Discussion of the Stock portion of the Permanent Portfolio
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vnatale
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by vnatale » Fri May 01, 2020 5:42 pm
Tortoise wrote: ↑Fri May 01, 2020 5:14 pm
mathjak107 wrote: ↑Fri May 01, 2020 3:51 pm
Equal dollars does not mean equal chance of playing out ....there is a big difference in that fact ...if I remember that was one of Bernstein’s gripes about the pp...in practice equal dollars does not correspond to equal odds
Correct. But who claimed that the PP's equal weighting was based on an assumption of equal odds? Nobody did, and it's not.
The PP's equal weighting is based on an agnostic ("neutral") outlook, not a prediction that all economic conditions are equally likely (which we know they typically aren't).
There is no contradiction there? Or, are you saying that that it is neutral because it is impossible to predict which are more or less likely?
Vinny
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Tortoise
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by Tortoise » Fri May 01, 2020 8:02 pm
vnatale wrote: ↑Fri May 01, 2020 5:42 pm
There is no contradiction there? Or, are you saying that that it is neutral because it is impossible to predict which are more or less likely?
Some people say it's impossible. Personally, I wouldn't say it's necessarily
impossible to predict which economic conditions are more or less likely. I'm just saying the PP is based on the idea that it's either impossible or at least very difficult to do accurately and consistently.
If you operate under the assumption that it's very hard or impossible, then anything other than equal weighting doesn't make a lot of sense since unequal weighting is basically an implied prediction.
Most people, even most PP investors, disagree with Harry Browne's assumption that we can't predict the prevalence of economic conditions, so they either tweak the PP allocations directly (e.g., GB) or have a VP to satisfy their predictive urges. I'm one of the few PP purists.
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vnatale
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by vnatale » Fri May 01, 2020 8:09 pm
Tortoise wrote: ↑Fri May 01, 2020 8:02 pm
vnatale wrote: ↑Fri May 01, 2020 5:42 pm
There is no contradiction there? Or, are you saying that that it is neutral because it is impossible to predict which are more or less likely?
Some people say it's impossible. Personally, I wouldn't say it's necessarily
impossible to predict which economic conditions are more or less likely. I'm just saying the PP is based on the idea that it's either impossible or at least very difficult to do accurately and consistently.
If you operate under the assumption that it's very hard or impossible, then anything other than equal weighting doesn't make a lot of sense since unequal weighting is basically an implied prediction.
Most people, even most PP investors, disagree with Harry Browne's assumption that we can't predict the prevalence of economic conditions, so they either tweak the PP allocations directly (e.g., GB) or have a VP to satisfy their predictive urges. I'm one of the few PP purists.
Thank for the explanation and reaffirming that I was correctly interpreting you. Plus, when I FINALLY go Permanent Portfolio I will join you as a PURIST! That is one of my prime attractions. A somewhat mechanical, formulaic system which does not require you to constantly monitor and make decisions.
Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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ochotona
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by ochotona » Sat May 02, 2020 3:16 pm
Masanari Takada, a macro and quantitative strategist at Nomura, thinks a "sell in May" stock-market unwind is on the horizon
"When Takada and McElligot talk --- people listen"
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buddtholomew
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by buddtholomew » Sat May 02, 2020 5:41 pm
25/25/25/25 or 40/15/15/30 both qualify as Permanent Portfolios although the latter is not rebalanced.
4x25 is simple and elegant for some while others prefer allocations that meet their individual risk profile and temperament. HB himself (if I recall) considered the portfolio “permanent” if the investor held all 4 assets within 15 and 35% bands.
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dualstow
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by dualstow » Sat May 02, 2020 6:00 pm
buddtholomew wrote: ↑Sat May 02, 2020 5:41 pm
25/25/25/25 or 40/15/15/30 both qualify as Permanent Portfolios although the latter is not rebalanced.
4x25 is simple and elegant for some while others prefer allocations that meet their individual risk profile and temperament. HB himself (if I recall) considered the portfolio “permanent” if the investor held all 4 assets within 15 and 35% bands.
I think you’re right, B. I definitely remember him saying & writing that one doesn’t have to stick to 25% exactly. To say within the bands is sufficient.
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pmward
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by pmward » Sat May 02, 2020 6:56 pm
buddtholomew wrote: ↑Sat May 02, 2020 5:41 pm
25/25/25/25 or 40/15/15/30 both qualify as Permanent Portfolios although the latter is not rebalanced.
4x25 is simple and elegant for some while others prefer allocations that meet their individual risk profile and temperament. HB himself (if I recall) considered the portfolio “permanent” if the investor held all 4 assets within 15 and 35% bands.
Another way you could also frame that is having a PP that is 15/15/15/15 and a VP that is 25/0/0/15. There is nothing wrong with that at all. My PP is 40% of my total portfolio. I am keeping that 40% a pure vanilla PP implementation. In my VP half of it is in a quant trend-following strategy and half of it I actively speculate and trade. This works well for me. My portfolio on the whole is much different than most people here... but that's what the VP is for. The VP is personal.
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dualstow
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by dualstow » Sat May 02, 2020 8:33 pm
pmward wrote: ↑Sat May 02, 2020 6:56 pm
Another way you could also frame that is having a PP that is 15/15/15/15 and a VP that is 25/0/0/15. There is nothing wrong with that at all. My PP is 40% of my total portfolio. I am keeping that 40% a pure vanilla PP implementation.
...
It looks like it’s your PP that adds up to 60% and your VP that adds up to only 40%, not the other way around.
Is that a mistake, or just a coincidence and I’m reading it wrong?
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pmward
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by pmward » Sat May 02, 2020 8:35 pm
dualstow wrote: ↑Sat May 02, 2020 8:33 pm
pmward wrote: ↑Sat May 02, 2020 6:56 pm
Another way you could also frame that is having a PP that is 15/15/15/15 and a VP that is 25/0/0/15. There is nothing wrong with that at all. My PP is 40% of my total portfolio. I am keeping that 40% a pure vanilla PP implementation.
...
It looks like it’s your PP that adds up to 60% and your VP that adds up to only 40%, not the other way around.
Is that a mistake, or just a coincidence and I’m reading it wrong?
Haha, I was splitting up Budd's portfolio into vanilla PP and VP. That is not my personal portfolio. In mine it is 40%, or basically 10/10/10/10.
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dualstow
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by dualstow » Sat May 02, 2020 8:55 pm
ah, I gotcha. Thanks.
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ochotona
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by ochotona » Sun May 03, 2020 3:44 am
I guess mine is 40% PP also, and my VP is therefore virtually shorting stocks to completely offset virtual PP stocks (in other words I have TLT gold cash and very few stocks)
This is exactly what someone asked a few days ago - how do I short stocks in the VP? You do it by recognizing that the PP VP dotted line is a portfolio planning tool. If you think it's more than a dotted line, then you might be tempted to do weird sh** like being long and short in the same thing at the same time
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ochotona
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by ochotona » Sun May 03, 2020 9:15 am
Bogleheads fun today
Deviating from "set it and forget it" investment approach
[Cashed out in panic, how to get back in?]
How to get back in ..
Holding Gold as "Doomsday Fund" {isn't gold a venial sin for them? or a mortal sin?}
Tracking Progress on my Market Timing
I'm out [of the market]
Why shouldn’t I do this?
Rebellious teenagers in a fundamentalist family!
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dualstow
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by dualstow » Sun May 03, 2020 9:57 am
ochotona wrote: ↑Sun May 03, 2020 9:15 am
Bogleheads fun today
...
Hah! Those are good.
To be fair, we have
Help me get over my fear of LTTs
I'm worried about stagflation and am selling all my bonds tomorrow.
I was going to include some gold ones, but they appear to be ancient and only recently exhumed.
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pmward
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by pmward » Sun May 03, 2020 10:33 am
ochotona wrote: ↑Sun May 03, 2020 3:44 am
I guess mine is 40% PP also, and my VP is therefore virtually shorting stocks to completely offset virtual PP stocks (in other words I have TLT gold cash and very few stocks)
This is exactly what someone asked a few days ago - how do I short stocks in the VP? You do it by recognizing that the PP VP dotted line is a portfolio planning tool. If you think it's more than a dotted line, then you might be tempted to do weird sh** like being long and short in the same thing at the same time
Yeah, if we get another leg to the bear, I'm likely going to short in my VP... which may put me at that "net 0" or even lower when you look at it from one angle. But if I were to short I also wouldn't short the same think I was long. My long PP 10% at that point would likely be in QQQ since it has the strongest relative strength right now, and I would short something like small caps, financials, or even some weak individual stocks inside weak sectors... whatever seems to have the weakest relative strength and the most downward momentum at that time. So in a way it would be a long/short trade, something like long large cap tech, short financials. Regardless what direction the market went, as long as financials would underperform large cap tech, I would make a profit on the whole. I could even be wrong on the direction of the market, and the market could go up, but so long as financials lagged QQQ I would net a profit. Another angle to view it from.
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ochotona
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by ochotona » Sun May 03, 2020 1:59 pm
My spouse has $15k long in TIAA, I don't want to be in there trading her stuff. It's a good fund. I could buy RWM, which is inverse Russell 2000 which is full of unicorns with no earnings. That would be long / short, long quality names, short dogmeat names.
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Kriegsspiel
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by Kriegsspiel » Mon May 04, 2020 6:26 pm
Investment will collapse 30%+. Dividends and buybacks will slow 20%+. Household saving will spike 20%+. They’ll come back, but slowly. Government saving, on the other hand, has been a huge, huge boost. The government’s deficit should be ~$3.7T this year. People don’t seem to understand how big this number is. And how big of a boon this is to corporate America because, ultimately, it all flows to corporations because Americans don’t save.
This is such a great frame.
I remember years ago, someone was talking about how they didn't want to buy stocks, because they hate corporations and they don't want to help them. I told him that I thought a great way to stick it to a corporation was to stake a claim to some of its profits, and then
not spending those profits on corporate products or services. I thought of how people frequently accuse corporations of draining off capital from factory towns, and how a hippy oligarch could move to a small town and pour government profits into it. I suspect this particular person gave it some thought, but that a typical American would hate hate hate that kind of agency.
You there, Ephialtes. May you live forever.
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Libertarian666
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by Libertarian666 » Mon May 04, 2020 7:22 pm
Kriegsspiel wrote: ↑Mon May 04, 2020 6:26 pm
Investment will collapse 30%+. Dividends and buybacks will slow 20%+. Household saving will spike 20%+. They’ll come back, but slowly. Government saving, on the other hand, has been a huge, huge boost. The government’s deficit should be ~$3.7T this year. People don’t seem to understand how big this number is. And how big of a boon this is to corporate America because, ultimately, it all flows to corporations because Americans don’t save.
This is such a great frame.
I remember years ago, someone was talking about how they didn't want to buy stocks, because they hate corporations and they don't want to help them. I told him that I thought a great way to stick it to a corporation was to stake a claim to some of its profits, and then
not spending those profits on corporate products or services. I thought of how people frequently accuse corporations of draining off capital from factory towns, and how a hippy oligarch could move to a small town and pour government profits into it. I suspect this particular person gave it some thought, but that a typical American would hate hate hate that kind of agency.
I would just have said "You know that buying a corporation's stock on the secondary market doesn't give the corporation any money, don't you?"
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dualstow
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by dualstow » Thu May 07, 2020 12:03 pm
pmward wrote: ↑Fri Apr 10, 2020 8:36 am
Cortopassi wrote: ↑Fri Apr 10, 2020 8:11 am
pmward wrote: ↑Thu Apr 09, 2020 10:48 am
The breadth of this market rally does make me nervous... I hate to say it, but the probabilities of the bullish outcome are starting to look higher than the bearish outcome. ...
Why do you seem worried and hate to say it? Because....(fill in)
Because I was hoping to deploy my giant cash pile into stocks at a much lower level. I'm worried I missed the boat. The evidence still favors this being a bear market rally, and at least a retest of the March lows. But that technical evidence is starting to get weaker and weaker by the day. We are literally dancing on the borderline of what I would define as a "bear market rally" and a brand spanking new bull market trend. Now it's not uncommon to dance on that line... both 2001 and 2008 did the same thing and rejected... but it's no less stressful waiting to see if I'm right, or if I'm wrong and have to buy back in, haha. So there's 2 things to worry about. 1) I missed the boat and have to buy in much higher. 2) I buy back in and get whipsawed as my theory is eventually proven right. but months down the road.
Do you feel you have missed the boat, pmward?
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pmward
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by pmward » Thu May 07, 2020 12:14 pm
dualstow wrote: ↑Thu May 07, 2020 12:03 pm
pmward wrote: ↑Fri Apr 10, 2020 8:36 am
Cortopassi wrote: ↑Fri Apr 10, 2020 8:11 am
pmward wrote: ↑Thu Apr 09, 2020 10:48 am
The breadth of this market rally does make me nervous... I hate to say it, but the probabilities of the bullish outcome are starting to look higher than the bearish outcome. ...
Why do you seem worried and hate to say it? Because....(fill in)
Because I was hoping to deploy my giant cash pile into stocks at a much lower level. I'm worried I missed the boat. The evidence still favors this being a bear market rally, and at least a retest of the March lows. But that technical evidence is starting to get weaker and weaker by the day. We are literally dancing on the borderline of what I would define as a "bear market rally" and a brand spanking new bull market trend. Now it's not uncommon to dance on that line... both 2001 and 2008 did the same thing and rejected... but it's no less stressful waiting to see if I'm right, or if I'm wrong and have to buy back in, haha. So there's 2 things to worry about. 1) I missed the boat and have to buy in much higher. 2) I buy back in and get whipsawed as my theory is eventually proven right. but months down the road.
Do you feel you have missed the boat, pmward?
Nope, I'm back in now. I kind of went back to the drawing board for how I construct my portfolio a bit. The fine details are in my thread down in the VP section, but the tldr is basically I settled on keeping a 40% PP, 30% VP quant trend-following, and 30% VP active trading allocations. So basically the quant trend-following strategy I chose got me back in a couple weeks ago. It would have been nice to buy lower, but oh well. And I may still get that opportunity, as the trend-following strategy model I chose uses volatility as it's trigger and is still floating very close to it's "risk off" trigger. So if we get another leg down it will get me out really quickly (hopefully still with a small gain from this risk on period) and back in at a lower level. In my active trading bucket I'm heavily into metals and miners, where I think more opportunity lies than in general stocks at the moment. So on the whole, while it would have been nice to get that big back the truck up equity purchase sub-2k, I'm happy with where I am currently at on the whole. Times like this are a great learning lesson. The experience definitely helped me to find my way into a strategy that I think is a better fit for me.
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pmward on Thu May 07, 2020 12:17 pm, edited 1 time in total.
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Kriegsspiel
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by Kriegsspiel » Thu May 07, 2020 12:16 pm
I sold stocks at or just before the top, then I put about 1/3 back in at the very bottom ($100 for my newsletter). So now I have some cash waiting, but I'm not that stressed at the valuations that stocks raced back up to. I'm ok with taking the "loss" for the optionality of the cash. If I'm looking at the long term, I'm down with having some assets "languish in cash," or "pay for optionality," until stocks make sense again.
You there, Ephialtes. May you live forever.
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pmward
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by pmward » Thu May 07, 2020 12:24 pm
Kriegsspiel wrote: ↑Thu May 07, 2020 12:16 pm
I sold stocks at or just before the top, then I put about 1/3 back in at the very bottom ($100 for my newsletter). So now I have some cash waiting, but I'm not that stressed at the valuations that stocks raced back up to. I'm ok with taking the "loss" for the optionality of the cash. If I'm looking at the long term, I'm down with having some assets "languish in cash," or "pay for optionality," until stocks make sense again.
Yep, it is nice to have that optionality. This was the position I was in Q4 2018. I got out early, and back in early, and started pulling some chips off the table and diversifying while everyone else was chasing back into the market. That was actually when I started my transition down the PP road, taking profits from that big run up following the Christmas Eve bottom and moving them into bonds and gold.
I tried for awhile to go straight up buy and hold, and I found out really quickly in April that even in a GB buy and hold on 100% of my portfolio is not for me. I settled on 40% PP as having a 40% conservative buy and rebalance allocation is a good anchor to allow me to chase alpha in my quant and active trading strategies (and all 3 give me added non-correlated strategy diversification benefits). The quant trend following strategy will help me do the same thing you did next time, get out early and back in at a decent enough entry to be ahead of the curve and not feel like I have to play catchup. And I'm pretty good at managing my risk in my active allocation, but definitely did not want to have more than 30% of my portfolio under active trading just because if I am trading with too large of a chunk of money, and I am in cash looking for trades I have a tendency to start getting impatient and trying to force trades to happen instead of waiting for the right trades to come to me. All 3 PP, trend, and active trading strategy allocations help create a total portfolio that I can 100% comply with and trust.
Last edited by
pmward on Thu May 07, 2020 12:31 pm, edited 1 time in total.
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mathjak107
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by mathjak107 » Thu May 07, 2020 12:30 pm
Same here , I have about one third in permanent portfolio,which is a fair amount and 7 figures ..then 2/3’s are in the fidelity insight income model ...then we hold a lot of cash ......I find it is a good balance ...
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Kriegsspiel
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by Kriegsspiel » Thu May 07, 2020 12:38 pm
I meant to say I sold
some stocks. The way I wrote it might make it seem like I pulled off the Ocho, but I didn't
You there, Ephialtes. May you live forever.
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pmward
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by pmward » Thu May 07, 2020 12:39 pm
mathjak107 wrote: ↑Thu May 07, 2020 12:30 pm
Same here , I have about one third in permanent portfolio,which is a fair amount and 7 figures ..then 2/3’s are in the fidelity insight income model ...then we hold a lot of cash ......I find it is a good balance ...
One thing I have thought to myself a lot lately when reading all the posts of people worrying about bonds and the PP, is that maybe if they had a VP as well it would help fix the issue? I think there was a reason why Harry encouraged people to have a VP for any cash beyond "the money they can't afford to lose". There are definitely psychological benefits to have some control and strategy diversification... but keeping the allocation that you can control limited and having a PP (or other highly diversified conservative portfolio) allocation as an anchor is also a really good thing. At the end of the day the most important thing is compliance. Investment strategies are like diets. You can have the best and most optimal strategy/diet in the world, but if you cannot comply with your strategy/diet, what good is it?