why is PP not more popular?

[stone]

Does anyone have an idea as to what proportion of people with some savings hold a PP and what proportion of global assets are held in a PP strategy? My impression is that both are fairly tiny and yet it doesn't seem obvious that the aims of the PP differ from what most savers seek. Are we PP holders specially stupid? If it makes sense to us then why doesn't it make sense to everyone else? I haven't seen a rebuttal of the PP strategy that makes sense to me but little in life makes sense to me.

What would be the consequence for the PP strategy if it became popular? I guess the four PP assets would become overvalued, would move little in relation to each other and the PP advantage would evaporate. I guess the PP feeds off the mistakes of other people who hold the four PP assets but not in a PP strategy. Am I in a muddle about this?

[stone]

Clive, I could understand more if, rather than holding a PP, people held an alternative basket (eg with TIPs, emerging market curency debt, REITs or whatever) BUT to me the most elemental PP concept is that fixed percentage allocations are held through time and rebalanced. It is the lack of popularity of that fixed percentage allocation strategy that baffles me much more than people not holding the exact classic 4x25 PP.

[gizmo_rat]

Clive, I think you might be overestimating people's investment sophistication.

My personal opinion is that no one can profit from servicing it, so it will always be niche because who is going to market it ?  

That said I'm surprised there isn't a PRPFX type package in the UK, which presumably would have high enough fees to be able to market itself.

Speaking as an "most savers" type individual I'd say that getting to a PP was a bit of an effort. Particularly as almost all accesible sources of information steer you into other routes.

Lets face it most savers turn to a financial adviser for advice, never really realising their goals are incompatible for the most part.  

[gizmo_rat]

A commercial offering has little prospect of competing with those levels of efficiencies.

Of course not, but to most (US) savers / new investors I guess that the PP doesn't really compete with PRPFX for headspace.

It's just a fund with steady gains measured against funds with high volatility; efficiencies and fees are in the small print

Look whats being pushed to savers / new investors in the UK, fixed term 6 year investments returning up to half of the growth in the FTSE.

For people at that level of sophistication how can you convince them that faffing around with gilts, groats, and granny bonds is the way forward ? Never going to happen.

At least a PRPFX type thing would be a comprehensible start, but I can't see anyone in the city rushing to offer that. I guess the closest we are going to get is  Absolute (fa) return funds.

[Roy]

Won't happen to the 4x25.  Ever. Folks chase hot items—either individual asset classes or individual funds (like PRPFX and many others).  And that is because investor behavior will never make enduring change.  Ever.  Fear and greed will drive the bus—forever.  Put it in the books...

Asset class chasing is happening now (is always happening) as folks have continued to pursue 2 PP asset classes, despite the many expert opinions that predicted otherwise.  If it goes far enough, PPers then rebalance. Sure it unfolds, but I think one has to view these things over complete market cycles (even as the PP has done comparatively well in the micro). So, if one has been in the PP for some time, any unwinding is just fine, maybe another rebalancing, and this just feeds its cycle that consistently gains more than it loses, albeit by volatile means.

PRPFX is somewhat different—for all the reasons discussed in length—and so it is more likely to be harmed by hot money.

[Storm]

In some ways it is good that the majority of people don't use the PP strategy.  I think if everyone used the PP, it would never work.  The PP seems to get most of it's strength from being automatically contrarian - that is, rebalancing bands cause us to buy asset classes where fearful investors are fleeing for the exits, and sell assets that are currently very popular.

The simple stocks/bonds correlation itself seems to be one of the strongest parts of the PP.  If nobody panicked and sold their stocks to buy treasuries would the PP still work?

[stone]

Is even PRPFX that big a thing? Does it have about $8B? That seems minute against the $1T in vanguard US stock index trackers (is that in the right ball park?) and  $30T? in stocks globally. I guess some bits of PRPFX might get distorted by the size of it especially silver? Is PRPFX getting near to being a significant chunk of the silver market?

About many "lazy portfolios" being available- if you are a know nothing saver in the UK I don't get the impression that rebalancing is appreciated. I started from never having thought of saving apart from in cash. It took me about a week of scouring the internet before the penny dropped about the rebalancing concept. It just doesn't seem to be at the fore of most of what is said. I'd have expected rebalancing to be internal to almost all products directed at retail savers but in the UK you have to be pretty much DIY to manage it. I don't understand why a 4x25 PP couldn't be run by a computor as an ETF. The rebalancing would presumably have to be continuous rather than with bands if the fund were large but would that be a problem? To me it looks as though the industry aims for retail savers to screw up .

[stone]

Storm "The simple stocks/bonds correlation itself seems to be one of the strongest parts of the PP.  If nobody panicked and sold their stocks to buy treasuries would the PP still work?"

Totally agree. I also guessed that the PP relies on other people messing up. I think the same can be said for how the finance industry makes its living and perhaps that is why few retail products with sufficient inbuilt rebalancing are available/pushed.

 

[Roy]

In some ways it is good that the majority of people don't use the PP strategy.  I think if everyone used the PP, it would never work. 

This is true of any strategy or premia, not just the PP.  For example, if everyone had bought Small and Value those premia would vanish.  (In fact, despite the extended popularity of those asset classes, the overall market still looks very much like the overall market portfolio—that is, TSM)  Also if there were no Bear markets, the ERP would vanish. But greed and fear are always at work, and fear especially, has ensured the continuity of various premia (and sometimes commodities), in my view.

Discipline works for various reasonable strategies when emotions are controlled.  And lack of constancy or discipline (for any reason) benefits those who remain consistent with their strategies.

[MediumTex]

Admitting we know nothing about the future is a hard thing to do.

The fact that we also know very little about the present and even less about the past is also unsettling.

Rather than face these realities squarely through something like the PP, we engage in all manner of self-deception and turn to purveyors of simulated omniscience for comfort.

Human affairs are in many ways like a very sophisticated version of smarter and stronger monkeys taking the bananas away from the dimmer and weaker monkeys.

The PP helps one to step outside all of these processes, but the PP user must see these realities before he/she can begin reacting appropriately to them.

Many people react to a discredited wizard by looking for a new wizard. 

People talk about the "hedonic treadmill".  Think of what I am describing as the "hubristic treadmill".

[Roy]

Human affairs are in many ways like a very sophisticated version of smarter and stronger monkeys taking the bananas away from the dimmer and weaker monkeys.

Many people react to a discredited wizard by looking for a new wizard. 

And when they find the new wizard (or belief system), the narrative goes like this:  "I was wrong then.  But I am right now."

Now gimme that banana...

[smurff]

I've been surprised in the past few months at the number of online financial writers who have come up with a new asset allocation strategy that will save our portfolios.  They claim they've come up with it on their own.  Nearly all of them look like this:

25% stock
25% bonds
25% GLD
25% cash-like (savings accounts, ST treasuries, etc.)

Aside from the bond allocation, which usually means high quality corporates with a few LT Treasuries added for diversification, these strategies do not look substantially different from many of the individual PPs described here.  They include whatever TSM or S&P 500 stock indexes (ETF and mutual funds) the financial writer likes.  They don't usually recommend physical gold or a gold ETF other than GLD, or explore the differences among the the gold ETFs and physical gold.

Whether or not anyone other than the financial writers (and presumably their families) actually put their money behind them, however, is unknown.