PP Mistakes

General Discussion on the Permanent Portfolio Strategy

Moderator: Global Moderator

User avatar
yankees60
Executive Member
Executive Member
Posts: 9600
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts

Re: PP Mistakes

Post by yankees60 »

seajay wrote: Sun Sep 17, 2023 11:42 pm
vnatale wrote: Sun Sep 17, 2023 9:36 pm
jalanlong wrote: Sun Sep 17, 2023 7:07 pm

If you go back to 1980, a $10k investment in stocks would be worth over $1 million now. PP would be $200k and ST Treasuries $99k.


So what you are telling me that after finally graduating college in 1978 (with masters at age 27) and had saved my first $1,000 in 1979 and was agonizing what to do with it ... I should have put it and left it in stocks to let it turn into over $100,000 now?

If you'd invested in McDonald's shares instead of buying/eating their burgers, share price alone has risen around 600x since 1979 and you'd have collected a load of dividends along the way that could have been spent on buying burgers :)


In my case since I last bought one of them in 1973 ... I'd have $0 today. But point taken!
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."
User avatar
Tortoise
Executive Member
Executive Member
Posts: 2752
Joined: Sat Nov 06, 2010 2:35 am

Re: PP Mistakes

Post by Tortoise »

jalanlong wrote: Sun Sep 17, 2023 7:07 pm If you go back to 1980, a $10k investment in stocks would be worth over $1 million now. PP would be $200k and ST Treasuries $99k.
Impressive indeed.

For the person who can stomach the stock market's wild multi-year swings without bailing, and also has a crystal ball that assures them no financial or political events in the future will destroy stock market returns in an unprecedented way, putting everything in stocks is clearly the way to go! ;)
User avatar
Smith1776
Executive Member
Executive Member
Posts: 3607
Joined: Fri Apr 21, 2017 6:01 pm

Re: PP Mistakes

Post by Smith1776 »

Tortoise wrote: Mon Sep 18, 2023 7:05 pm
jalanlong wrote: Sun Sep 17, 2023 7:07 pm If you go back to 1980, a $10k investment in stocks would be worth over $1 million now. PP would be $200k and ST Treasuries $99k.
Impressive indeed.

For the person who can stomach the stock market's wild multi-year swings without bailing, and also has a crystal ball that assures them no financial or political events in the future will destroy stock market returns in an unprecedented way, putting everything in stocks is clearly the way to go! ;)
You hit the nail on the head.

Ben Felix put it really well in his expected stock returns video. We got those stock returns for bearing risk.. but the only reason why those returns were realized is because the risks didn't show up.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4479
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP Mistakes

Post by mathjak107 »

but risk did show up .

we have had crashes including losing 24% in one day , wars , the collapse of the savings and loans , the great recession, covid shutting the world down , the collapse of the dot coms , recessions , etc.

those returns were with all the risk showing up.

if it wasn’t for that fact returns would have been far greater.

even the greatest event in history , the great depression had one whole again in under 5 years in purchasing power .

so while we have had a couple of very long claw backs in our history the reality is we have had risk play out in all time frames
User avatar
Smith1776
Executive Member
Executive Member
Posts: 3607
Joined: Fri Apr 21, 2017 6:01 pm

Re: PP Mistakes

Post by Smith1776 »

mathjak107 wrote: Tue Sep 19, 2023 5:33 am but risk did show up .

we have had crashes including losing 24% in one day , wars , the collapse of the savings and loans , the great recession, covid shutting the world down , the collapse of the dot coms , recessions , etc.

those returns were with all the risk showing up.

if it wasn’t for that fact returns would have been far greater.

even the greatest event in history , the great depression had one whole again in under 5 years in purchasing power .

so while we have had a couple of very long claw backs in our history the reality is we have had risk play out in all time frames
Nah, they didn’t really show up. Neither world war resulted in invasion of U.S. territory like Germany. A nuclear bomb was never dropped on the U.S. like Japan. The Cuban Missile Crisis was similarly peacefully resolved. There’s never been a political coup. The market has never gone to zero like many other individuals countries have. A lot of good old fashion luck at play.
User avatar
Smith1776
Executive Member
Executive Member
Posts: 3607
Joined: Fri Apr 21, 2017 6:01 pm

Re: PP Mistakes

Post by Smith1776 »

https://papers.ssrn.com/sol3/papers.cfm ... id=3689958

I based a lot of the above on this paper.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4479
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP Mistakes

Post by mathjak107 »

Smith1776 wrote: Tue Sep 19, 2023 8:52 am
mathjak107 wrote: Tue Sep 19, 2023 5:33 am but risk did show up .

we have had crashes including losing 24% in one day , wars , the collapse of the savings and loans , the great recession, covid shutting the world down , the collapse of the dot coms , recessions , etc.

those returns were with all the risk showing up.

if it wasn’t for that fact returns would have been far greater.

even the greatest event in history , the great depression had one whole again in under 5 years in purchasing power .

so while we have had a couple of very long claw backs in our history the reality is we have had risk play out in all time frames
Nah, they didn’t really show up. Neither world war resulted in invasion of U.S. territory like Germany. A nuclear bomb was never dropped on the U.S. like Japan. The Cuban Missile Crisis was similarly peacefully resolved. There’s never been a political coup. The market has never gone to zero like many other individuals countries have. A lot of good old fashion luck at play.
what you are trying to say never happened when it comes to equities are things to end life as we know it …likely for all assets.

betting on the long shot is never a good idea .

far better to plan around what was , what is and what stands a reasonable chance of continuing.

THIS TIME IS DIFFERENT have been the most costliest words to bet on in the english language
User avatar
Xan
Administrator
Administrator
Posts: 4429
Joined: Tue Mar 13, 2012 1:51 pm

Re: PP Mistakes

Post by Xan »

mathjak107 wrote: Tue Sep 19, 2023 10:31 amTHIS TIME IS DIFFERENT have been the most costliest words to bet on in the english language

Mathjak, you're fond of saying that, but isn't it pretty clear that the outperformance of US equities over the past century or so has been the weird outlier? Why aren't the people who plan on that outperformance continuing forever the ones who are thinking "this time it's different"?
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4479
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP Mistakes

Post by mathjak107 »

nope .

100 years was enough time time for me to go no other way but 100% equities in my accumulation years..

it always made little sense to me to mitigate short term dips as a long term investor with other less capable assets ,permanently hurting my longterm returns .

retirement is something else …i grew my money in my accumulation years .

i want no more then 40% equitiesnow
User avatar
Smith1776
Executive Member
Executive Member
Posts: 3607
Joined: Fri Apr 21, 2017 6:01 pm

Re: PP Mistakes

Post by Smith1776 »

Okay.
User avatar
seajay
Executive Member
Executive Member
Posts: 441
Joined: Mon Aug 09, 2021 11:11 am

Re: PP Mistakes

Post by seajay »

1980 was a great start year for stocks, a (very) bad start year for gold. That aside and start 1980 with 50/50 stock/gold, where you left that as-is but looked to deploy gold into stock when stocks dipped, and at the end of 1987 might have been selected as the time to do that. Stocks and gold tend to have multi-year inverse correlations so as stocks dip -25% so gold might spike +33% and vice-versa ... type concept. How did 50/50 stock/gold from the start of 1980 to end of 1987 and then all-stock thereafter compare to 100% stock from the start of 1980? Well all-stock achieved a 11.2% annualized nominal, 7.8% real, whereas the initial stock/gold 50/50 ended up with 0.96% annualized less (so 10.2% nominal, 6.9% real). $707K final/recent ($10K initial) instead of a little over a $1M for all-stock. Still not a shabby outcome for a bad case.

What if no migration of gold into stocks occurred, well non rebalanced stock/gold ended more recently with $554,246, compared to $1,073,524 for all-stock. 6.2% real vs 7.8% real.

Whilst it could have been different in other cases, such as start with $10 in 2000 and all-stock 10.4% annualized nominal, 7.6% real. 50/50 initial stock/gold and deploying gold into stock at the end of 2002 ... 12% nominal, 9.2% real. Or for a 1972 start date, rotating gold into stock at the end of 1974, and 1972 to recent 8.73% annualized real, compared to 6.23% annualized real for all-stock from 1972.

Many underestimate the optionality of cash (gold) Buffett views cash as a Call Option without a Expiration Date or a Strike Price, the value of which can earn when he acquires other assets at bargain prices. The cost of carrying that can be relatively low/acceptable, 1980 type bad case start date for example, where rewards are still 'satisfactory'. Such hedging is inclined to reduce the upside great case outcome (but can still yield greater rewards than all-stock from the get-go), but also tends to reduce the worst case outcome, which for some/many may be the priority.

What Buffett further does is to not only buy when stocks have pulled-back, but also buy into the more depressed sector, selecting the more depressed stock in that sector, and for him ideally buys the controlling interest in that stock, as, as the owner, capital can be freely moved between his different businesses. But not exclusively. I note that whilst Buffett bought a lot of Apple shares in recent years, he has spent around twice as much on buying another single stock that largely hasn't received anywhere near as much media attention. Which stock? Why BRK (share buybacks) of course. On a measure of 67/33 BRK/APPL stocks since 2016 to recent ... that's grown at a near 21% annualized real rate of return PV
User avatar
seajay
Executive Member
Executive Member
Posts: 441
Joined: Mon Aug 09, 2021 11:11 am

Re: PP Mistakes

Post by seajay »

Xan wrote: Tue Sep 19, 2023 10:39 am
mathjak107 wrote: Tue Sep 19, 2023 10:31 amTHIS TIME IS DIFFERENT have been the most costliest words to bet on in the english language

Mathjak, you're fond of saying that, but isn't it pretty clear that the outperformance of US equities over the past century or so has been the weird outlier? Why aren't the people who plan on that outperformance continuing forever the ones who are thinking "this time it's different"?
Mixing a bunch of different stock markets data in yearly equal weights, including the total wipe out of one periodically, based on a mixture of US, UK, Canada, Australia, Japan ... and then comparing the ratio of that to US stock only, I see ...

Image

a relative US out-performance from the mid 1980 to 1999 years, a reversal in the 2000 to 2008 financial crisis period, and again a out-performance since then. I don't see a US out-performance over the last century, more a case of the opposite, a mildly positive sloped trend-line.

There are costs with global however, varying degrees of taxation/withholding taxes etc. More generally the US is the heart of capitalism and the dollar is the primary international trade/settlement currency. When that fiat currency and structure is combined with gold non-fiat commodity currency I opine that a barbell of those two alone is 'good-enough'. Global is just inclined to induce additional layers of taxation/costs. Buffett suggests that also, don't bet against the US, buy the S&P500 ... type advice.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4479
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP Mistakes

Post by mathjak107 »

I wouldn’t go by other countries
I live in America and Any foreign investing I do is thru American companies

We can also say a Japanese investor would have done very well investing in America
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4479
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: PP Mistakes

Post by mathjak107 »

the problem with foreign stocks is you need to be right twice .

once about equities and even if you got that right you need to be right about the dollar .

i rather bet on american stocks and gold if i have to be right twice
User avatar
seajay
Executive Member
Executive Member
Posts: 441
Joined: Mon Aug 09, 2021 11:11 am

Re: PP Mistakes

Post by seajay »

The PP's Cash/LTT barbell does make the PP somewhat bond heavy. A alternative is thirds each stock/bond/gold. Thirds TSM/10 year Treasury's/Gold instead of 25% each TSM/STT/LTT/gold

PV

For non-US investors, combine that with three way currency diversification, third domestic ITT, third US$ fiat currency invested in US stock, third global non-fiat currency gold.

Worked OK for a Japanese investor since 1972, UK investor since 1896, US investor since 1871 as a 4% 30 year SWR.
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8867
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: PP Mistakes

Post by Pointedstick »

Smith1776 wrote: Tue Sep 19, 2023 8:52 am Nah, they didn’t really show up. Neither world war resulted in invasion of U.S. territory like Germany. A nuclear bomb was never dropped on the U.S. like Japan. The Cuban Missile Crisis was similarly peacefully resolved. There’s never been a political coup. The market has never gone to zero like many other individuals countries have. A lot of good old fashion luck at play.
Right, but if any of those things had happened, US investors would have been ruined no matter what their portfolio was; you can't financially outrun the collapse of your home country. See viewtopic.php?f=1&t=12949&p=249218#p249218.

If there are real risks that you're actually concerned about, IMO the mitigation strategies mostly involve things besides the composition of your investment portfolio.
User avatar
Smith1776
Executive Member
Executive Member
Posts: 3607
Joined: Fri Apr 21, 2017 6:01 pm

Re: PP Mistakes

Post by Smith1776 »

Pointedstick wrote: Wed Sep 20, 2023 4:34 pm
Smith1776 wrote: Tue Sep 19, 2023 8:52 am Nah, they didn’t really show up. Neither world war resulted in invasion of U.S. territory like Germany. A nuclear bomb was never dropped on the U.S. like Japan. The Cuban Missile Crisis was similarly peacefully resolved. There’s never been a political coup. The market has never gone to zero like many other individuals countries have. A lot of good old fashion luck at play.
Right, but if any of those things had happened, US investors would have been ruined no matter what their portfolio was; you can't financially outrun the collapse of your home country. See viewtopic.php?f=1&t=12949&p=249218#p249218.

If there are real risks that you're actually concerned about, IMO the mitigation strategies mostly involve things besides the composition of your investment portfolio.
What you're talking about is subtly different from what I was referencing.

U.S. returns being a historical outlier and whether or not international diversification is prudent are different issues from whether or not the U.S. is your home country. For me it's not.

Like, you're right, if your home country is ruined by a cataclysmic scenario, then there's a high chance your entire portfolio could get wiped out. Indeed, because the financial/economic system of your country could be incapacitated. That's certainly true of any country. However, that's different from saying whether or not global diversification is prudent in light of the Binsbergen et al. paper.

I am a Canadian. I don't think it's prudent to invest all my funds in Canadian assets because "well, if a nuclear bomb hits Canada we're all done for anyway, so 100% home country bias is fine."
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8867
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: PP Mistakes

Post by Pointedstick »

Canada and the USA are exceptionally economically and politically aligned. If Canada is getting nuked, it's probably because the USA is getting nuked too, in which case I think my point still stands. But are we really worried about 1st world countries getting nuked? And if we are, isn't mere survival more a priority than wealth preservation? This doesn't seem like a realistic worry to me, so maybe "if a nuclear bomb hits Canada" was a figure of speech. But if it was, what's the real thing we're worried about?
User avatar
Smith1776
Executive Member
Executive Member
Posts: 3607
Joined: Fri Apr 21, 2017 6:01 pm

Re: PP Mistakes

Post by Smith1776 »

Pointedstick wrote: Wed Sep 20, 2023 10:16 pm Canada and the USA are exceptionally economically and politically aligned. If Canada is getting nuked, it's probably because the USA is getting nuked too, in which case I think my point still stands. But are we really worried about 1st world countries getting nuked? And if we are, isn't mere survival more a priority than wealth preservation? This doesn't seem like a realistic worry to me, so maybe "if a nuclear bomb hits Canada" was a figure of speech. But if it was, what's the real thing we're worried about?
We might be talking past each other a bit here.
Post Reply