Any PP Defectors Here?

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Maddy
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Any PP Defectors Here?

Post by Maddy » Wed Jul 10, 2019 1:41 pm

Over the last several months, the chorus of commentators predicting a cataclysmic crash has become deafening. Some of the voices are, from everything I can tell, reasonably well respected. A number of them have opined that what's different this time is that BOTH the equity and bond markets are unsustainable.

Could Harry have predicted a market in which phony financial instruments and rigged buying have made true values a thing of the past? Would he ever have imagined a financial system in which the failure of a single institution could bring down the whole house of cards?

I'm about as naive an investor that there ever could be; consequently it's hard for me to assess for myself whether my inclination to believe that "it's different this time" has any merit. However, I'm feeling the same fear that was my downfall in 2008.

Are there any adherents to the PP that are feeling the least bit uncomfortable with the portfolio these days?
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europeanwizard
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Re: Any PP Defectors Here?

Post by europeanwizard » Wed Jul 10, 2019 2:06 pm

But what is the alternative then?
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Re: Any PP Defectors Here?

Post by Maddy » Wed Jul 10, 2019 2:07 pm

Let's say, for the sake of discussion, that the "safe" alternative is a treasury money market fund with a ~2% return.
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Re: Any PP Defectors Here?

Post by dualstow » Wed Jul 10, 2019 2:32 pm

I feel safer than ever. Of course I wish I’d held more stocks from 2009 (vp) until now, but now, there’s no portfolio I’d rather be in. Or I’d be in it.

Not only does the pp feel safe, it is potentially antifragile, as defined by Taleb. It was made for cataclysmia.

Caution: I am not a financial advisor, etc etc.

https://en.wikipedia.org/wiki/Antifragile
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Re: Any PP Defectors Here?

Post by Maddy » Wed Jul 10, 2019 2:56 pm

In a nutshell, what concerns me is the possibility that the negative correlations upon which the PP is based won't function as anticipated. In the past, a crash in one sector meant, invariably, that money would flow to another. Have we ever experienced a situation where that didn't happen? Is it possible that we've reached a point where all asset classes are so artificially ratcheted up that they ALL fall in tandem? I suppose that's what really worries me.
Last edited by Maddy on Wed Jul 10, 2019 4:08 pm, edited 1 time in total.
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Re: Any PP Defectors Here?

Post by Maddy » Wed Jul 10, 2019 3:01 pm

BTW, I appreciate you all's patience with this. I have some decisions to make this week and want to feel a bit more confidence than I do now.
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Re: Any PP Defectors Here?

Post by sophie » Wed Jul 10, 2019 3:49 pm

You might consider that the recent blip in gold & bonds demonstrates that those assets are just as powerful as ever, in response to a perceived negative market signal. In other words, it's a mini stress test that suggests the PP's fundamentals are still intact.

There's no way to perfectly predict what will happen during the next real market crash, but FWIW I have no plans to change course. I suppose you might consider it if you believe that the Federal Reserve really has figured out how to manipulate the market to successfully avoid future downturns, but I wouldn't bet on that personally.
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Re: Any PP Defectors Here?

Post by Smith1776 » Wed Jul 10, 2019 6:08 pm

A lot of the sentiment in this thread seems to be hinting towards the tight money recession scenario -- the scenario that the 25% cash portion of the portfolio is meant for. There can indeed be times in which, say, stocks and bonds both perform poorly simultaneously. We've got that cash (and gold) for a reason, though.

As far as I'm concerned, there hasn't been anything that's happened that would shake my confidence in the PP.

The future is always uncertain. The only thing that changes is our feelings about it.

Remember that famous "The Death of Equities" article published in 1979? That article directly preceded a bull market in equities that gave us double digit returns for 20 years!

Everything seemed rosy in 2007. Little did we know that we'd see a ridiculous bear market over the next 2 years. Then it seemed like everything in the economy was going down the tubes around 2009. People were talking about a second Great Depression. Some were even hinting at hyperinflation, thanks to all the money printing. Little did we know we'd see an amazing bull market for the next 10 years, with stable inflation to boot!
I still find the James Rickards portfolio fascinating.
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Re: Any PP Defectors Here?

Post by Tortoise » Thu Jul 11, 2019 2:20 am

Smith1776 wrote:
Wed Jul 10, 2019 6:08 pm
A lot of the sentiment in this thread seems to be hinting towards the tight money recession scenario -- the scenario that the 25% cash portion of the portfolio is meant for. There can indeed be times in which, say, stocks and bonds both perform poorly simultaneously. We've got that cash (and gold) for a reason, though.
Well said. Even if stocks, bonds, and gold all have a bad year at the same time, the PP's 25% cash portion provides dry powder to buy all the other assets while they're temporarily on sale.

Boglehead investors with stock/bond portfolios just have to ride out the storm if stocks and bonds drop at the same time. They don't get to buy more while they're on sale. PP investors do.
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Re: Any PP Defectors Here?

Post by Maddy » Thu Jul 11, 2019 8:04 am

You guys are great! Thanks a bunch for the wisdom.
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Re: Any PP Defectors Here?

Post by ochotona » Thu Jul 11, 2019 9:12 am

I think at the bottom of the equity market cycle you're going to see many Bogle defectors here. Just exactly when they should be all-in with equities. Psychology.
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Re: Any PP Defectors Here?

Post by pmward » Thu Jul 11, 2019 11:45 am

Maddy wrote:
Wed Jul 10, 2019 2:56 pm
In a nutshell, what concerns me is the possibility that the negative correlations upon which the PP is based won't function as anticipated. In the past, a crash in one sector meant, invariably, that money would flow to another. Have we ever experienced a situation where that didn't happen? Is it possible that we've reached a point where all asset classes are so artificially ratcheted up that they ALL fall in tandem? I suppose that's what really worries me.
So where is all that money going to go then? It HAS to go somewhere. You think people are going to just patiently sit around on negative yielding treasury bills? I think not! The Fed has already telegraphed that in the next recession they are going negative on rates. Gold and long bonds will perform well. All will be fine. Quit straining for things to worry about that don't exist.
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Re: Any PP Defectors Here?

Post by pmward » Thu Jul 11, 2019 11:46 am

Smith1776 wrote:
Wed Jul 10, 2019 6:08 pm
A lot of the sentiment in this thread seems to be hinting towards the tight money recession scenario -- the scenario that the 25% cash portion of the portfolio is meant for. There can indeed be times in which, say, stocks and bonds both perform poorly simultaneously. We've got that cash (and gold) for a reason, though.
No. Tight money was 2018. We are going into the opposite of that now.
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Re: Any PP Defectors Here?

Post by Kriegsspiel » Thu Jul 11, 2019 11:51 am

I think of the PP as a "better" version of cash. So as far as I'm concerned, the only reason to defect from the PP is if you want to go all in on taking more risk to try for higher returns.
You there, Ephialtes. May you live forever.
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Re: Any PP Defectors Here?

Post by ochotona » Thu Jul 11, 2019 12:11 pm

Grab all the US Savings I-Bonds you can now, they can't go below 0% on those.
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Re: Any PP Defectors Here?

Post by Smith1776 » Thu Jul 11, 2019 12:20 pm

Echoing what ochotona said, I agree there will likely be again more Boglehead interest in the Permanent Portfolio once the next bear hits. 10 years of the bull can do strange things to one's thought process.

There was so much interest in the PP around the time of the 2008 fiasco. The posts on the Bogleheads forum were brimming with enthusiasm for Browne's ideas.

I have to admit I was incredibly foolish. I thought it was all genuine interest on the part of the contributors to that thread. It wasn't. The majority was just a bunch of guys who were scared silly by the banking crisis and thought they had found a lifeboat. By the time I had started posting in that famous thread a couple years ago, the sentiment on Bogleheads.org had done a Jim Rockford style 180 regarding the PP.

The Bogleheads, as a group, are nowhere near as unbiased and clear headed as they purport to be. So much emotion, bias, ego, and posturing on that forum. However, I think it says a lot about this group on this forum to stick with conservative investing in the grips of a rising equity market.
I still find the James Rickards portfolio fascinating.
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Re: Any PP Defectors Here?

Post by dualstow » Thu Jul 11, 2019 1:28 pm

To be fair to bh, they have a lot more members, so of course there are going to be more jerks. O0 That being said, yes, there is certainly no shortage of ego & posturing, with snippets of genuine advice in berween. between.
Last edited by dualstow on Thu Jul 11, 2019 2:51 pm, edited 1 time in total.
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Re: Any PP Defectors Here?

Post by Smith1776 » Thu Jul 11, 2019 1:32 pm

dualstow wrote:
Thu Jul 11, 2019 1:28 pm
To be fair to bh, they have a lot more members, so of course there are going to be more jerks. O0 That being said, yes, there is certainly no shortage of ego & posturing, with snippets of genuine advice in berween.
Dualstow, I am liking the little newsfeed going on in your signature! ;D
I still find the James Rickards portfolio fascinating.
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Re: Any PP Defectors Here?

Post by Kbg » Thu Jul 11, 2019 1:59 pm

Maddy,

Let's assume we know nothing about the future (explicit assumption on the part of the PP and I think a good one for the vast majority of us). Let's also assume the future will be like the past (debatable assumption). If we do this then the trade offs (and there are always trade offs) are the following:

PP: About 1% less CAGR per year for about half the draw down (25%ish)

Other portfolios: About 1% more than the PP with double the draw down (30-80%ish)

The PP greatly exceeds most other portfolios in the amount of time in draw down (but at a serious dent to long term total savings growth...there are always trade offs). This can be good or bad, and really should hinge off age as to which one you go with.

The other portfolios' risk can reliably be drawn down simply by adding a greater cash percentage with accompanying reduction in return.

If you are good at market timing then you should know which assets (and there are others beyond what's in a PP) to dial up and down...this last sentence is the heart of the matter. You feel/think/know you can market time or you don't. If you don't have those skills, then seriously just ignore all the blather (e.g "market prognosticators") and stick with the portfolio allocation you have decided upon.

A rebalance strategy will more or less have you buying low and selling high...so this in actuality should be your market "timing" approach.
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