The Reason to Quit PP

General Discussion on the Permanent Portfolio Strategy

Moderator: Global Moderator

Post Reply
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: The Reason to Quit PP

Post by Kbg » Thu Sep 24, 2015 12:12 pm

mathjak107 wrote: except treasury's reaction  to the event in 2008 blew golds out of the water .  as i said , another asset always did better .  TLT UP 34% , GLD 5%

Golds run up for whatever reason started way before in 2005. It then petered out , just the opposite in 2008.  Then it resumed again in 2009 . No one really knows why  , there are loads of guesses but it could have just been the bigger fool theory at work and based on nothing else.

without high inflation being present golds reaction to any news or events will be tepid if at all .  unless high inflation is in the works gold will not respond to much in an effective manner . there likely will always be something else that did a better job .

which is why bernstein said the flaw with the pp is it has  equal money in assets that have anything but an equal chance of playing out .
Beware of MJ's stats. They are cherry picked. Let's take a more realistic/broader view of GLD vs. TLT during the crisis.

I picked the week of 10/12/07 as the "start of the crisis." Why? That also was the week equities peaked. One could have gone a bit earlier and I wouldn't argue with that point (and OBTW gold would have done even better than TLT relative to its peak value).

The opening prices that week were:

GLD: 72.66
TLT: 87.77

GLD's max high (100.44) occurred the week of 3/20/08 with an open to peak return of 38.23%
TLT's max high (123.15) occurred the week of 12/19/08 with an open to peak return of 40.31%


If we look to the point when the crisis had subsided let's go with the week of 3/6/09...the absolute bottom in equities.  We find from 10/12/07 - 3/6/09:

GLD: 27.02% (close 92.29)
TLT: 18.79% (close 104.26)

And as MJ did correctly note, GLD pretty much trashed TLT into the 2011 hiccup. And, we all know how well GLD has done since 2011 (-42%) while TLT is up low single digits.

So what can we actually understand/conclude, based on real prices at non-cherry picked times?

1. Gold and LTTs pretty much returned the same thing during the crisis at their peaks.

2. From crisis beginning to end GLD bested TLT by "only" 43.8% in returns.

3. What has really driven the relative performance of TLT vs. GLD over this time period and since? Inflation expectations. Initially the market believed inflation would be the longer term byproduct of QE, but that has since changed. Prediction: This relative performance of TLT & GLD will continue to be based on inflation expectations. The moment the market flips its opinion you can be assured that GLD will be outperforming TLT. If/when that happens, I make zero predictions as to timing.

4. Starting and ending dates matter when reviewing market history... You see this constantly in the financial press (cherry picking of points in time to support an argument).

The whole thing about HB and PP is the assumption you can't or don't want to try to predict the future. If this applies for you, the PP makes sense. If it doesn't, PP does not. It is that simple. Financial academics have proven (repeatedly) that equally balanced portfolios perform better over time than more complex weighting schemes due to the instability of the values that go into more complex portfolio weighting formulas. Said differently, these variables aren't predictive. It has also been posted (and was written about by HB), that if you have a bias then indulge it by reallocating 5-10% points toward your bias. Just don't go hog wild. The cost is higher volatility, the reward is higher returns if you get it right.

Full Disclosure: I am not positive if my calcs are dividend adjusted...so here are the Morningstar Returns


ETF                    2007    2008      2009      2010      2011    Total Rtn
GLD (Price)    30.56    4.96      23.99    29.27    9.57    98.35
TLT (Price)      10.23    33.92  -21.80    9.05    33.96    65.38





Note added after original post: Equally weighted in this context means fixed percentage of a portfolio vice percentage is adjusted (annually, quarterly, monthly etc.) due to whatever formula is being used for weighting.
Last edited by Kbg on Thu Sep 24, 2015 1:07 pm, edited 1 time in total.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: The Reason to Quit PP

Post by ochotona » Thu Sep 24, 2015 1:43 pm

It's time to quit every portfolio. 50% cash, 50% intermediate bonds.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14225
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: The Reason to Quit PP

Post by dualstow » Thu Sep 24, 2015 2:09 pm

ochotona wrote: It's time to quit every portfolio. 50% cash, 50% intermediate bonds.
Why?
RIP Marcello Gandini
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: The Reason to Quit PP

Post by ochotona » Thu Sep 24, 2015 2:25 pm

dualstow wrote:
ochotona wrote: It's time to quit every portfolio. 50% cash, 50% intermediate bonds.
Why?
Every asset imaginable is below it's 10 month moving average. Across the board. There will be a time to buy, but not today.
User avatar
Cortopassi
Executive Member
Executive Member
Posts: 3338
Joined: Mon Feb 24, 2014 2:28 pm
Location: https://www.jwst.nasa.gov/content/webbL ... sWebb.html

Re: The Reason to Quit PP

Post by Cortopassi » Thu Sep 24, 2015 2:25 pm

Ocho,

That portfolio would show bias toward the US government keeping control.

Not at all saying they won't, but "time to quit every portfolio" would mean (to me) get out of anything corporate or government related/controlled. 

Might mean income producing real estate, gold, silver, fine art, etc.
Test of the signature line
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: The Reason to Quit PP

Post by ochotona » Thu Sep 24, 2015 2:34 pm

Cortopassi wrote: Ocho,

That portfolio would show bias toward the US government keeping control.

Not at all saying they won't, but "time to quit every portfolio" would mean (to me) get out of anything corporate or government related/controlled. 

Might mean income producing real estate, gold, silver, fine art, etc.
I don't know about art. Silver and gold are both losing money for people lately. They will bottom eventually, but I don't like to catch the falling commodities knife. REITS are doing worse than stocks, and I don't want to be a real landlord. No, really, cash and low volatility bonds, seriously. The storm won't last forever, but it's a dangerous time now.
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: The Reason to Quit PP

Post by buddtholomew » Thu Sep 24, 2015 2:35 pm

ochotona wrote: It's time to quit every portfolio. 50% cash, 50% intermediate bonds.
Have you backtested 50/50  ;D

This type of post screams frustration and is a clear indicator to focus attention on something non-investment related.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
User avatar
Xan
Administrator
Administrator
Posts: 4392
Joined: Tue Mar 13, 2012 1:51 pm

Re: The Reason to Quit PP

Post by Xan » Thu Sep 24, 2015 2:45 pm

"quit every portfolio" is obviously impossible, unless you mean give everything away and have $0 to your name.  Any allocation is a portfolio.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: The Reason to Quit PP

Post by ochotona » Thu Sep 24, 2015 2:47 pm

buddtholomew wrote:
ochotona wrote: It's time to quit every portfolio. 50% cash, 50% intermediate bonds.
Have you backtested 50/50  ;D

This type of post screams frustration and is a clear indicator to focus attention on something non-investment related.
I have "backtested" 2000-2002, and 2008-2009, so to speak, and choose to step away for a short period of time. I also was aggressively buying in 2009, and don't want to give up my gains at age 54.5.

I'm not frustrated at all. I'm calm. I'm just sharing my perspective.
User avatar
Cortopassi
Executive Member
Executive Member
Posts: 3338
Joined: Mon Feb 24, 2014 2:28 pm
Location: https://www.jwst.nasa.gov/content/webbL ... sWebb.html

Re: The Reason to Quit PP

Post by Cortopassi » Thu Sep 24, 2015 3:09 pm

I know you have had a gold # in mind to get back in.  Do you have a similar # for S&P/Dow/Nasdaq to step back in?  Just curious.

The getting back in was always unworkable for me, as well as the getting out at the wrong time.
Test of the signature line
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: The Reason to Quit PP

Post by ochotona » Thu Sep 24, 2015 3:22 pm

Cortopassi wrote: I know you have had a gold # in mind to get back in.  Do you have a similar # for S&P/Dow/Nasdaq to step back in?  Just curious.

The getting back in was always unworkable for me, as well as the getting out at the wrong time.
Of course, we begin by saying that no one can predict the future...

Gold below $900. S&P500 below 1700.
User avatar
Cortopassi
Executive Member
Executive Member
Posts: 3338
Joined: Mon Feb 24, 2014 2:28 pm
Location: https://www.jwst.nasa.gov/content/webbL ... sWebb.html

Re: The Reason to Quit PP

Post by Cortopassi » Thu Sep 24, 2015 3:38 pm

And if by chance or fate one or both of those numbers are not reached, do you have a timeframe after which you bite the bullet and get back in regardless?

The graphic below shows my problem with what you are doing, and quite likely reflects my thinking at the time.  One day I would be thinking I'm the smartest guy in the room because I got out.  The next day I would feel others count their gains.  It was a terrible mental situation.

Image
Test of the signature line
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: The Reason to Quit PP

Post by buddtholomew » Thu Sep 24, 2015 3:52 pm

ochotona wrote:
Cortopassi wrote: I know you have had a gold # in mind to get back in.  Do you have a similar # for S&P/Dow/Nasdaq to step back in?  Just curious.

The getting back in was always unworkable for me, as well as the getting out at the wrong time.
Of course, we begin by saying that no one can predict the future...

Gold below $900. S&P500 below 1700.
Those are arbitrarily selected totals and not really a plan to resume investing in instruments other than cash and bonds.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: The Reason to Quit PP

Post by ochotona » Thu Sep 24, 2015 6:18 pm

http://www.advisorperspectives.com/dsho ... erages.php

Yes, it's not PP. So, why did anyone here even ask about it? Y'all might as well be Wahabis asking how bacon tastes.
Last edited by ochotona on Thu Sep 24, 2015 6:23 pm, edited 1 time in total.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14225
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: The Reason to Quit PP

Post by dualstow » Thu Sep 24, 2015 8:45 pm

ochotona wrote: Yes, it's not PP. So, why did anyone here even ask about it? Y'all might as well be Wahabis asking how bacon tastes.
I always wonder if Wahabis eat wasabi.
RIP Marcello Gandini
User avatar
Cortopassi
Executive Member
Executive Member
Posts: 3338
Joined: Mon Feb 24, 2014 2:28 pm
Location: https://www.jwst.nasa.gov/content/webbL ... sWebb.html

Re: The Reason to Quit PP

Post by Cortopassi » Thu Sep 24, 2015 8:51 pm

Meb Faber, Ivy Portfolio, I certainly looked at that at the same time as the PP.  Quantitative Approach to Tactical Asset Allocation and its comparison and tweaks to the PP.

http://gestaltu.blogspot.com/2012/08/pe ... rt-ii.html

Here was a good discussion on this forum that came up related to this:

http://gyroscopicinvesting.com/forum/ot ... ation'/12/

And it reminded me that the reason I did not do it is I did not want to deal with potentially likely more trading and watching moving averages.
Test of the signature line
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: The Reason to Quit PP

Post by Kbg » Thu Sep 24, 2015 9:40 pm

This is only an 11 year backtest so caveat emptor...but here is a way to get most if not all the benefits of PP, probably beat the overall performance, and it will likely continue to work into the future. Of course, past returns are no guarantee of future performance.

1. At the first of each month check the previous 3 months' returns
2. Buy the top 3 by return and allocate 33.3% each
- To buy, the asset's return must have been positive over the prior 3 mo period
- If not, substitute with SHY or your favorite STT vehicle
- Thus, you could have 100%, 66.67%, 33.33% or 0% allocated to SHY

Since 2005:

Traditional PP: 5.37% CAGR/-15.51% DD (annual rebalance)
Absolute MO, Top 3 PP: 8.75% CAGR/-11.83% DD

Since 2012 this version has under performed the traditional PP 1.68 vs 1.05% and 8.76 vs. 10.72%DD.

Interestingly if you happen to follow my VP PP posts, from 2012 a full up 3xETF version of the above returned 12.79/-19.87% DD.

Limiting the 3xETF allocation to 11.11% vice 33.33% the stats are 4.39/-6.86 DD.

Both are amazing to me but the leveraged scaled down to "normal" rotation version has 4x the returns with only 2/3rds the DD as the standard rotation version from 2012. It also trashed the standard PP with less volatility (portfolio NOT individual asset).

Hint: The leveraged results are truly non-intuitive.

Best part of all perhaps...you don't have to debate holding gold or LTTs or equities with yourself. If they are "on"/we are in that macro environment they are "in." If not, they aren't.
Last edited by Kbg on Thu Sep 24, 2015 9:56 pm, edited 1 time in total.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: The Reason to Quit PP

Post by mathjak107 » Fri Sep 25, 2015 4:48 am

iwealth wrote:
mathjak107 wrote: that is because you are confusing volatility with losses and gains .
the pp is less volatile . but that does not mean at times it's losses won't be greater since other models develop bigger cushions from which they fall .
as i say , i don't give a hoot about peaks and valleys . if the  volatility matches my comfort level  that is all i care about in that regard . all the rest is about whether i am meeting my goals AND EXPECTATIONS FOR THAT ALLOCATION .
Quite a response to the simple and factual assertion that the PP has outperformed the S&P500 YTD. Another barrage of random statistics pertaining to a bunch of investment newsletter models that nobody here uses concluded by calling the original poster confused. Yes, there will always be some portfolio allocation performing better than another portfolio allocation. Got it, everyone's got it.

You are so dug in to your position that you can't even admit gold performed admirably during the financial crisis despite more than tripling from 2005 (start of the housing downturn) through 2011. Instead you choose to focus on bonds performing better for full-year 2008 and that gold is down 40% from the 2011 peak. True and true, but neither of those facts detracts from the incredible boost gold provided to portfolios during that 6-year timeframe which of course was captured by PP investors via rebalancing.
gold will always have short term moves based on the dollar  not crises unless inflationary ...

at the height of the financial crises gold actually fell  16% in 2008  but it ended up positive for the year . so , no golds response to the crises was pretty tepid but that is because the dollar was up 18%

in 2003-2007 the dollar was weak losing 25%  so gold made a nice move based on the dollar .


2009-2011 the dollar lost 18% so gold went up .  but the rise  , like nasdaq during the dot coms was way out of proportion and was just based on the bigger fool theory .


since the dollar has strengthened gold has fallen barely responding to any of todays events . .unless we have high inflation gold will not respond to  world news much . only changes in the dollar will move it .

you will see short term fluctuations for all sorts of reasons including speculation . yesterdays big 24 dollar up move shows 1/2 of it gone in over night trading this morning .  .


there needs to be a basis for sustained moves to hold . with the fed still under its own inflation mandate and the  dollar to strong  a basis for a move in gold seems pretty far off .
Last edited by mathjak107 on Fri Sep 25, 2015 5:23 am, edited 1 time in total.
iwealth
Executive Member
Executive Member
Posts: 409
Joined: Thu Apr 26, 2012 5:45 pm

Re: The Reason to Quit PP

Post by iwealth » Fri Sep 25, 2015 11:39 am

mathjak107 wrote: gold will always have short term moves based on the dollar  not crises unless inflationary ...
Does this really matter? If gold responds to the dollar and the dollar responds to a crisis, what difference does it make? You still get the desired response.
at the height of the financial crises gold actually fell  16% in 2008  but it ended up positive for the year . so , no golds response to the crises was pretty tepid but that is because the dollar was up 18%
Even bonds didn't respond strongly until November of 2008 after SPY had already plummeted 50%. Nothing really escaped the wrath of September/October 2008.
in 2003-2007 the dollar was weak losing 25%  so gold made a nice move based on the dollar .
2009-2011 the dollar lost 18% so gold went up .  but the rise  , like nasdaq during the dot coms was way out of proportion and was just based on the bigger fool theory .
So from 2009-2011 the dollar was up 18% and gold doubled. It's a stretch to credit 100% of gold's rise to dollar weakness. Not saying it didn't help but there was more at play there. And the bigger fool theory provides opportunities to rebalance out of spikes in either direction. I don't think there are many buy-and-hold PP investors. Granted, if you started your PP at the gold peak, that was unfortunate. Perhaps it is the type of portfolio that truly needs to be dollar cost averaged into over the course of time.
since the dollar has strengthened gold has fallen barely responding to any of todays events . .unless we have high inflation gold will not respond to  world news much . only changes in the dollar will move it .
What recent events have actually posed a threat to our banking systems or currency? What's happened in the world that's truly scary as of late? Not much if you ask me. Things are pretty tepid out there. Gold seems to be doing exactly what one would expect it to do in this environment. And it's a lousy environment for gold, don't get me wrong.
you will see short term fluctuations for all sorts of reasons including speculation . yesterdays big 24 dollar up move shows 1/2 of it gone in over night trading this morning .  .
I can't form opinions based on gold being up $20 one day and then down $7 the next. It's just noise. Look at the S&P 500 lately if you want to see wild swings in each direction. And feel free to discuss the irrelevance of those moves to your decision to hold stocks.
there needs to be a basis for sustained moves to hold . with the fed still under its own inflation mandate and the  dollar to strong  a basis for a move in gold seems pretty far off .
Agreed 100%. If anything the sustained move should continue down. Anyway, I don't think we're really arguing about anything here. You don't like gold. I think there's a place for it in a risk-parity portfolio like the PP. That's about it.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: The Reason to Quit PP

Post by mathjak107 » Fri Sep 25, 2015 1:13 pm

actually yes it does matter if gold only responds  to crisis when the dollar is weak or we have high inflation  because as bernstein pointed out , the flaw in the pp  is committing  equal  amounts of  money to anything but equal chances of outcomes playing out .

so this is why i think if harry was alive today we would see some fine tuning  and revisions possibly with gold limited to no more than a 10% stake  which to me makes sense .  betting 25% on equity's and 25% on gold to me just seems  to be a pretty big speculation on gold .
Last edited by mathjak107 on Fri Sep 25, 2015 1:17 pm, edited 1 time in total.
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8864
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: The Reason to Quit PP

Post by Pointedstick » Fri Sep 25, 2015 1:17 pm

mathjak107 wrote: actually yes it does matter if gold only responds  to crisis when the dollar is weak or we have high inflation  because as bernstein pointed out , the flaw in the pp  is committing  equal  amounts of  money to anything but equal chances of outcomes playing out .

so this is why i think if harry was alive today we would see some fine tuning  and revisions possibly with gold limited to no more than a 10% stake  which to me makes sense .
Are you sure that's actually what harry Browne would do? Or is that just what you would do?
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: The Reason to Quit PP

Post by mathjak107 » Fri Sep 25, 2015 1:19 pm

what does the words "i think "  mean to you
User avatar
AdamA
Executive Member
Executive Member
Posts: 2336
Joined: Sun Jan 23, 2011 8:49 pm

Re: The Reason to Quit PP

Post by AdamA » Fri Sep 25, 2015 1:38 pm

mathjak107 wrote: actually yes it does matter if gold only responds  to crisis when the dollar is weak or we have high inflation  because as bernstein pointed out , the flaw in the pp  is committing  equal  amounts of  money to anything but equal chances of outcomes playing out .
But that "flaw" has never really caused a problem for the PP.
so this is why i think if harry was alive today we would see some fine tuning  and revisions possibly with gold limited to no more than a 10% stake  which to me makes sense .  betting 25% on equity's and 25% on gold to me just seems  to be a pretty big speculation on gold .
What has changed in the world over the past ten years to make you say that?
"All men's miseries derive from not being able to sit in a quiet room alone."

Pascal
LC475
Executive Member
Executive Member
Posts: 427
Joined: Tue Oct 08, 2013 4:23 pm

Re: The Reason to Quit PP

Post by LC475 » Fri Sep 25, 2015 1:47 pm

There is no way Mr. Browne would recommend a reduction in the gold allocation.  I believe that to a large extent the Permanent Portfolio is a way of getting people to hold gold and be able to keep holding it during a potentially long period of low returns or losses, when otherwise they'd bail.

Harry Browne thought there was and is a very real risk of high inflation coming to the dollar.  Eventually.  He just didn't think it would happen immediately.

25% is a good amount.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: The Reason to Quit PP

Post by mathjak107 » Fri Sep 25, 2015 1:48 pm

keep in mind harry was a gold bug .

in 40 years gold has returned less then a t-bill rolled over . i doubt that was herry's vision  sure it had some periods of time where it out performed but it's ability to  grow money over long periods of time has usually been far and away been bested by other assets .


basically  gold tracked inflation , which while a poor money maker  is okay,  but once you figure in storage costs and insurance or fund fees like gld  you actually  lagged inflation and always will because of the costs .


so betting as much on that fact as you would on equity's , which  more often than not over 20 years or longer  has  produced  a lot more  money over a lot more time frames , seems to me to be a big imbalance .
Last edited by mathjak107 on Sat Sep 26, 2015 6:00 am, edited 1 time in total.
Post Reply