PSA: I now have a 3-year period with no gains

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Re: PSA: I now have a 3-year period with no gains

Post by rocketdog » Fri Sep 04, 2015 4:00 pm

Pardon the intrusion, but I didn't have time to read all 17 pages of posts in this thread.  I dusted off my PP historical performance spreadsheet and wanted to share some food for thought.  (Note:  the numbers below assume you bought a PP on 1/1 of each year and held it without rebalancing until 1/1 of the following year, at which point you rebalanced to 4x25%):

The worst 3-year performance for the PP was 1999-2001, when it returned a total of 7.8%, or 2.6% annually.
The worst 4-year performance for the PP was 1999-2002, when it returned a total of 14.9%, or 3.8% annually.
The worst 5-year performance for the PP was 1998-2002, when it returned a total of 25.9%, or 5.2% annually. 

Notice that the longer you hold the PP, the more it stabilizes.  As of 12/31/2014 (the most recent full calendar year of PP performance we have), here are the numbers:

3-year performance from 2012-2014 = 13.5%, or 4.5% annually.
4-year performance from 2011-2014 = 24.0%, or 6% annually.
5-year performance from 2010-2014 = 38.5%, or 7.7% annually. 

As you can see, the PP as of 12/31/2014 is still far from experiencing the worst 3, 4, or 5-year period on record.  Again, the longer you hold the PP, the more it stabilizes. 

In fact, in order for the PP to become the worst performer over 3, 4, and 5-year periods as of the end of this year (12/31/2015), the PP would need to provide a dismal 1% return this year.  Is that possible?  Most certainly.  Would you abandon the PP at that point?  If so, consider this...

After the PP experienced its worst 3, 4, and 5-year periods as shown above, its performance steadily improved over the next 5 years.  By 2007, it had rebounded to a 5-year total return (2003-2007) of 52.3%, or 10.5% annually over those 5 years. 

In other words, don't buy high and sell low.  I'm certainly not, although I will admit that I only hold about 40% of my portfolio in a PP, simply because I don't like to put all my eggs in one basket (or in this case, investing strategy).  I treat my PP as the low-volatility portion of my portfolio, almost as if it were a low-volatility bond.  The rest (my VP) I keep in stocks, commodities, and REITs. 

Stick with your plan, and assuming you're a long-term investor don't sweat the short-term gyrations.  As Keynes once said, "The market can stay irrational longer than you can stay solvent."
Last edited by rocketdog on Fri Sep 04, 2015 4:02 pm, edited 1 time in total.
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Re: PSA: I now have a 3-year period with no gains

Post by mathjak107 » Fri Sep 04, 2015 4:12 pm

if i remember correctly the idea for the pp didn't exist in 1975 .    which also happened to be its best run years  but it didn't exist . to be fair tracking it  before it existed is really not the way to track things ..
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Re: PSA: I now have a 3-year period with no gains

Post by Tyler » Fri Sep 04, 2015 4:21 pm

mathjak107 wrote: if i remember correctly the idea for the pp didn't exist in 1975 .    which also happened to be its best run years  but it didn't exist . to be fair tracking it  before it existed is really not the way to track things ..
Well the first S&P500 index fund was established in 1973.  Surely you believe tracking that index before it existed (in any form accessible to normal people) is also a waste of time.  ;)
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Re: PSA: I now have a 3-year period with no gains

Post by mathjak107 » Fri Sep 04, 2015 4:28 pm

kka wrote:
AdamA wrote:
dragoncar wrote:
That's kinda what spurred my post to begin with.  From when mediumtex said "A rolling three year period of negative returns would make me open up the hood and take a look."  We are nearing that point.
2014 returned like 12% on the PP.  Where are you getting this 3-year period of negative returns?
We are getting close -- 1.5% CAGR over the last 36 months.  Slightly positive nominally but 0 real return.  I'd be curious to know if MT has looked under the hood yet and what he sees.

Image


MT's simpler alternative of 90% PRPFX + 10% EDV has gone literally nowhere on a nominal basis for 4 years.

Image


I wavered for a short time, but I'm glad that I ultimately stuck with a BH portfolio.  PP is good for maintaining wealth (although if you're really risk averse, a CD ladder will probably do almost as well) but not for growing it.  A good long-term comparison would be PRPFX vs. Wellington.  PP no longer follows PRPFX exactly, but that is the original formulation and it's a good approximation.  Wellington is actively managed but low cost, low turnover, and has been around along time, so it makes a good 60/40 BH proxy.  I'll accept double the volatility for 2% or 3% higher CAGR, otherwise I'll be working until I'm 80.

Image

the interesting part to me would be the comparison of the recovery , both in speed and magnitude .
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Re: PSA: I now have a 3-year period with no gains

Post by mathjak107 » Fri Sep 04, 2015 4:30 pm

Tyler wrote:
mathjak107 wrote: if i remember correctly the idea for the pp didn't exist in 1975 .    which also happened to be its best run years  but it didn't exist . to be fair tracking it  before it existed is really not the way to track things ..
Well the first S&P500 index fund was established in 1973.  Surely you believe tracking that index before it existed (in any form accessible to normal people) is also a waste of time.  ;)
the pp to me is different , it is a concept like a fund would be that used unconventional investing methods .  anyone could have bought the s&p 500 stocks as they dominated just about any large cap fund back then  but no one could really buy the pp concept since it wasn't out yet to the public .  first index trust came out in 1976 .

the pp wasn't really out there  in its current form until much later .
Last edited by mathjak107 on Fri Sep 04, 2015 5:43 pm, edited 1 time in total.
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Re: PSA: I now have a 3-year period with no gains

Post by dragoncar » Fri Sep 04, 2015 5:42 pm

rocketdog wrote: Pardon the intrusion, but I didn't have time to read all 17 pages of posts in this thread.  I dusted off my PP historical performance spreadsheet and wanted to share some food for thought.  (Note:  the numbers below assume you bought a PP on 1/1 of each year and held it without rebalancing until 1/1 of the following year, at which point you rebalanced to 4x25%):

The worst 3-year performance for the PP was 1999-2001, when it returned a total of 7.8%, or 2.6% annually.
The worst 4-year performance for the PP was 1999-2002, when it returned a total of 14.9%, or 3.8% annually.
The worst 5-year performance for the PP was 1998-2002, when it returned a total of 25.9%, or 5.2% annually. 

Notice that the longer you hold the PP, the more it stabilizes.  As of 12/31/2014 (the most recent full calendar year of PP performance we have), here are the numbers:

3-year performance from 2012-2014 = 13.5%, or 4.5% annually.
4-year performance from 2011-2014 = 24.0%, or 6% annually.
5-year performance from 2010-2014 = 38.5%, or 7.7% annually. 

As you can see, the PP as of 12/31/2014 is still far from experiencing the worst 3, 4, or 5-year period on record.  Again, the longer you hold the PP, the more it stabilizes. 

In fact, in order for the PP to become the worst performer over 3, 4, and 5-year periods as of the end of this year (12/31/2015), the PP would need to provide a dismal 1% return this year.  Is that possible?  Most certainly.  Would you abandon the PP at that point?  If so, consider this...

After the PP experienced its worst 3, 4, and 5-year periods as shown above, its performance steadily improved over the next 5 years.  By 2007, it had rebounded to a 5-year total return (2003-2007) of 52.3%, or 10.5% annually over those 5 years. 

In other words, don't buy high and sell low.  I'm certainly not, although I will admit that I only hold about 40% of my portfolio in a PP, simply because I don't like to put all my eggs in one basket (or in this case, investing strategy).  I treat my PP as the low-volatility portion of my portfolio, almost as if it were a low-volatility bond.  The rest (my VP) I keep in stocks, commodities, and REITs. 

Stick with your plan, and assuming you're a long-term investor don't sweat the short-term gyrations.  As Keynes once said, "The market can stay irrational longer than you can stay solvent."
I don't think you can ignore 2015 in this analysis
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Re: PSA: I now have a 3-year period with no gains

Post by kka » Fri Sep 04, 2015 7:09 pm

MediumTex wrote:
kka wrote: Since 1975, it's almost 3% CAGR difference.  I don't think we can count on gold quadrupling again in just a few years like it did after the gold window was closed.
Even at today's price levels, gold has quadrupled from where it was in 2000.
True, but it took more than a few years and was after a 20-year period where it lost 3% CAGR nominal.  After the next one of those will be a great time to buy gold (maybe around 2030).  It does seem that the PP lives and dies by what gold does.
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Re: PSA: I now have a 3-year period with no gains

Post by MediumTex » Sat Sep 05, 2015 8:15 am

kka wrote:
MediumTex wrote:
kka wrote: Since 1975, it's almost 3% CAGR difference.  I don't think we can count on gold quadrupling again in just a few years like it did after the gold window was closed.
Even at today's price levels, gold has quadrupled from where it was in 2000.
True, but it took more than a few years and was after a 20-year period where it lost 3% CAGR nominal.  After the next one of those will be a great time to buy gold (maybe around 2030).  It does seem that the PP lives and dies by what gold does.
The PP performed pretty close to its 40 year average during gold's 20 year bear market, so I wonder if gold's performance really determines the direction of the whole portfolio.

I would say that the gold in the PP provides you with the type of volatility you need under certain economic conditions and leave it at that.
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Re: PSA: I now have a 3-year period with no gains

Post by jay » Thu Sep 10, 2015 10:13 am

Up until Sep 2012, i.e. exactly 3 years ago today:

3-yr CAGR (Sep 10, 2009 - Sep 10, 2012): 12.83%
5-yr CAGR (Sep 10, 2007 - Sep 10, 2012): 10.06%
10-yr CAGR (Sep 10, 2002 - Sep 10, 2012): 9.65%
20-yr CAGR (Sep 10, 1992 - Sep 10, 2012): 8.33%

*Source: http://www.peaktotrough.com, 35/15 rebal bands, 3-yr treasuries for cash, divvies going to cash.

Now consider the following scenario: If one started in Jan 2, 1997 (18.70 years ago), $10,000 would've grown at 7.21% to $36,776 (using same settings as above). Let's assume the PP stayed flat until the end of next year, i.e. to complete a 20-yr period.

3-yr CAGR would fall to ~2.82%
5-yr CAGR to ~2.21%
10-yr CAGR to ~6%
20-yr CAGR to ~6.73%

And that is still quite a possibility. No? In such a low interest env, the PP has done quite well in the last 3/5 years and I think it is doing a bit of mean reversion.

In fact, it would take another 5% drop from here (i.e. PP ending 2016 with value $35,000) so that the 10-yr CAGR would fall to 5.5%, which would make a great entry point.

I started the PP 3.5 years ago and I barely made any money. And I am not expecting much from it in the next 1-2 years. The main question remains: what is a better alternative at this point?
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Re: PSA: I now have a 3-year period with no gains

Post by mathjak107 » Thu Sep 10, 2015 10:41 am

what may be a better alternative  ?

well at the risk of sounding like a broken record i think a conventional portfolio with short to intermediate term bonds would likely be the best choice at least for the next few years . less emphases on interest rate risk and gold .
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Re: PSA: I now have a 3-year period with no gains

Post by stuper1 » Thu Sep 10, 2015 11:21 am

mathjak107 wrote: at the risk of sounding like a broken record
That gets my vote for understatement of the year.

I think we've got your point by now.  You'd accomplish a lot more good in the investing world by focusing your energies on the much larger group of people who are doing stupid things like wasting their money on market timing, high expense-ratio mutual funds, etc.  Us PP people just happen to have a different philosophy than you do, maybe a bit less certain about the future, and willing to put up with lower returns to have better insurance for possible black swan events.  I'm not saying that you should leave, but it does get a bit tiresome to hear the same spiel from you every day.
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Re: PSA: I now have a 3-year period with no gains

Post by mathjak107 » Thu Sep 10, 2015 11:29 am

just think how quiet the forums here would have been without me  ha ha ha .

but the main point is i expose everyone to a pretty comprehensive view of the other side , especially when it comes to portfolio's in the  retirement spending  which most folks do not fully understand  when you are in the decumulation stage ..

if you guys can argue for or against the pp and are doing so now based on anything i brought to light then you are one step smarter at making good rational decisions yourself on the subject .

i love learning about  what i disagree with because it makes me understand  just that much more why i do agree with something .

in particular i like tylers charts because good or bad it lets me analyze the correct stuff as well  find the flaws in the incorrect stuff .
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Re: PSA: I now have a 3-year period with no gains

Post by iwealth » Thu Sep 10, 2015 12:15 pm

mathjak107 wrote: just think how quiet the forums here would have been without me  ha ha ha .
You are probably one of the most prolific forum posters on the entire internet based on your activity here and the other forums you frequent. I'm still not sure if you are for real or some sort of really well-programmed spambot ;)
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Re: PSA: I now have a 3-year period with no gains

Post by mathjak107 » Thu Sep 10, 2015 12:19 pm

thanks ,  i think spermbot may be more practical .
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Re: PSA: I now have a 3-year period with no gains

Post by Snoopy » Thu Sep 10, 2015 1:35 pm

stuper1 wrote:
mathjak107 wrote: at the risk of sounding like a broken record
That gets my vote for understatement of the year.

I think we've got your point by now.  You'd accomplish a lot more good in the investing world by focusing your energies on the much larger group of people who are doing stupid things like wasting their money on market timing, high expense-ratio mutual funds, etc.  Us PP people just happen to have a different philosophy than you do, maybe a bit less certain about the future, and willing to put up with lower returns to have better insurance for possible black swan events.  I'm not saying that you should leave, but it does get a bit tiresome to hear the same spiel from you every day.
+++1  :-\
Last edited by Snoopy on Thu Sep 10, 2015 1:37 pm, edited 1 time in total.
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Re: PSA: I now have a 3-year period with no gains

Post by MediumTex » Thu Sep 10, 2015 2:00 pm

Snoopy wrote:
stuper1 wrote:
mathjak107 wrote: at the risk of sounding like a broken record
That gets my vote for understatement of the year.

I think we've got your point by now.  You'd accomplish a lot more good in the investing world by focusing your energies on the much larger group of people who are doing stupid things like wasting their money on market timing, high expense-ratio mutual funds, etc.  Us PP people just happen to have a different philosophy than you do, maybe a bit less certain about the future, and willing to put up with lower returns to have better insurance for possible black swan events.  I'm not saying that you should leave, but it does get a bit tiresome to hear the same spiel from you every day.
+++1  :-\
More close-up bug photos and less PP heckling please!!!
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Re: PSA: I now have a 3-year period with no gains

Post by Reub » Thu Sep 10, 2015 2:00 pm

stuper1 wrote:
mathjak107 wrote: at the risk of sounding like a broken record
That gets my vote for understatement of the year.

I think we've got your point by now.  You'd accomplish a lot more good in the investing world by focusing your energies on the much larger group of people who are doing stupid things like wasting their money on market timing, high expense-ratio mutual funds, etc.  Us PP people just happen to have a different philosophy than you do, maybe a bit less certain about the future, and willing to put up with lower returns to have better insurance for possible black swan events.  I'm not saying that you should leave, but it does get a bit tiresome to hear the same spiel from you every day.
Who are you to tell him to leave? What mathjak107 does is make us reexamine our own preconceived ideas and biases and that's a very healthy function. Thank you, mathjak!
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Re: PSA: I now have a 3-year period with no gains

Post by Reub » Thu Sep 10, 2015 2:03 pm

Maybe the PP is the best diversified portfolio for recessionary times. And one of the worst for all of the others.
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Re: PSA: I now have a 3-year period with no gains

Post by MediumTex » Thu Sep 10, 2015 2:21 pm

Reub wrote:
stuper1 wrote:
mathjak107 wrote: at the risk of sounding like a broken record
That gets my vote for understatement of the year.

I think we've got your point by now.  You'd accomplish a lot more good in the investing world by focusing your energies on the much larger group of people who are doing stupid things like wasting their money on market timing, high expense-ratio mutual funds, etc.  Us PP people just happen to have a different philosophy than you do, maybe a bit less certain about the future, and willing to put up with lower returns to have better insurance for possible black swan events.  I'm not saying that you should leave, but it does get a bit tiresome to hear the same spiel from you every day.
Who are you to tell him to leave? What mathjak107 does is make us reexamine our own preconceived ideas and biases and that's a very healthy function. Thank you, mathjak!
I think he was suggesting that mathjak consider coming up with some new arguments against the PP, rather than just making the same old ones every day, especially when the PP has performed better than his personal allocation over the last 15 years, which you would never know from reading his posts.
Maybe the PP is the best diversified portfolio for recessionary times. And one of the worst for all of the others.
...and yet its historical average returns don't fluctuate a lot between recessionary and non-recessionary periods.
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Re: PSA: I now have a 3-year period with no gains

Post by stuper1 » Thu Sep 10, 2015 2:30 pm

I don't want mathjak to leave.  I don't want anybody to leave.  I think my post was not worded very well.  My bad.

I also don't want to read the same stuff every day, over and over.
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Re: PSA: I now have a 3-year period with no gains

Post by Reub » Thu Sep 10, 2015 2:44 pm

Much of what passes for PP dogma is repeated ad nauseum so why not some outside thinking as well?
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Re: PSA: I now have a 3-year period with no gains

Post by goodasgold » Thu Sep 10, 2015 2:52 pm

I am against censorship, so I believe Mathjak has a right to post here. Besides, every philosophy or investment strategy needs skeptics, critics and a Devil's Advocate to challenge common conclusions or assumptions. If you don't like his postings, no one is required to read them.

But this doesn't mean that I agree with Mathjak as to his critique of the PP. I would also appreciate more concise postings from him. His posts are often so long that I scan them quickly and stop reading if they don't have anything new to say.
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Re: PSA: I now have a 3-year period with no gains

Post by MediumTex » Thu Sep 10, 2015 3:04 pm

It's not censorship to say that the same idea repeated over and over can simply get boring.

Censorship is to say that a discussion is not permitted to go in a certain direction.  What I think we are talking about here is simply keeping the discussion moving in any direction at a rate that exceeds stall speed.
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Re: PSA: I now have a 3-year period with no gains

Post by iwealth » Thu Sep 10, 2015 3:11 pm

Reub wrote: Much of what passes for PP dogma is repeated ad nauseum so why not some outside thinking as well?
The only real problem I see with it is that lately every single investing thread devolves into the same back and forth between mathjak and the other participants. I'm sure some posters would like to avoid this, but it's impossible at this point. The guy is just too prolific.

And I wouldn't worry about him going away. He has nearly 36,000 posts on the city-data forum, averaging over 11/day. He's only just getting started here!
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Re: PSA: I now have a 3-year period with no gains

Post by AdamA » Thu Sep 10, 2015 3:27 pm

stuper1 wrote: I don't want mathjak to leave.  I don't want anybody to leave.  I think my post was not worded very well.  My bad.

I also don't want to read the same stuff every day, over and over.
How about this...

Every time mathjak complains about stocks outperforming gold and bonds, he has to attach one of those cool photographs of his to the post?
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