Mark Hulbert Writes of Harry Browne

[MadMoneyMachine]

Good article!

Friday Feb 11: The best laid plans...
Commentary: Don’t bet all or nothing on any adviser or system
http://www.marketwatch.com/story/invest ... _news_stmp

Mark writes that Richard Russell of the Dow Theory Letters is giving up market timing and investing in a mutual fund. Guess which one? Read on...

The first step towards wisdom in this business is to recognize that your chosen adviser might get it all wrong — no matter how good his track record and how cogent his reasoning. This seems like an utterly banal thing to say, and yet if we are willing to follow its logic, you reach a very provocative conclusion.

The late Harry Browne, the one-time investment newsletter editor who became the Libertarian Party’s candidate for president in the 1990s, was one adviser who was willing. In his book “Why The Best-Laid Investment Plans Usually Go Wrong,”? Browne pleaded with readers not to bet all or nothing on any one adviser, no matter how good his or her record, or any sure-fire market timing system that allegedly “can’t”? go wrong.

Browne continued: “Almost nothing turns out as expected. Forecasts rarely come true, trading systems never produce the results advertised for them, investment advisers with records of phenomenal success fail to deliver when your money is on the line, the best investment analysis is contradicted by reality. In short, the best-laid investment plans usually go wrong. Not sometimes, not occasionally — but usually.”?

Browne’s idea was to invest in a basket of asset classes, each one of which has a low correlation with the others. As a result, when any one of the asset classes is performing poorly, there is a good chance that the others will at least be holding their own — if not actually appreciating in value. Brown coined the name “permanent portfolio”? to describe this approach, since it makes no changes other than periodic rebalancing.

Brown’s idea eventually manifested itself in a mutual fund, the Permanent Portfolio Fund (PRPFX 45.94, +0.05, +0.11%)  . It is into this fund that Russell says he’s putting a good deal of the accounts he manages.

Wow, it took Richard a whole lot longer than us folks here to come around to the same notion. Remember the Upton Sinclair quote,  "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"

[Plumbline]

Paul,

Are you really, really sold on PP for the long term or can you see yourself ever going back to dating the DFA strategy?

Still using the MMM toolbox from time-to-time!

[MadMoneyMachine]

I am putting my own money where my mouth is and investing in the PP. The one weak leg on the chair for me is long term bonds. Wow, I really don't like owning them. But they did help my net worth in 2010 even after dropping from August's highs.

I kind of do a PP/DFA hybrid with my stocks in that I chose small cap value and emerging market split.

And I use low-cost ETFs and Vanguard mutual funds. Although I do own a small percentage of PRPFX itself in my taxable account because of its tax efficiency and helps me get some gold and LTB in there.

I have changed my investing direction so many times in the last six years that I'll never say never, but this does feel like the one.  Perhaps if it becomes dumb simple obvious that long term bonds are crashing and will continue to crash, that I'd take some action. But would it ever become dumb simple obvious?

[MediumTex]

Perhaps if it becomes dumb simple obvious that long term bonds are crashing and will continue to crash, that I'd take some action. But would it ever become dumb simple obvious?

By "action", do you mean you would buy them or sell them?

Normally, when something becomes "dumb simple obvious" that's about the time the opposite thing begins to occur.

[craigr]

I love that LT bond yields are going up. Gives me a better option to park the profits from the stock market gains that have been happening.

[craigr]

I'll also add that I have much more respect for financial advisors that are able to introspectively analyze their advice and admit they were wrong. That was one thing I always liked about Browne's writings. He was never afraid to admit if he was wrong or didn't know. Everyone makes mistakes and I learned in business that it's best to acknowledge them quickly and move forward than to let them linger.

[MadMoneyMachine]

This blog post seems to have the article from Russell himself.
http://www.technologyinvestor.com/?p=5790

Someone asked if PP is in a bubble. To me it instead seems like the time to buy, since it is down about 2.4% YTD.

I'm hoping that with all the inflows into PRPFX that they will find it in their hearts to lower their expense ratio!

[AdamA]

It would take extremely unusual economic circumstances for PP to form a bubble.  I'm not really sure how it would even be possible.

[moda0306]

Adam,

Like I discussed in a different thread, it would probably have to be some kind of combination of the following things:

1) Gold would be extremely high compared to its usual relation to a basket of currencies or a basket of commodities, and therefore may lag inflation at this point (think 1981).

2) Treasuries are offering pretty low yeilds to their corporate/muni counterparts.  Any tightening of those yields and the treasury portion of the PP would underperform corporate or muni bonds and LT would be especially hit.

3) Stocks are overpriced (maybe now with P/E so high?), but not catastrophically so, and end up in a malaise... If they were to crash, then you'd probably see a rush to safety, thus helping treasuries, and negating number 2.

So, in summary, if gold is overpriced based on other commodities and inflation risks (and adjusts back), treasuries are overpriced and yields tighten up, and stocks basically end up in a malaise, you'd end up in a situation where some kind of commodity basket ETF and corporate/muni bonds outperform the PP for a short period.  Good VP play?  Funny the amount of mental fortitude it takes to weave yourself through an argument that the PP is overpriced.

[AdamA]

...you'd end up in a situation where some kind of commodity basket ETF and corporate/muni bonds outperform the PP for a short period. 

Maybe, but I think being overpriced is much different than being in a bubble. 

Funny the amount of mental fortitude it takes to weave yourself through an argument that the PP is overpriced.

Agree 100%!!!

[moda0306]

For the PP to be in a "bubble" the way housing and tech stocks were in the last 10 years, you'd have to upen very fundamental macroeconomic facts.  That, or you're privy to information on a zombie attack or alien invasion happening soon and the only safe asset is a gun and some canned food.  The PP is the anti-bubble... so to use that term toward the PP is absolutely ridiculous.  I'd love for them to walk me through the next 10 years and what assets are going to perform as the PP's pants fall off.

When people say it's overpriced, it usually means that 1) they think gold is overpriced, or 2) they think yield chasing will reap them results as opposed to owning so many treasuries.  To them I'd say, "Ok, well you can buy corporate bonds, REITs, and a commodity basket, and I'll own the PP, want to see who comes out on top?"

Usually people wouldn't call it overpriced because of its stock holding due to its extremely safe nature.  Was anyone calling the PP "overpriced" in 1999 because it had too much of its portfolio allocated to stocks? I think not.  They were probably calling people idiots for owning a shiny yellow metal with horrible performance over the last 15 years.

[AdamA]

When people say it's overpriced, it usually means that 1) they think gold is overpriced...

I like gold much more, as a part of the PP, when it's cheap and viewed as an obsolete investment by most.  I don't like when it does well, because it usually means the economy is doing poorly.  I do enjoy selling it, to rebalance, though. 

Usually people wouldn't call it overpriced because of its stock holding due to its extremely safe nature.  Was anyone calling the PP "overpriced" in 1999 because it had too much of its portfolio allocated to stocks? I think not.  They were probably calling people idiots for owning a shiny yellow metal with horrible performance over the last 15 years.

 

Good point. 

[hrux]

If I had to guess, I would say Richard Russell may be frustrated as much as anything. As recently as November of 2010 he was bearish. It reminds me of Julian Robertson in 1999 who threw in the towel because the markets as he knew them no longer made sense. Valuation measures and common sense no longer appeared useful. As you know, that turned out to be the very top of the market.

I also believe that preparing for any macroeconomic outcome is a prudent approach to investing and my new advisor incorporates these same principles into our strategy.  I just don't think putting 25% equally into 4 asset classes, none of which appear very attractively valued (who knows what the value of gold is since in can't be calculated, but it is 70% above it's previous high), is the best approach. After all, the PP is really just a macroecnomic application of Markowitz. If you put 4 equal return asset classes with low correlations in your portfolio you improve your return with lower volatility. If any (or all) are not positioned to perform well you are simply reducing returns by adding them. You are also omitting many other attractive oppotunties along the way (e.g corp bonds in 2008). If you can think long term, like Grantham, there is little doubt in my mind you can stack the deck in your favor. If an investor is trying to guess what will happen next week, month, or year - best of luck. The PP is a great foundation and a better strategy than most implement on their own. I just think a patient and knowledgeable investor can improve upon it, especially given a starting point of today.

You all are probably getting tired of my explanations and just want to see the eventual results which I will be glad to post each year and compare to the PP.  Best of luck all!

[MediumTex]

If I had to guess, I would say Richard Russell may be frustrated as much as anything. As recently as November of 2010 he was bearish. It reminds me of Julian Robertson in 1999 who threw in the towel because the markets as he knew them no longer made sense. Valuation measures and common sense no longer appeared useful. As you know, that turned out to be the very top of the market.

There is an interesting lesson in this, though.  Think about what you are saying about Russell.  He is frustrated because he has found himself unable to accurately predict the future.  If this is the world he is now living in, I would say welcome to reality.

I also believe that preparing for any macroeconomic outcome is a prudent approach to investing and my new advisor incorporates these same principles into our strategy.

Where is the deflation protection in your new strategy? 

I just don't think putting 25% equally into 4 asset classes, none of which appear very attractively valued (who knows what the value of gold is since in can't be calculated, but it is 70% above it's previous high), is the best approach.

To offer a different perspective, consider the following:

1. Stocks are at the same levels they were 10 years ago.  What does it say about an asset if it has done nothing for 10 years and it's still not considered to be attractively priced?

2. LT treasurys have come way off of their highs.  What is unattractive about current treasury yields?  Look at the U.S. bond market compared to Germany, the UK and Japan.  I think treasurys look great at current prices.

3. The rise in gold has none of that parabolic look that a secular bull market exhibits in its late stages.  People could have said the same thing you are saying about gold when it was at $200 in the early 1970s.

After all, the PP is really just a macroeconomic application of Markowitz. If you put 4 equal return asset classes with low correlations in your portfolio you improve your return with lower volatility. If any (or all) are not positioned to perform well you are simply reducing returns by adding them. You are also omitting many other attractive oppotunties along the way (e.g corp bonds in 2008). If you can think long term, like Grantham, there is little doubt in my mind you can stack the deck in your favor.

What do you think accounts for Warren Buffett's zero return for Berkshire Hathaway for the last five years?  If long term thinking is what is needed, he's the ultimate long term thinker.

If an investor is trying to guess what will happen next week, month, or year - best of luck. The PP is a great foundation and a better strategy than most implement on their own. I just think a patient and knowledgeable investor can improve upon it, especially given a starting point of today.

How do you know how to select the right patient and knowledgeable investor?  Many of the people I love reading and listening to have terrible track records because what was supposed to happen didn't (or it happened, but not at the right time).

You all are probably getting tired of my explanations.

I'm not.  I think it is interesting to pick the brain of someone who is moving AWAY from the PP, just as it is interesting to pick the brain of the person who is moving toward the PP.

If we accept that the future is un-knowable (and I'm not saying that you accept that), the process of coming to terms with how to proceed in the present is interesting to try to untangle, because we are still forced to do SOMETHING based upon current information and I assume we all want to make the best decisions that we can.

[hrux]

Hi MT- see comments below in red- having computer problems today....

If I had to guess, I would say Richard Russell may be frustrated as much as anything. As recently as November of 2010 he was bearish. It reminds me of Julian Robertson in 1999 who threw in the towel because the markets as he knew them no longer made sense. Valuation measures and common sense no longer appeared useful. As you know, that turned out to be the very top of the market.

There is an interesting lesson in this, though.  Think about what you are saying about Russell.  He is frustrated because he has found himself unable to accurately predict the future.  If this is the world he is now living in, I would say welcome to reality.

The lesson that I take away is that while the market temporarily detached from reality, the same strategies that Robertson employed so successfully for many years prevailed in the end. Had he stuck with it for another couple months his investors would have greatly benefited.

I also believe that preparing for any macroeconomic outcome is a prudent approach to investing and my new advisor incorporates these same principles into our strategy.

Where is the deflation protection in your new strategy? 

Safe, high quality, income producing assets, long-short, trend following strategies and managers that comprehend macroecnomics and have the flexibilty to express those views.

I just don't think putting 25% equally into 4 asset classes, none of which appear very attractively valued (who knows what the value of gold is since in can't be calculated, but it is 70% above it's previous high), is the best approach.

To offer a different perspective, consider the following:

1. Stocks are at the same levels they were 10 years ago.  What does it say about an asset if it has done nothing for 10 years and it's still not considered to be attractively priced?

What it says to me is that you should have bought the areas of the stock market that were clearly undervalued 10 years ago, rather that cap weighted indices.

2. LT treasurys have come way off of their highs.  What is unattractive about current treasury yields?  Look at the U.S. bond market compared to Germany, the UK and Japan.  I think treasurys look great at current prices.

Yes, assuming you limit yourself to only those four choices. Another choice is none of the above. This is also an admission that some assets have superior prospects relative to others. If you think this is true (not saying you do), why permanently limit yourself to equal weightings among 4 asset classes under all conditions?

3. The rise in gold has none of that parabolic look that a secular bull market exhibits in its late stages.  People could have said the same thing you are saying about gold when it was at $200 in the early 1970s.

They could have also said it about $850 gold 1980 and they would have been right. I am not arguing that gold is necessarily overvalued. I am just saying you have no way of knowing or calculating it's value. You can only speculate what it may be worth.

After all, the PP is really just a macroeconomic application of Markowitz. If you put 4 equal return asset classes with low correlations in your portfolio you improve your return with lower volatility. If any (or all) are not positioned to perform well you are simply reducing returns by adding them. You are also omitting many other attractive oppotunties along the way (e.g corp bonds in 2008). If you can think long term, like Grantham, there is little doubt in my mind you can stack the deck in your favor.

What do you think accounts for Warren Buffett's zero return for Berkshire Hathaway for the last five years?  If long term thinking is what is needed, he's the ultimate long term thinker.

I don't consider 5 years to be long term. I would also assume an investor who is willing to hold an asset "permanently", thru multi-decade bear markets, has a longer time horzion than that as well.

If an investor is trying to guess what will happen next week, month, or year - best of luck. The PP is a great foundation and a better strategy than most implement on their own. I just think a patient and knowledgeable investor can improve upon it, especially given a starting point of today.

How do you know how to select the right patient and knowledgeable investor?  Many of the people I love reading and listening to have terrible track records because what was supposed to happen didn't (or it happened, but not at the right time).

I believe that investors who have an understanding of macro-economics, market history, as well as the experience, motivation, flexibility and tools to capitalize will have a significant advantage in the years ahead. My advisor has talked with many money managers over the years (note:  I am not referring to someone simply reading a Morningstar report but rather personal hands-on continuous due diligence, knowing the management team, firm and a thorough understanding of their strategies) and can tell you there is a huge disparity in their level of knowledge and depth of their research. No guarantees that translates into better performance of course, but I believe the deck will be heavily stacked to their advantage in the years ahead.

You all are probably getting tired of my explanations.

I'm not.  I think it is interesting to pick the brain of someone who is moving AWAY from the PP, just as it is interesting to pick the brain of the person who is moving toward the PP.

If we accept that the future is un-knowable (and I'm not saying that you accept that), the process of coming to terms with how to proceed in the present is interesting to try to untangle, because we are still forced to do SOMETHING based upon current information and I assume we all want to make the best decisions that we can.

I'm sure we could go on for years trading quotes, providing examples, and slicing performance. The biggest difference is that over time I have come to believe that expertise can add tremendous value to a portfolio, especially at important inflections points. You appear to have come the the opposite conclusion through your experience. I certainly respect your experiences, opinion and the premise behind PP. I don't think it is a bad strategy in any way. I am just glad we live in a world where we all have the vehicles at our disposal to readily express our views in our portfolios. Although we haven't met and I don't take such things personally, you clearly disagree with my approach, which is OK, but I do not recemmend it for any other reason than I believe it is the right one in the current environment. This is based on many years of experience, education, study, and time spent by my advisor with managers behind the scenes.

[MediumTex]

I'm sure we could go on for years trading quotes, providing examples, and slicing performance. The biggest difference is that over time I have come to believe that expertise can add tremendous value to a portfolio, especially at important inflections points. You appear to have come the the opposite conclusion through your experience. I certainly respect your experiences, opinion and the premise behind PP. I don't think it is a bad strategy in any way. I am just glad we live in a world where we all have the vehicles at our disposal to readily express our views in our portfolios. Although we haven't met and I don't take such things personally, you clearly disagree with my approach, which is OK, but I do not recemmend it for any other reason than I believe it is the right one in the current environment. This is based on many years of experience, education, study, and time spent by my advisor with managers behind the scenes.

I think it's fine to disagree.  What I think is important to do when you disagree with someone, however, is to try to figure out exactly what it is you are disagreeing about.  At this point, I thought that all of the research had clearly showed that the fees associated with active management do not translates into proportionately higher investment returns.  The only question in my mind is what conclusions to draw from this research.

One conclusion a person could draw is that one of the only opportunities investors have to improve their real gains is to minimize management expenses.  The PP is one example of such a low expense approach to investing.

Another conclusion one could draw from the active management research is that while active management will never beat lower cost strategies across the whole investing world, there will always be some active managers who are able to beat their benchmarks some of the time (some of them over long periods).  The question then becomes how to properly and reliably select these superior active managers.  It appears that your strategy to consistently select only the good managers is to hire one expert to properly identify the other experts.  Thus, you are now paying two levels of management fees--one for the expert on selecting appropriate investments and another for the expert on selecting experts.  In my view, the room for error in this process is immense (and many advisors who sound just as competent as your advisor regularly underpeform their benchmarks in spite of the apparent soundness of their overall approach).

But reasonable people can certainly disagree.  I look forward to hearing how the approach you have told us about works out in practice.  I hope it works out well.

I'm just trying to challenge you a little to make sure you have thought about things from all angles.

[AdamA]

Hrux said:  "What it says to me is that you should have bought the areas of the stock market that were clearly undervalued 10 years ago, rather that cap weighted indices."

What were those areas ten years ago?  What are those areas today?

Hrux said:  "You all are probably getting tired of my explanations."

I agree with MT.  I enjoy this thread. 

Adam

[AdamA]

MT said:  "Many of the people I love reading and listening to have terrible track records because what was supposed to happen didn't (or it happened, but not at the right time)."

This is an interesting point.  I think it is common for those of us who use the PP strategy to act as though the people making market/macroecnomic predictions are morons. 

I think that there are some very smart people who make very good arguments for things that may happen in the future.  Just because those predictions don't come true, doesn't mean there's not a lot to learn from understanding their logic. 

Adam

[hrux]

Hrux said:  "What it says to me is that you should have bought the areas of the stock market that were clearly undervalued 10 years ago, rather that cap weighted indices."

What were those areas ten years ago?  What are those areas today?

Hrux said:  "You all are probably getting tired of my explanations."

I agree with MT.  I enjoy this thread. 

Adam

Adam,
My portfolio is well documented on this thread however to address your specific question on what to focus on versus cap weighted indices, I have the following comments:

My portfolio for the U.S. equity allocation favors the stodgy large-cap blue-chips that deliver a stable earnings stream, those that have been ignored by the investment community and as such trade at steep price-earnings or price-sales discounts to the overall market, have strong balance sheets and pay out a consistent dividend with a yield that you can’t get much beyond the 10-year Treasury note. This would include some in the consumer staples space, largecap tech and health care within the U.S. universe. Definitely a bias towards the laggards after a two-year, near-100% rally, and that involves a strategy that focuses on high-quality stocks, which have woefully underperformed so far this cycle and as such offer very good value with very little downside potential and decent yield protection even in the case of a market correction.

I want to emphasize how important it is to have a core position in flexible managed/hedge funds that actually manage and hedge the risk in this post-bubble period of intense financial market volatility.

Heather

[MediumTex]

I want to emphasize how important it is to have a core position in flexible managed/hedge funds that actually manage and hedge the risk in this post-bubble period of intense financial market volatility.

Heather

Heather,

I promise I'm not trying to pick on you here.  You are just raising so many interesting issues that have counterpoints that I think are useful to consider.

A few comments on hedge fund investors and hedge fund managers:

I think we have to take as a given that the average hedge fund investor is more sophisticated than the average retail investor.  Even among this group of more sophisticated investors, however, in the last couple of years note what both investor and hedge fund manager seems to have routinely mis-read.

1. The need for more liquidity heading into the 2008 financial crisis.

2. The existence of fraud on a massive scale in the form of Madoff, Stanford and what looks to me like a whole farm league system of aspiring ponzi schemers.

3. The apparent reliance by many hedge fund managers on illegal inside information in the form of these "expert networks" and who knows what other kinds of misbehavior (on the theory that you don't get a ticket every time you speed).

4. The same groupthink that leads to all sorts of disasters in all walks of life.  As much as people like to think they are independent thinkers, when the fire alarm goes off every one tends to head for the same exits.  I think a lot of hedge fund managers in the last couple of years have probably been way too bearish, not because they didn't correctly read underlying conditions, but rather because they misunderstood the scope and effect of the Fed's response to underying conditions.

As Adam notes above, active managers are often enormously intelligent and well-informed people with plans so cunning that, in the words of the Black Adder, "you could put a tail on them and call them a weasel."

The problem with the smartest people in the room, however, (and I'm perfectly willing to concede that they are the smartest people) is not the "smartest" part, but rather the "people" part--regardless of their abilities, they are still people and thus are actors on the same stage they are attempting to dispassionately evaluate.  I don't think it is possible to pull off such a feat in any predictable or reliable manner, though hubris prevents this realization in many people (especially those who are highly intelligent).

As a historical example of the hubris I am describing, there was a group of money managers back in the late 1960s and early 1970s who, as another secular bear market for stocks got underway, came up with this concept of the "Nifty 50", or "one decision stocks" that you would simply buy and then forget about forever, knowing that a good outcome was inevitable, no matter what the P/E of these companies was trading at (which was often above 50 for blue-chip companies).  As the 1970s proceeded, however, virtually all of the Nifty 50 were clobbered, often seeing declines of over 60%.  What went wrong here?  Were investors listening to the wrong people?  I don't know, they were listening to the ideas of the best investing minds of the time.  Was the strategy flawed?  I don't know, compared to what?  Were these not great companies?  I'm sure they were, though most of them today are gone or shells of their former selves (e.g., Polaroid and Xerox).

I think that so much is packed into Harry Browne's simplistic-sounding observations about the uncertain world we live in and the fundamental inability of anyone to reliably predict the future. 

[AdamA]

active managers are often enormously intelligent and well-informed people with plans

A great example is a debate I heard between Peter Schiff and Robert Prechter a few months ago.  Schiff is a staunch inflationist, and Prechter a deflationist who predicts the Dow could reach triple digits within the next decade.  

Both made extremely compelling arguments AND you could have made money with either guy's advice at some point subsequent to the debate.  The problem is the timing.  (Schiff likes gold, for example.  Prechter thinks it's overpriced and likes the dollar).  

I just think it's interesting that two smart economists can have almost opposite opinions and still be "right" in their investment advice (as far as the vehicle is concerned).  It's the timing that makes it so tough.  

Adam

[format edited by MT]

[LifestyleFreedom]

Remember that at the end of the day, people such as Benjamin Graham, Warren Buffett, and Harry Browne are just money managers (although very seasoned money managers).

• Graham lost a fortune in the Crash of 1929 and in the process of licking his wounds, came up with the value investing strategy and his Security Analysis and The Intelligent Investor classics.
• Buffett has made his share of mistakes over the years and learned from them, but his style is mostly Benjamin Graham (who taught him to invest in underpriced stocks) and a bit of Philip Fisher (who taught him to invest in underpriced stocks with very high growth potential).
• I only discovered Harry Browne and Fail Safe Investing last year, thanks to the search engine on Amazon.com, so I don't know Browne's background, but I'm sure he had is share of learning experiences also.

The point is that these money managers are a product of their formative years of investing (Graham during The Great Depression; Buffett in the 1950s, when the worst of The Great Depression and the World War II years were behind him; and Browne presumably during the stagflation of the 1970s).

I believe in spreading my wealth around in various investment strategy baskets.  Most of my portfolio is in what I will describe as broadly-based index funds.  I'm really invested mostly in the U.S. economy and somewhat in the economies of other countries.  My investment results for this part of my portfolio depend on what the majority of publicly-traded businesses in these economies do, along with what Mr. Market thinks these businesses are collectively worth.

I'm building a second portfolio based on dividend growth that I'm managing myself.  This portfolio depends on large multinational businesses that have a history of growing their dividends over time (fast enough, in fact, to stay ahead of the inflation we've experienced so far over the years in the U.S.).  My investment results for this part of my portfolio depend on what the underlying businesses do and my ability to pick the right ones.  Mr. Market is irrelevant except for when I buy the shares in the businesses (and when I sell the shares if I believe a business is no longer a good dividend-growth company).  Since this Forum is not about dividend growth, you can Google words like dividend growth, dividend aristocrats, and dividend achievers if you want to learn more.

I'm also building up "cash reserves" as I head into retirement over the next several years.  I want to have five years of cash on hand so that I'm not forced to liquidate assets when the market is at a bottom.  My first year of cash will be in my checking account; my second year in my savings account (there are high-yield savings accounts available on the Web from reputable banks that pay interest rates greater than 1% right now); and my third, fourth, and fifth years of "cash" will be in the Permanent Portfolio.  While the Permanent Portfolio failed to keep up with the S&P500 during the roaring 1990s (http://www.technologyinvestor.com/wp-co ... ntFund.jpg), it also only dropped by half (25% versus 50%) for the stock market as a whole during the recent 2008-2009 meltdown.  The 10-year return on PRPFX is 11% according to Morningstar (http://quote.morningstar.com/fund/f.aspx?t=prpfx), although a Schwab search puts the return at closer to 7% if you go all the way back to when the fund started (http://www.schwab.wallst.com/schwab/dir ... &Number=64).

Index investing, dividend growth investing, and permanent portfolio investing all make sense to me, so I spread my portfolio among all of them.  I have looked into directly owning real estate and decided being a landlord is not for me (although I have invested in publicly-traded real estate investment trusts in the past and am likely to do so again in the future).

If we have an Armageddon-type of event, then my portfolio of assets will likely be useless.  I probably will wish I had invested in gold and guns and ammo instead.

[Reub]

"There are active funds run by managers who have proven their worth over long periods of time."

Would Madoff, et al, have fit into this category before they were "outed"?
There is inherent risk in the human factor here, as MT points out.
The PP removes most, if not all, of this risk.