What makes me nervous...

[doodle]

What makes me the most nervous about the PP is how well it has done over the last 10 years, and the almost "born again" fervor that it inspires among investors who find it after having wandered in the investment darkness for decades.

There is almost a religious / cultish tone that is used when talking about Harry Browne and the Portfolio.

Are we erecting an investment world "golden calf idol"?



Does this make anyone else nervous as well?

[bswift]

The fervor of adherents doesn't bother me, because there are so few that a rush out of the PP could not possibly harm the asset values in a big way.  The PP is more popular than it was, but it isn't dot-com stocks in 1999 or Florida condos in 2006.

However the historical outperformance of the past decade will presumably be followed at some point by a reversion to the mean.  The PP has produced an annual loss occasionally, and is likely to do so again once in the next few years.  That makes me nervous.  But given the defensive nature of the portfolio and the 25% in cash, any loss should be relatively modest. 

In other words,  Yes, I am scared by the PP.  But less scared than any other investment strategy I know about.  The PP was made for nervous people, don't you think?

[dualstow]

I keep waiting for the pp to start losing, but I wouldn't say I'm worried. At this point, I truly think I'll be able to just buy more shares of each asset during the lean years. Learning to not agonize about individual assets is more difficult for me.

[AdamA]

There is almost a religious / cultish tone that is used when talking about Harry Browne and the Portfolio.

What exactly do you mean by "religious / cultish" tone?  Who have you heard using one?

[Gosso]

I think you are confusing ‘cults’ with ‘blind faith’.  

Anytime there are a set of rules or beliefs set in place, then you could easily call the people that follow these rules members of a cult.  Here are some groups of people that I would describe as a following a cult:
- all religions
- democrats vs republicans
- global warming believers and deniers
- 9/11 conspiracy theorists
- any kind of sports fan

you get the point

The word 'cult' gets a bad name because it is usually used to describe a group of people following a set of beliefs that are outside of the normally accepted mind set.  If you use that definition then the PP is a cult, since we don’t fit in with what is normal.  But the difference is that we arrived at the cult through very careful study and research, and determined it to be the best cult out there!

Hope that helped.

[clacy]

The past decade has been pretty good for the PP relative to the stock market, largely because gold has outperformed and stocks have zig-zagged but more or less have gone no where this decade.

But I don't think you need to worry about the fact that the PP has gained some followers and is creating a bubble.  It's only a small fraction of investors that have heard of the PP and an even smaller amount of people that have adopted the approach. 

PRPFX has attracted quite a lot of money, but most people that invest in that fund aren't doing it because they are Harry Browne enthusiasts.  They are maybe putting 5-10% of their money into it as an inflation hedge, in lieu of gold or commodities.

Some may be chasing the approach due to performance chasing of gold, so I could easily see a scenario where the HBPP under-performs the S&P for a decade or so, but that doesn't mean the strategy is bad, in fact periods of under-performance will accompany periods of outperformance as well all should expect.

I would imagine that the single biggest detractor to the PP, would be an extended period (say 5 years) where the S&P trounces the PP.  I would be willing to bet that the amount of posters on this board would be reduced significantly if that were to happen, ala the 90's.

[Tortoise]

There is almost a religious / cultish tone that is used when talking about Harry Browne and the Portfolio.

Are we erecting an investment world "golden calf idol"?

Maybe if that golden calf had a stack of cash in its mouth, a stock ticker hanging from its collar, and a saddle made of Treasury bonds, it would look more like a Permanent Portfolio idol.

Also, instead of dancing around that idol and bowing down to it, picture the people throwing stones at it and beating it with sticks to see if it falls apart or holds up. That's more akin to what the PP enthusiasts on this forum do.

[MediumTex]

Okay everyone, I'm getting together our PP ceremonial robes order.

They come in medium, large, x-large and xx-large.  They cost $59.95 each. 

You can also get a Harry Browne four candle candelabra for $25 with "HB" engraved beneath an image of Harry Browne on the base and "stocks", "bonds", 'gold" and "cash" engraved on the four candlesticks, but only if you order it with your robe.

***

Seriously, though, the PP hasn't done anything unusual in recent years.  In the last four years the PP had one year in which it was basically flat (2008), one year of single digit returns and two years of double digit returns.  That type of performance has been pretty much the same for the last 40 years.

There will almost certainly be a year with a small gain or perhaps a small loss at some point in the future, but the way I look at it after the PP has given you enough years of steady gains it may not bother you too much to give a little bit of it back here and there.

As I have said countless times, the PP isn't for everyone, but for a certain kind of person it can provide good service.

[WildAboutHarry]

Are we erecting an investment world "golden calf idol"?

While I'm no Harry Browne scholar, I have read a bunch of his stuff.  He constantly revised his thinking over the years, adding and subtracting asset classes to the "permanent" portfolio.

He did mention why one might change the composition of the permanent portfolio in New Profits form the Monetary Crisis (1978):

You believe that current super-trends have finally ended.

Sounds kinda like market timing to me, which it was.

He described the 4x25 portfolio in 1987's Why the Best-Laid Investment Plans... explaining that, while other iterations of the Permanent Portfolio had worked out fine, he felt that a more balanced and simple portfolio (i.e. Stocks, Bonds, Gold, Cash) was superior, and that those four asset classes were all that were required for a Permanent Portfolio.  He did include discussion of "...silver, other precious metals, real estate, foreign currencies, foreign stocks, collectibles, annuities, life insurance, and a closely held business -- in case you're considering one or more of these for your Permanent Portfolio."

So I think Harry was providing guidelines, not dogma.  I think it is perfectly fine to reconsider each of the 4 in light of current circumstances:

Stocks - Does 25% make sense now?  Would a greater allocation have made more sense on 3/1/2009?
Bonds - At some point, especially if LT yields fall below 2%, do LT Treasuries still do what they were supposed to do?  Better than cash?
Gold - Overvalued, undervalued?  Who knows?  An ounce of gold is still an ounce of gold.
Cash - Is, well cash.  But during much of the life of the 4x25 portfolio it provided positive real returns.

But to return to the sentiment of the OP:

The shoe is the sign. Let us follow His example.