) all you like.  That's fine.  But at least understand the "theology."  Our rightness is not dependent upon the success or failures of other people's investment portfolios, only our own.

[portart]

As a man in my late 60's, low volitility is quite attractive to me. I made my money. If I lose 3% a year in a PP, I won't go broke (I won't be thrilled either). If I have a 50/50 portfolio and lose 10% to 30% of my net worth, I will be pretty stressed with not much time to recover. I have seen equities get slaughtered. I am quite satisfied with 25% equities. Then if I lose 40% of 25% of equities, balanced by cash, bonds and gold, I won't lose sleep. Cash is neutral. The downdraft in gold which has gotten taken to the woodshed has only lost me a few percent on the whole. The point of all this is that its rare that all of the components will go to hell at once. I am actually excited about gold going down because I am still saving and adding to my portfolio at lower prices with a portion going to keep my gold allocation at 25%. If and when stocks decide to take their seven year itch and get murdered once again, gold will be a great place to recover. It works for me!

[Cortopassi]

Happy PP holder this week.  Bonds, almost as bad a whipping boy as gold, are offsetting most of the stock and gold losses.

[img width=800]http://i.imgur.com/aRFA3F4.jpg[/img]

[buddtholomew]

Help me rationalize.

I selected the PP to avoid 30-40% losses in the equity portion of the portfolio. In exchange for this protection, I am now sitting on 30-40% losses in the gold portion of my portfolio. Really disappointed in the PP. I should have listened to my gut in 2011, but Craigr with his rudder speech and MediumTex with his over-confidence persuaded me to remain invested. I lost money while equities reached new highs and am now losing as they decline.

I've said it before and I will say it again...the PP goes ONLY as GOLD goes.

[buddtholomew]

Happy PP holder this week.  Bonds, almost as bad a whipping boy as gold, are offsetting most of the stock and gold losses.

[img width=800]http://i.imgur.com/aRFA3F4.jpg[/img]

The problem with this analysis is treasuries and gold make up a smaller portion of the portfolio as they have been thrashed. You may have a point percentage wise, but certainly not dollar wise when one is 28/23/22/27.

[Cortopassi]

Maybe rebalance more often?  Up to 2015 I was doing it once a quarter.  Not sure exactly why, but right now I am in 35/15 mode. 

Would doing it by quarter have helped your situation?

[buddtholomew]

Maybe rebalance more often?  Up to 2015 I was doing it once a quarter.  Not sure exactly why, but right now I am in 35/15 mode. 

Would doing it by quarter have helped your situation?

Since 2011 I have only purchased gold (over and over again) to maintain close to a 4x25 allocation.

[iwealth]

Help me rationalize.

I selected the PP to avoid 30-40% losses in the equity portion of the portfolio. In exchange for this protection, I am now sitting on 30-40% losses in the gold portion of my portfolio. Really disappointed in the PP. I should have listened to my gut in 2011, but Craigr with his rudder speech and MediumTex with his over-confidence persuaded me to remain invested. I lost money while equities reached new highs and am now losing as they decline.

I've said it before and I will say it again...the PP goes ONLY as GOLD goes.

If that were true, it'd be down significantly since 2011. But in fact you'd have a gain even if you invested on the day of gold's peak that year. Stocks and bonds clearly play roles, just not as influential ones as they do in a 50/50 type portfolio.

Stocks will eventually correct, probably brutally, just like they always do over time. And if the PP holds on to most of its value, it may actually pull even with or ahead of a stock-heavy portfolio in the short-term providing a great opportunity for you to get out and never look back.

[Pointedstick]

Budd, if you wouldn't buy into the PP today, then you should sell it. Don't let the sunk-cost fallacy cloud your thinking!

[mathjak107]

i don't think anyone should own an investment they are not 100% on board with. if you have your doubts then the investment isn't right for you no matter what it is .

[Xan]

i don't think anyone should own an investment they are not 100% on board with. if you have your doubts then the investment isn't right for you no matter what it is .

Strange point of view.  Suppose I don't believe 100% in the PP, but I think it's my best option.  I shouldn't invest in it, then.  But I believe in 100% cash even less.  So... what to do?

Also, you've been decrying people who "BELIEVE" in their investment strategy, "buy their own bull$hit", etc etc.  And now you're saying you are 100% on board with your current strategy?  (Having, for a few weeks, been 100% on board with the PP strategy just a bit ago?)

[mathjak107]

i think folks will eventually find it tough to stay the course long term if they are not on board 100% with what they do .


would you  continue to own an individual stock just because it is your best option or because you still believe in the company ?

if i didn't believe that in the long term as always stocks will still do well i wouldn't be in them  at the percentages i am , i would find something i was more comfortable with .

[Xan]

"MORE" comfortable is not the same as 100% comfortable.

[mathjak107]

thanks ..
i will nominate you for word police .

[buddtholomew]

Help me rationalize.

I selected the PP to avoid 30-40% losses in the equity portion of the portfolio. In exchange for this protection, I am now sitting on 30-40% losses in the gold portion of my portfolio. Really disappointed in the PP. I should have listened to my gut in 2011, but Craigr with his rudder speech and MediumTex with his over-confidence persuaded me to remain invested. I lost money while equities reached new highs and am now losing as they decline.

I've said it before and I will say it again...the PP goes ONLY as GOLD goes.

If that were true, it'd be down significantly since 2011. But in fact you'd have a gain even if you invested on the day of gold's peak that year. Stocks and bonds clearly play roles, just not as influential ones as they do in a 50/50 type portfolio.

Stocks will eventually correct, probably brutally, just like they always do over time. And if the PP holds on to most of its value, it may actually pull even with or ahead of a stock-heavy portfolio in the short-term providing a great opportunity for you to get out and never look back.

The only difference between a BH portfolio and the PP is the inclusion of gold. Ergo, portfolio under or over-performance is attributed to the whims of gold.

[Xan]

thanks ..
i will nominate you for word police .

I don't think I'm being pedantic.  You said that if you're not 100% comfortable with an investment, or you have doubts, then you shouldn't be in it.

My point was that there will always be doubts.  You have to put your money somewhere, and you will never be 100% certain that you're doing it correctly.  Just because you have doubts doesn't mean you should abandon your strategy.

[mathjak107]

i would agree  , with a but.

the ability to stick with the strategy will greatly depend on  how much doubt you have .

[LC475]

Help me rationalize.

I've said it before and I will say it again...the PP goes ONLY as GOLD goes.

Well, I mean, I don't think that's true, as the charts of gold and of the PP look quite different.  But I don't know that that will help you as you requested.

Here's something that may help: it seems to you that gold is the biggest factor in the PP (despite being only 25%) because since 2011, it has been the biggest factor in the tracking error between the PP and stocks.  It just so happens that in that time period, 2011-present, there was only one crash in the PP assets and gold was the thing that happened to crash.  But you know, you have to know, that gold is not actually any kind of dominant majority factor in the PP, because mathematically it is only 25%.  You have to tell yourself this and remind yourself of this, because it is true.  Gold only seems like it is such a disproportionate element to you, personally, because it has had such horrible performance over your personal time frame.  And also perhaps because it is the element in the PP that you like the least.  Now I may have you all wrong, and if so don't take offense, but if I'm right maybe this will be helpful.  You seem like you are coming from a conventional investing background.  For whatever reason, stocks are orthodox, bonds are orthodox, and even cash is somewhat orthodox, but gold is unorthodox.  Contrarian.  Kooky.  Unacceptable.  Unclean.  Off-limits.  And so you probably bought into gold against your better judgment and without really fully believing in it, but you gritted your teeth, closed your eyes, turned your head, and pushed the button, because the PP as a total package seemed to offer what you want.

And lo and behold, gold crashed.  The very asset you were least comfortable with in the first place.  Bad luck!  If stocks had crashed, you would be loving the PP right now (b/c that's the very reason you got into the PP in the first place, to protect against that).  If bonds had crashed: also OK.  But, unfortunately gold crashed.  So, I'm sorry, like I say, that's bad luck.  Best I can tell you is just keep the big picture in mind.  Give it five or ten years and something else will crash, not gold this time, and you'll probably feel a lot better.  If you make it that long.

I hope that helps.

[buddtholomew]

Help me rationalize.

I've said it before and I will say it again...the PP goes ONLY as GOLD goes.

Well, I mean, I don't think that's true, as the charts of gold and of the PP look quite different.  But I don't know that that will help you as you requested.

Here's something that may help: it seems to you that gold is the biggest factor in the PP (despite being only 25%) because since 2011, it has been the biggest factor in the tracking error between the PP and stocks.  It just so happens that in that time period, 2011-present, there was only one crash in the PP assets and gold was the thing that happened to crash.  But you know, you have to know, that gold is not actually any kind of dominant majority factor in the PP, because mathematically it is only 25%.  You have to tell yourself this and remind yourself of this, because it is true.  Gold only seems like it is such a disproportionate element to you, personally, because it has had such horrible performance over your personal time frame.  And also perhaps because it is the element in the PP that you like the least.  Now I may have you all wrong, and if so don't take offense, but if I'm right maybe this will be helpful.  You seem like you are coming from a conventional investing background.  For whatever reason, stocks are orthodox, bonds are orthodox, and even cash is somewhat orthodox, but gold is unorthodox.  Contrarian.  Kooky.  Unacceptable.  Unclean.  Off-limits.  And so you probably bought into gold against your better judgment and without really fully believing in it, but you gritted your teeth, closed your eyes, turned your head, and pushed the button, because the PP as a total package seemed to offer what you want.

And lo and behold, gold crashed.  The very asset you were least comfortable with in the first place.  Bad luck!  If stocks had crashed, you would be loving the PP right now (b/c that's the very reason you got into the PP in the first place, to protect against that).  If bonds had crashed: also OK.  But, unfortunately gold crashed.  So, I'm sorry, like I say, that's bad luck.  Best I can tell you is just keep the big picture in mind.  Give it five or ten years and something else will crash, not gold this time, and you'll probably feel a lot better.  If you make it that long.

I hope that helps.

100% correct and excellent synopsis of my experience with the PP.

Gold comprises 10% of overall portfolio - 70% in taxable (PP @ 23%) and 30% in retirement assets.

Perhaps I would feel more comfortable if the losses were more evenly distributed across accounts. A loss in taxable (money I cannot afford to lose) is a lot more painful as the goal of early retirement remains illusive.

[buddtholomew]

The only difference between a BH portfolio and the PP is the inclusion of gold. Ergo, portfolio under or over-performance is attributed to the whims of gold.

That's an interesting statement.  I look at it a bit differently.  I think the very unique things about the PP are:
1. 25% gold
2. Fixed income consisting of only treasuries (I think this is the most important thing I've learned from the PP)
3. Relatively long maturity of fixed income, about 10-15 years.

While #1 is the most striking difference between the PP and BH, the longer maturity, treasury-only fixed income portion is maybe just as important.  I've stated before (maybe too many times) that I prefer the bullet approach to FI, because of simplicity and the benefit of "riding the yield curve" one gets from hanging out on the usually steeper portion of the curve.  But whether bullet or barbell, the the long duration treasury-only bonds really tend to do a nice job of balancing the equity volatility.  It's pretty cool to watch.  Corporate bonds don't work as well in balancing volatility.  Then the gold: gold is mostly uncorrelated with both stocks and bonds, and moves about in a seemingly random walk.

I am comfortable with the LTT/Cash barbell approach as I can hold additional cash to reduce duration. I match the duration of the Total Bond Market Index but with treasury only exposure. Aside from credit exposure, there isn't really much between these two approaches. That aside, the only other difference between the portfolios is the amount allocated to equities. It is 100% in the BH portfolio and split 25% equities, 25% gold in the PP.