Sorry, you guys. I broke the PP. My bad.

[MomTo2Boys]

(I know that I didn't *actually* break the PP. I'm just...saying.)

So after having read every single financial book I could get my hands on (for the last seven years), and after reading this forum (without registering) for literally two years, and then after registering and asking a ton of questions, I jumped into the PP last month with some of the money that I've been literally sitting on in a money market account for about 2-3 years. (It took me that long to figure out what investing strategy I was going to use and why. The answers were, of course, this one and because it seems to be the best strategy out of everything else out there.)

Starting around September 9th (I had to learn how to buy stuff, you see, and order stuff and buy bonds on the secondary market, etc. since I've never invested before other than in the TSP, which is so stupid simple a kindergartener could do it) and going until about September 11th or 12th I bought the pieces and such.

Literally within a day of buying, everything has pretty much been down. Down, down, down. Gold not so much, I guess, but everything else: down. Well, I had told myself and steeled myself beforehand that if that were to occur, that I would keep buying every month like clockwork (I want to DCA in over time). So this month, it was time for me to buy again. And everything but gold was down when it was time for me to buy. But a couple of days ago, I bought again. (I bought everything but gold because I'm waiting until we're back in the US and I'm going to buy the physical).

And, of course, everything is... more down. Including the gold I had already bought at the beginning in September. All four assets now: down.

So I was reading on another thread where people were saying, yes, it's not been the best last few weeks for the PP, which was nice to read because I'm still 100% committed, and even if things are down next month and the month after, I'm still going to keep DCAing into it, but I sort of feel like I get into the PP and all of the sudden ::everything is down::. As of the close of business yesterday, literally all four of the assets are all down in my account.

So I sorta feel like I broke the PP. Even though I know I didn't. You know, like my having gotten into it has broken it/jinxed it for everyone else because I'm just that monetarily unlucky.  I'm still reminded of the "I'm DONE!!!" thread from many months ago that I REALLY enjoyed reading because it put human emotion out there when things were down and not up. It's normal to feel that way. I'm not "done"; I'll still keep buying/DCAing in. However, I figured I would post this so that anyone else who feels this way could know that I'm out here feeling this way, too. It's sort of a... less than wonderful feeling. And I'm steeling myself to be the investor who does the right thing (keeps going with the DCAing plan into the PP) even when it's not super way fun and even when it's counter-intuitive to what feels good. And I'm reminding myself that it's best to buy when things are down, anyway, because when they come back up then you've bought on sale. But, still - it's no fun to be down a nice, big chunk of money when I've only been in the PP for a bit longer than a month.

Bleargh. 

[melveyr]

At one point during the financial crisis the PP was down 15%. It is not a risk free strategy at all. It might be worth reviewing the historical performance of the PP to get a better understanding of its intra-year performance. Below is a chart that I made that tracks intrayear performance (inflation adjusted of course  ) for 1978-2011.


Also, here is the PP YTD (nominal returns for this one).



Everyone who currently has the PP is going through the same pullback. It is important to not develop a narcissistic view of the market because that introduces emotional bias in your decision making. If the world really revolved around yourself than you would have bigger problems than what your investment portfolio was doing 

[Pointedstick]

I bought $10,000 worth of treasury bonds on Monday. I feel the same way. We all do. That's just the way things are sometimes. I tell myself that there's no way I could have avoided it without knowing the future. What would have been better? 100% stocks? They're down too, probably more! Don't worry, we'll get through this patch. Sometimes things have to get worse before they get better.

I'm continuously reminded of how much better the PP is than nearly anything else. I've lost several thousand imaginary dollars in company stock that's dropped like a rock over the last few weeks. Compared to that, my PP has been a beacon of stability!

[Odysseusa]

Hang in there, PPers.

I started to use the PP since the summer of 2011 and I had made profits. Speaking of 2012 performance of my own personal PP, I made a profit of ~ $15K by a few weeks ago. However, now the profit has decreased to ~ $12K so far.

[MachineGhost]

No dobut its risky to start a PP when stocks, bond and gold are all potentially overvalued and prone to reverse, but we all know the PP works in the long-term, just not always the short-term.  The best thing to do is ignore looking at the PP but once a year so if you did find the PP went through another 25% maximum drawdown, it was already in the past.

[AdamA]

Try to stop checking on it so frequently.  Just leave things alone for 6 months or so.  Use all the free time you'll have to develop a new hobby.  The less time spent watching the markets, the better.

[MediumTex]

Everyone who currently has the PP is going through the same pullback. It is important to not develop a narcissistic view of the market because that introduces emotional bias in your decision making. If the world really revolved around yourself than you would have bigger problems than what your investment portfolio was doing 

Although melveyr's post has a bit of a "truth drill sergeant" tone to it, it is completely true and I think that he has distilled an important insight about one of the ways in which we become our own greatest enemy when it comes to investing.

The peace of mind that the PP provides is not free.  It requires you to essentially rewire your brain's way of perceiving market movements.  The good news is that this gets easier the more time you spend with the PP (it has for me anyway).

I'm sure anyone who deployed the PP recently is in a battle with his own fears, uncertainties and other distracting emotions.  I've been there and I know it can be rough.  As others have noted above, the easiest path to shut all of that down is to simply stop watching the PP's minute-to-minute movements.

Rather than watching the daily chart of the PP, you might instead just gaze deeply into this chart that melveyr put together, and consider all of the interesting things it has to offer:

[dualstow]

I lost about $7000 of share value in my dividend stocks on Friday. Gold took a bit of a tumble, too, but thanks to long bonds, which I own only because of the pp, I feel like I can weather the storm. And, yes, bonds have been losing value before Friday. But, they sure have done well since I bought them, and I practically expected them to go down from (my) day one.

[stone]

Mom2Boys, when I first started a PP it was also my first experience of non-cash savings. I also thought that the initial pull back signalled that the PP had topped out and was from then on headed down down down . I think the key thing is that the (relatively mild) wiggles in the HBPP portfolio value still are enough to cause very few points in time to be "bottoms". For the vast majority of buy in points, the value of the HBPP will fall over the coming few months. It goes down three percent, up four percent, down two percent, up five percent, down one percent etc etc. Just look at Melvyr's chart. You haven't been unlucky with your timing it is just that the small pull back all HBPP holders have just had seems starker to you because (irrationally) people see a 3% pull back as less significant once they have had a period of accumulated gains behind them- I'm prone to that anyway.

[MachineGhost]

Asked  if  dollar-cost  averaging  could  ensure  long-term  success, Mr. Graham wrote in 1962: “Such a policy will pay off ultimately, regardless of when it is begun, provided that it is adhered to conscientiously and courageously under all intervening conditions.”? For that to be true, however, the dollar-cost averaging investor must “be a different sort of person from the rest of us . . . not subject to the alternations of exhilaration and deep gloom that have accompanied the gyrations of the stock market for generations past.”? “This,”? Mr. Graham concluded, “I greatly doubt.”?

[notsheigetz]

Same thing happened to me when I first started out and I posted a message similar to yours. I believe one of Harry Browne's rules said that any investment plan that has worked well in the past will quit doing so as soon as you adopt it (or something close to that). So I thought my adoption of the PP might be a perfect case in point.

It's been over two years since and I have no regrets. If it was still down after two years I'd probably be questioning the "fail-safe" part of Harry's book title but fortunately it's been a good two year run to solidify my confidence. You just have to look at it as a long term investment strategy which I'm sure you know since it sounds like you did plenty of research.

[Odysseusa]

I utilize the source below to do the back-test of Permanent Portfolio (SHY+TLT+GLD+VTI) for the last 36 months (Oct 2009 - Oct 2012) and it has annual return of +11.1% with max drawdown (greatest percentage drop from high) of -5.2%. Compared to S&P 500 Index, it has annual return of +12.1% with max drawdown of -18.61%. In conclusion, the PP offers less risk and greater stability.

http://www.etfreplay.com/combine.aspx

[sergiov]

I started up my PP in late March, and like you have been watching it daily...)

My returns are quite a bit lower than a PP started just a few months earlier, so like me you are experiencing some entry-point-variation.  The longer I track it the more soothing it becomes watching the asset classes complement each other - so I'd recommend just hanging in there...

[blackomen]

If you think the PP is so volatile and unpredictable, wait till you try investing in individual stocks or gold..

[buddtholomew]

I am sympathetic to how you are feeling and still continue to second guess the portfolio when the value declines day after day. If the portfolio is earmarked for retirement, then I would personally "ignore the noise" and continue to follow the investment plan. On the other hand, if the funds are slated for a shorter-term objective (such as in my case), I have found that holding CD's, Intermediate-Term Treasuries and additional Cash helps me emotionally hold it together during these times. I am willing to forgo higher returns for the stability that these alternative investments provide. In my opinion, one isn't compelled to invest their entire life savings in the PP and can diversify across investment strategies (e.g. traditional 60/40) for a portion of their investments.

Budd

[Coearth]

My previous month to month analysis of local PP shows that it takes at least one to 3 months before the portfolio shows profit, after starting the portfolio. I started my portfolio with stocks and gold in Feb this year at the height of gold price, then added the local long bonds in April (waiting for the first ever local 30 year bond to launch in 1 April). It took about 3 months till July i think, before i long bond suddenly pop up and i see positive profits in portfolio, now its positive all the way. So as a rough guide, be prepared to see negative returns in first 3 months at least, till one of the assets pops up and pull up the portfolio.

[Odysseusa]

My PP shows a loss of MTD (Month To Date) for October 2012 as -$3,095; however, it shows a profit of YTD (Year To Date) for 2012 as +$12,197. Hopefully this evidence can encourage you to hang in there.

[Khisanth]

I'm definitely interested in how you analyzed the PP to conclude that it takes ~3 months to turn positive.

Last year in Sept I started the PP and definitely had a rocky start, and I do recall that it wasn't positive for a number of months but now over a year later, I'm up 3%, which is in positive territory, but not as high as I would have hoped.

Granted, 1 year is a very small timeframe in terms of investment portfolios, but originally I went in naively thinking that it would simply go up constantly.

I still have not given up my constant market-checking.

[dualstow]

Granted, 1 year is a very small timeframe in terms of investment portfolios, but originally I went in naively thinking that it would simply go up constantly.

It does go up constantly. You're just looking too often. 
I mean, if you're walking along the coast in England, you're going to experience more twists and turns than you'll see on a map. Stick with the map.

[greenv]

I am 100% HBPP. On 9/30/12 I was up 9.37%. Today at 4pm I was about 7.67%

[buddtholomew]

You have got to love the PP, down when the market is down and down when the market is up. What a winning strategy.

[Pointedstick]

Bud, you seem so sensitive to short-term fluctuations that I wonder if an all T-bills allocation wouldn't be a better investment strategy. One of the big advantages of the PP is that it's supposed to make you feel less nervous about the markets and your investments, and if it's not managing to to that for you, it may be time to re-evaluate your risk tolerance.

[MediumTex]

The PP is:

Up about 5% over 1 year.

Up about 4% YTD.

Up about 2% over the last 6 months.

I don't see anything unusual happening here.  It's just the typical small squiggles on a basically upward grind.

It's going to have down days, weeks and months.  But if the upward trend quickly erases all of those small down periods, were they worth getting upset about along the way?  Everyone must answer this question for himself, along with the question of what other strategy is going to provide more satisfaction if the PP isn't meeting his needs.  Are people really going to be happy with 100% t-bills for any extended period if we know that over time they basically provide 0% inflation adjusted returns?

[Pointedstick]

It's going to have down days, weeks and months.  But if the upward trend quickly erases all of those small down periods, were they worth getting upset about along the way?  Everyone must answer this question for himself, along with the question of what other strategy is going to provide more satisfaction if the PP isn't meeting his needs.

This is so important, because it applies to every investing strategy, not just the PP. A 100% stock allocation will eventually erase all the down periods too, but with more risk. The PP will often return less, but with less risk. You have to answer for yourself where you fall along the continuum.

If your appetite for risk is incredibly small and your time horizon is fairly short, an all T-bill allocation may make the most sense, even though you're basically earning nothing. If that's the price you have to pay for sleeping well at night, it may be worth it.

[craigr]

T-Bills are stable. Of course you are losing 3% a year to inflation. So in reality they are -3% right now. Maybe worse. All investments have risks.