PP is WAY DOWN...:(

[Demp]

I began investing in the PP in October 2012 and posted on here that I was taking a hit 5-6 months in with a $2,300 loss.  Now, 9 months into the PP I am at a $13,550 loss.  I realize there is no loss of money if I stay the course and hopefully wait it out, but in these past 9 months as a newbie to the PP, it's definitely not a good 1st impression at all..  I hope this turns around..  I am going to continue investing and keeping everything balanced while staying the course.  I am sure everyone else is feeling the same "uncertainty"..

[Xan]

You might look at the recent posts in these threads for some commiseration.  Hang in there!

http://gyroscopicinvesting.com/forum/pe ... -no-gains/

http://gyroscopicinvesting.com/forum/pe ... pp-down-3/

[AdamA]

I began investing in the PP in October 2012 and posted on here that I was taking a hit 5-6 months in with a $2,300 loss.  Now, 9 months into the PP I am at a $13,550 loss.  I realize there is no loss of money if I stay the course and hopefully wait it out, but in these past 9 months as a newbie to the PP, it's definitely not a good 1st impression at all..  I hope this turns around..  I am going to continue investing and keeping everything balanced while staying the course.  I am sure everyone else is feeling the same "uncertainty"..

Give it a year.  I'll bet you'll be glad you did.

[rickb]

I began investing in the PP in October 2012 and posted on here that I was taking a hit 5-6 months in with a $2,300 loss.  Now, 9 months into the PP I am at a $13,550 loss.  I realize there is no loss of money if I stay the course and hopefully wait it out, but in these past 9 months as a newbie to the PP, it's definitely not a good 1st impression at all..  I hope this turns around..  I am going to continue investing and keeping everything balanced while staying the course.  I am sure everyone else is feeling the same "uncertainty"..

Give it a year.  I'll bet you'll be glad you did.

Actually, a year may not be long enough.  More like 3-5 years.  I haven't computed this myself, but I think Craig has said there is no 5 year interval in which the PP is down - unlike virtually any other investment strategy.  In addition, if you hold physical gold and cash in the form of short term treasury bills and actual long term treasury bonds you are at least partially protected from catastrophic (albeit unlikely) events that completely wipe out nearly all other portfolios - including money in a FDIC insured bank account (there are very imaginable scenarios where FDIC insurance won't mean much).  It is this combination of safe, steady returns (over 3-5 year timeframes) and protection against unthinkable catastrophes that I think draws most of us to the PP. 

The PP is an investment strategy, and like any investment strategy there is some (short term) risk.  However, the PP has a proven track record of relatively low volatility (close to the volatility of 10 year US treasuries) and relatively high returns (close to the returns of a 100% stock portfolio over 30+ years) and relatively consistent inflation adjusted returns (about 4.5% over the long term).  This doesn't mean that over a 1-month, or 6-month, or even 1-2 year period you'll never lose money.  What it does mean is that you almost certainly won't lose 25% in a day (as stocks did in 1987), or 40% in a year (as stocks did in 2008), or take 7 years to recover from a crash (as stocks did following the 2000-2002 crash), or be negative in inflation adjusted dollars for 25 years (as stocks were between 1969 and 1994) - or continually lose money due to inflation (which money in a bank account will, with absolute certainty). 

[koekebakker]

When you started the PP, were you aware that 20% drawdowns are possible with the PP? My guess is that you lost about 5-6% so far. Try to imagine losing 20%, if you can't handle that you should invest in a more conservative, less volatile strategy.

[melveyr]

When you started the PP, were you aware that 20% drawdowns are possible with the PP? My guess is that you lost about 5-6% so far. Try to imagine losing 20%, if you can't handle that you should invest in a more conservative, less volatile strategy.

I think a common occurrence is that people buy into the PP looking at the annual data, and then proceed to scrutinize it on a daily basis. Tight monetary policy has always been the achilles heel of the PP (and really any strategy other than 100% cash). koekbakker is right. My historical simulations show two big drawdowns in real terms:
http://www.stableinvesting.com/p/long-t ... mance.html

If you can't handle a 20% drawdown then you probably shouldn't be in the PP. Then again, I wouldn't be comfortable with 100% cash either. If you look at the Credit Suisse 2012 yearbook, cash can be an extremely risky asset as well. As a consumer, the only "risk free" asset is consumption now, or buying something durable that you will surely consume in the future. Investment is always fraught with risk, and to think otherwise is fooling yourself.

Honestly, the time spent fretting over your investments is a tremendous waste of energy. If you index, pay low expense, and have wide diversification, that is 99% of the game. If you have a wife/husband, take them out to dinner or go for walk. If you like whiskey, enjoy a (small) glass. Drink some nice pu-erh tea if you don't drink alcohol. Whatever it is just enjoy your life. Wouldn't it suck to spend your life worrying about investments and then dropping dead when you least expect it?

[JMoyle]

I agree with melveyr! Investment is fraught with risk...even market manipulation risk!

A stock and bond market that depends upon cash infusions from the Federal Reserve through the banks for stability and at the same time throwing retirees/savers under the bus. Massive selling of gold positions to create huge profits for those taking short positions in gold. A new form of bank recapitalization?

What other investing strategy would protect you as well? And, be positioned for the known unknowns!

[Pointedstick]

Drink some nice pu-erh tea

Big +1 there.

[koekebakker]

If you can't handle a 20% drawdown then you probably shouldn't be in the PP. Then again, I wouldn't be comfortable with 100% cash either.

100% cash is always a bad idea. But it's a pretty big step from 100% cash to the Permanent Portfolio and there are many possible allocations between these two extremes.
For example: 70% cash or short-term bonds/15% Stocks/15% Gold is a lot safer than 100% cash and not nearly as volatile as the Permanent Portfolio.
Another easy way to reduce volatility somewhat without abandoning the Permanent Portfolio is to increase your cash percentage to 40-50%.

Adjusting the PP a bit to reduce short-term fluctuations is a much better idea than going back to 100% cash because you can't handle big drawdowns.

[MediumTex]

Every relationship has its ups and downs.  IMHO, the important thing is to carefully select the relationships you enter into so that you can weather the downs because you know that over time the ups will easily outweigh the downs.

When given a bit of time, an investor's relationship with the PP has rarely turned out bad.

About the worst thing that the PP has ever done to anyone is provide lower returns than the stock market over certain periods.

(The PP also, of course, provides lower returns than gold and long term bonds over certain periods as well, but for some reason it is only when the stock market is outperforming the PP that people seem to get really worked up).

From my perspective, it seems like many people spend their entire investing careers bouncing from strategy to strategy looking for some magic solution to the problem of risk without realizing that their constant portfolio shifts create more risk in most cases than just sticking with one "good enough" strategy.

I'm sure that a lot of people have come into the PP over the last few years during its period of slightly higher performance compared its long term trend line (plus the fact that so many other strategies were working so poorly), and now that we are seeing a reversion to the mean for the PP some of those people are freaking out because they are now finding that the PP doesn't automatically and mechanically go up every day, week, month and year.  But I hope the answer to this mean reversion isn't to just move on to whatever the latest hot strategy happens to be.  The idea of investing in a stock-heavy portfolio right now just seems completely crazy to me.  The time to buy stocks was the spring of 2009 when everyone hated them, but no one wanted them back then.

If no one wants the PP right now, what does that suggest about what it might do in coming years?  Take a look at the last few decades of PP performance and see what happens in the years following a down or flat year.

[koekebakker]

That's a very nice post MediumTex.

[Reub]

MT, did the downtrend coincide with the release of your book?

[buddtholomew]

Every relationship has its ups and downs.  IMHO, the important thing is to carefully select the relationships you enter into so that you can weather the downs because you know that over time the ups will easily outweigh the downs.

When given a bit of time, an investor's relationship with the PP has rarely turned out bad.

About the worst thing that the PP has ever done to anyone is provide lower returns than the stock market over certain periods.

(The PP also, of course, provides lower returns than gold and long term bonds over certain periods as well, but for some reason it is only when the stock market is outperforming the PP that people seem to get really worked up).

From my perspective, it seems like many people spend their entire investing careers bouncing from strategy to strategy looking for some magic solution to the problem of risk without realizing that their constant portfolio shifts create more risk in most cases than just sticking with one "good enough" strategy.

I'm sure that a lot of people have come into the PP over the last few years during its period of slightly higher performance compared its long term trend line (plus the fact that so many other strategies were working so poorly), and now that we are seeing a reversion to the mean for the PP some of those people are freaking out because they are now finding that the PP doesn't automatically and mechanically go up every day, week, month and year.  But I hope the answer to this mean reversion isn't to just move on to whatever the latest hot strategy happens to be.  The idea of investing in a stock-heavy portfolio right now just seems completely crazy to me.  The time to buy stocks was the spring of 2009 when everyone hated them, but no one wanted them back then.

If no one wants the PP right now, what does that suggest about what it might do in coming years?  Take a look at the last few decades of PP performance and see what happens in the years following a down or flat year.

Whats un-nerving to me is the decline of all assets simultaneously. I analyzed historical PP performance and discounted the possibility of a 20% decline as was experienced in 2008. In my eyes, this drawdown was few and far between and I didnt want to discount the portfolio as a conservative strategy because of these outliers. I plan to stay the course but certainly have a different perspective on the portfolio. It is not bulletproof and an investor is still faced with the same challenges that they experience with other allocations. Your resolve is tested and you are required to stay the course to achieve the historical returns. In some cases its more challenging to be a PP investor.

[Pointedstick]

Whats un-nerving to me is the decline of all assets simultaneously.

Over the course of a week or two, anything can happen and it's really just noise. Extend the trend out to a year and you see something very different from all assets falling in unison:



Stocks have had a good year. But who knows what next year might hold? Maybe they'll fall by that much or more, like they did in 2002 and 2008.

[koekebakker]

Whats un-nerving to me is the decline of all assets simultaneously. I analyzed historical PP performance and discounted the possibility of a 20% decline as was experienced in 2008. In my eyes, this drawdown was few and far between and I didnt want to discount the portfolio as a conservative strategy because of these outliers. I plan to stay the course but certainly have a different perspective on the portfolio. It is not bulletproof and an investor is still faced with the same challenges that they experience with other allocations. Your resolve is tested and you are required to stay the course to achieve the historical returns. In some cases its more challenging to be a PP investor.

It's good to have that different perspective as terms as 'bulletproof' and 'money you can't afford to lose' are somewhat misleading. You have to be able to lose 20% or more of the money you can't afford to lose. Fortunately those strong drawdowns usually don't last long.

[MediumTex]

MT, did the downtrend coincide with the release of your book?

The release of a book is often a contrary indicator.

As Forrest Gump might say: "And that's all I have to say about that."

[frugal]

When you started the PP, were you aware that 20% drawdowns are possible with the PP? My guess is that you lost about 5-6% so far. Try to imagine losing 20%, if you can't handle that you should invest in a more conservative, less volatile strategy.

I think a common occurrence is that people buy into the PP looking at the annual data, and then proceed to scrutinize it on a daily basis. Tight monetary policy has always been the achilles heel of the PP (and really any strategy other than 100% cash). koekbakker is right. My historical simulations show two big drawdowns in real terms:
http://www.stableinvesting.com/p/long-t ... mance.html

If you can't handle a 20% drawdown then you probably shouldn't be in the PP. Then again, I wouldn't be comfortable with 100% cash either. If you look at the Credit Suisse 2012 yearbook, cash can be an extremely risky asset as well. As a consumer, the only "risk free" asset is consumption now, or buying something durable that you will surely consume in the future. Investment is always fraught with risk, and to think otherwise is fooling yourself.

Honestly, the time spent fretting over your investments is a tremendous waste of energy. If you index, pay low expense, and have wide diversification, that is 99% of the game. If you have a wife/husband, take them out to dinner or go for walk. If you like whiskey, enjoy a (small) glass. Drink some nice pu-erh tea if you don't drink alcohol. Whatever it is just enjoy your life. Wouldn't it suck to spend your life worrying about investments and then dropping dead when you least expect it?

you are right

but someone who started to save money and invest will never stop, it stays in the blood and it becomes difficult to spend it and lose it.

rgds

[Quasimodo]

If you can't handle a 20% drawdown then you probably shouldn't be in the PP. Then again, I wouldn't be comfortable with 100% cash either.

100% cash is always a bad idea. But it's a pretty big step from 100% cash to the Permanent Portfolio and there are many possible allocations between these two extremes.
For example: 70% cash or short-term bonds/15% Stocks/15% Gold is a lot safer than 100% cash and not nearly as volatile as the Permanent Portfolio.
Another easy way to reduce volatility somewhat without abandoning the Permanent Portfolio is to increase your cash percentage to 40-50%.

Adjusting the PP a bit to reduce short-term fluctuations is a much better idea than going back to 100% cash because you can't handle big drawdowns.

In the example above with 70% short term bonds/15% stocks/15% gold, what would be your rebalancing bands? Thanks for an interesting suggestion.

John

[Alanw]

MT, did the downtrend coincide with the release of your book?

The release of a book is often a contrary indicator.

As Forrest Gump might say: "And that's all I have to say about that."

If I send my book back to Amazon, do you think the markets might turn around?

[MediumTex]

MT, did the downtrend coincide with the release of your book?

The release of a book is often a contrary indicator.

As Forrest Gump might say: "And that's all I have to say about that."

If I send my book back to Amazon, do you think the markets might turn around?

I don't think it's that simple.  I wish that it were.

From where I sit, though, both gold and LT treasuries look like they are no longer overvalued at all.  For a few years, people would talk about how it would be hard for the PP to continue to go higher with two of its three volatile assets being at all time highs (i.e., gold and LT treasuries).  With gold down over 30% from its highs and LT treasuries down a lot as well, you now have two of the three volatile assets with a lot of room to move up, while the damage to the overall portfolio from their declines not having been all that bad really (5-6% for most people).

With the stock market now starting to really struggle as the Fed talks about removing the monetary policy ventilator, the path forward seems to favor treasuries doing well as fear re-enters the market and gold doing well as the Fed talks about coming back in with more stimulus efforts to help keep the economy from stumbling too much.

IMHO, this whole stock market rally has been built on dreams.  There are simply no underlying economic fundamentals that suggest that a self-sustaining and durable economic recovery is underway.  We are at about the same place most economies are at following a financial crisis--things are a lot less bad than they were before, but they are still shaky and there is still a LOT of underlying damage that hasn't yet been fully repaired (or even fully acknowledged).  Picture an elite athlete who has had a catastrophic spinal cord injury who is 12 months into rehab and starting to walk without too much assistance.  It would be naive to ask him when he was going to be back to full speed and ready to return to athletic competition, and yet that seems to be what many stock investors are asking of the economy.  To me, we are a LONG way from the economic environment we enjoyed from 1982-2000. 

[dualstow]

All these depressing threads.

This is not exactly a Cassandra complex, but I can't shake the feeling that someone with nerves of steel could put a bunch of money into the pp, forget about it for a few years, and make out like a bandit. I realize that this is not a popular sentiment, with everyone waiting for gold to hit 300USD an oz, but that's how I feel.

I liquidated a lot of individual stocks in my vp to help fund home renovation. Any cash leftover is going into the pp for the long game.

[koekebakker]

In the example above with 70% short term bonds/15% stocks/15% gold, what would be your rebalancing bands? Thanks for an interesting suggestion.

John

Most likely between 10 and 20%. The most important thing in investing (besides low-costs)is to decide how big of a drawdown you can handle. For the PP I'm expecting a max possible drawdown of 25-30%, which is probably a lot higher than most PP-investors expect when they start their portfolio. The 70/15/15 example will have slightly lower expected returns but it's max-drawdown is probably something like 10%.

[Greg]

On the plus side though, now is a great time to tax-loss harvest. I just sold some EDV and VWO and bought GTU at a discount, VXUS, and 30 year bonds.

[murphy_p_t]

do you hold EDV in taxable acct?

[Greg]

I do because I like keeping a semi-Permanent Portfolio in both Taxable and Non-Taxable so I can sell stuff in one and buy in the other to keep same allocation %s while getting the tax benefit. EDV is an etf of many strips Tresuries and I receive an actual dividend that I pay tax on versus owning strips outright where I'll pay tax on the phantom dividend.