Nauseous

[buddtholomew]

This morning I rebalanced all four assets in the permanent portfolio with proceeds from a recent stock options sale. I was comfortable allocating the bulk of the assets to VTI (lagging % wise), but reluctant to increase exposure in GLD and TLT (significantly outperforming). I did consider only investing in VTI, but marched forward and rebalanced all holdings to 25% each.

I realize that VTI could fall further and GLD/TLT rise, but continue to question whether I was hasty (buyer's remorse perhaps). Thank you for the opportunity to share my emotions with the rest of the board.

All the best-
Budd

[MediumTex]

This morning I rebalanced all four assets in the permanent portfolio with proceeds from a recent stock options sale. I was comfortable allocating the bulk of the assets to VTI (lagging % wise), but reluctant to increase exposure in GLD and TLT (significantly outperforming). I did consider only investing in VTI, but marched forward and rebalanced all holdings to 25% each.

I realize that VTI could fall further and GLD/TLT rise, but continue to question whether I was hasty (buyer's remorse perhaps). Thank you for the opportunity to share my emotions with the rest of the board.

All the best-
Budd

Take a look back at this post in a year and it will probably look a lot different than it does today.

[Storm]

I admit, today is a terrible day, but the simulated PP I started on August 1st is still up 0.8%.

[buddtholomew]

I admit, today is a terrible day, but the simulated PP I started on August 1st is still up 0.8%.

I am not second guessing the PP, but rather questioning my timing in rebalancing the portfolio with new money.

[AdamA]

I admit, today is a terrible day, but the simulated PP I started on August 1st is still up 0.8%.

Why is today a terrible day?

[Verto]

We are in this for the long haul. Try not to worry about the day to day. I bet even in six months you won't be fretting the timing of your rebalance. I'd count a -4-5% day as a terrible day for anyone in equities.

[Storm]

I admit, today is a terrible day, but the simulated PP I started on August 1st is still up 0.8%.

Why is today a terrible day?

If you're in the PP it's not really a terrible day.  I have VP investments that are 10% away from hitting their stops, however, so it's not exactly a great day.  Also, if tomorrow's NFP numbers are as bad as I think they might be, this could be the beginning of another meltdown that will take us below Dow 10K, and double dip that we've all predicted all along.  I don't think a double-dip or depression would be good for anyone.

[Pkg Man]

I admit, today is a terrible day, but the simulated PP I started on August 1st is still up 0.8%.

I am not second guessing the PP, but rather questioning my timing in rebalancing the portfolio with new money.

That is why I decided to just add to cash and rebalance once per year, or perhaps just wait until it hits a 35 or 15% band.  In addition, if you are always adding to the lagging assets it seems like a hassle to compute your return.  But either way you are better off than all those folks scrambling to get into cash right now.

[Wonk]

Here's the bright side: you're in the PP to begin with, so it'll all work itself out.

Here's the brighter side: we'll most likely see better equity valuations over the next 5 years (inflation adjusted).  PE10 was as high as 24 recently.  Today's shellacking took it down to 20.8.  The median rests around 16 and secular bottoms have been around 10.  We won't see prosperity again until we see the depths of pessimism.  Not there yet, but getting closer!

[MediumTex]

Here's the brighter side: we'll most likely see better equity valuations over the next 5 years (inflation adjusted).  PE10 was as high as 24 recently.  Today's shellacking took it down to 20.8.  The median rests around 16 and secular bottoms have been around 10.  We won't see prosperity again until we see the depths of pessimism.  Not there yet, but getting closer!

I have been meaning to comment on this topic.

There is some serious P/E compression happening in a lot of stocks.

A few examples:

AAPL (forward P/E 11.73, 124% earnings growth last quarter)
MSFT (forward P/E 8.18, 30% earnings growth last quarter)
CVX (forward P/E 7.40, 42% earnings growth last quarter)

From a secular bear market perspective, these valuations suggest we are not too far from the bottom of this cycle.  I would think we would bottom out some time in the next one to five years, which sounds terrible, but considering that we are in the 11th year of a secular bear market, another one to five years doesn't sound so bad.

I chuckle when I think to myself what people would have said in 2000 if you had told them that the stock levels they were seeing might not be seen again until 2016 or later.

[Pkg Man]

Here's the brighter side: we'll most likely see better equity valuations over the next 5 years (inflation adjusted).  PE10 was as high as 24 recently.  Today's shellacking took it down to 20.8.  The median rests around 16 and secular bottoms have been around 10.  We won't see prosperity again until we see the depths of pessimism.  Not there yet, but getting closer!

....
I chuckle when I think to myself what people would have said in 2000 if you had told them that the stock levels they were seeing might not be seen again until 2016 or later.

The prospect of this is exactly what drove me to the PP.  I'm not all that far away from the normal retirement age at my company (55).  And I couldn't stand the thought of another several years of no gain or worse in stocks.

[craigr]

Don't look at assets in isolation. The 4x split portfolio is up over 7% as of today:

https://web.archive.org/web/20160324133 ... -of-chaos/

[clacy]

If you look at Stocks priced in gold, you'll see two things:

1. Stocks are actually cheaper today, than they were at the 2009 bottom (relative to gold).

2. Stocks are cheaper today relative to gold than they were in the early 90's.

Point being....stocks are cheap right now.  Of course that is from a very long term  perspective.

Stocks will sky rocket at some point and Gold will tank.  When....I have no idea....but in the next 5 years this relationship will likely reverse in a big way.

[AdamA]

I chuckle when I think to myself what people would have said in 2000 if you had told them that the stock levels they were seeing might not be seen again until 2016 or later.

You'll know we're beginning the next bull market for stocks when you hear someone on CNBC recommending long term treasuries on CNBC. 

 

[buddtholomew]

Since I don't see too many PP investors panicking over the recent downgrade in the credit rating, I'll share my perspective on the topic. I am fearful to the point of converting to cash in an attempt to protect investments from the trouncing I expect the portfolio to take next week. Am I irrational in thinking that this downgrade will have such a dramatic impact on the PP or are others as concerned as I am? Losing 30K in treasuries alone yesterday is difficult to digest.

I realize no one can predict the future, but are PP investors concerned that economic conditions could derail the success the portfolio has had over the last 40 years? What if the US is no longer a safe haven and LTTs go the way of Ireland?

[melveyr]

In massive deflationary panic, no single investment gives me more confidence than a 30 year Treasury bond.

Why? Because they have a printing press and keystrokes that ensure they can always pay the bills.

That's all I need. The only thing that would cause me to dump treasuries would be converting to a gold standard or a monetary union such as the EU.

EDIT:

Budd, loaning money to Ireland is like loaning money to a state government. When looking at Irelands bonds, think of it as a muni bond. It is an entirely different beast than a Treasury because the US can issue currency to pay its bills; Ireland does not have this luxury.

[Gumby]

I am fearful to the point of converting to cash in an attempt to protect investments from the trouncing I expect the portfolio to take next week.

I understand your concern. Now is the time where your willpower is tested. Your emotions will not be able to follow rational logic as things get worse. The best investment advice anyone can give you is to stay the course. Panic selling is the worst thing you can do. And that's what everyone may very well be doing Monday morning.

[align=center][/align]

The reason why we own the PP is not to get stellar returns, but to have a portfolio that is easier to stick to during the darkest days. We've all been "training" for this moment for a long time. There are few portfolios on the planet that are more ready to deal with this situation than the PP.

[Liz L.]

Budd, I feel pretty panicky.

My husband is all "breathe deeply and stick to the plan."

I am amazed at the general serenity here, aspire to it, and appreciate knowing that I am not the only one feeling freaked out.

So thank you, Budd. And thank you, serene ones.

[KevinW]

I'm startled at how much media attention S&P is getting after the rating agencies dropped the ball on mortgage backed securities.  Their core competency and reason for existing is supposedly to make accurate statements about the safety of bonds, and that was one whopper of an F-up.  It's surprising that anyone would still think they're relevant or worth taking seriously.

[melveyr]

Budd, I feel pretty panicky.

My husband is all "breathe deeply and stick to the plan."

I am amazed at the general serenity here, aspire to it, and appreciate knowing that I am not the only one feeling freaked out.

So thank you, Budd. And thank you, serene ones.

Are you using the PP?

[AdamA]

[align=center][/align]

Great chart!

[AdamA]

Losing 30K in treasuries alone yesterday is difficult to digest.

LTT's are up roughly 10% on the year. 

I don't think this downgrade will effect them at all.  In fact, I think TLT would be a great VP play right now.

[smurff]

I understand your concern. Now is the time where your willpower is tested. Your emotions will not be able to follow rational logic as things get worse. The best investment advice anyone can give you is to stay the course. Panic selling is the worst thing you can do. And that's what everyone may very well be doing Monday morning.
The reason why we own the PP is not to get stellar returns, but to have a portfolio that is easier to stick to during the darkest days. We've all been "training" for this moment for a long time. There are few portfolios on the planet that are more ready to deal with this situation than the PP.

Thanks for the graph, Gumby.  I'm posting it in my dashboard, next to my computer screen.

[Liz L.]

melveyr, all our retirement funds are PP, as of a couple of months ago.

I have a very small VP for experimenting and absorbing the urge to "do something."

[melveyr]

melveyr, all our retirement funds are PP, as of a couple of months ago.

I have a very small VP for experimenting and absorbing the urge to "do something."

I think you are on the right track. It's healthy to recognize that you have an urge to tinker, and a VP is a good outlet. It also sounds like you are pretty new to the PP. I can understand the anxiety. Watching the interplay between the assets can be dizzying, and sometimes its harder than it sounds to view the assets as an entire package.

On a slightly separate note, I think its important to look at the PP as a scientific hypothesis...

The hypothesis is that the PP as a whole will provide consistent inflation adjusted returns indefinitely into the future, as long as our country has the ability to issue its own currency.

It is important to note that it is impossible to prove this hypothesis correct because we cannot ourselves see indefinitely into the future. However, it has yet to prove this hypothesis false (using my definition of "smooth returns", it might not be "smooth" enough for others). Thus far, historical evidence has corroborated the hypothesis outlined by Harry Browne.

As an investor in the PP, it is my job to watch the portfolio and discern if it is meeting the hypothesis. Thus far, it has.

In other words "If it ain't broke, don't fix it." And if it does break, fix it! But I am personally going to wait for it to break as opposed to anticipating it. Hopefully that day never comes.