2 months old PP, down -3%.

[Libertarian666]

  I believe that buying high and selling low is a pretty good way to lose money.

Now you tell us! 

[Pointedstick]

In all seriousness, catacomb, we're all sorry to see you leave. I think probably the most important part of investing is matching your portfolio not so much to your desired return but your your psychological motivations. If you know that you are extremely conservative and risk-averse with money, then the PP in its unadulterated form may well be too risky, as I believe we're seeing right now.

If you like the theory behind the PP but dislike its present level of volatility, it's always easy to water down the volatile assets with cash and retain a measure of the all-weather protection with less volatility. But be wary: too much cash and you risk losing your purchasing power in an almost guaranteed manner. There is no truly "safe" place to put money. That's one of its curses: once you have it, you become eternally bedeviled by the problem of how to protect it.

[Libertarian666]

So does this mean that capitulation is officially here, so we can start going back up? I know I used to be a phenomenal contrary indicator myself. My greatest achievement in that respect was buying silver on margin on the day of the top in 1980, a record few people can match! Or would want to... 

[Tyler]

I learned a lot from this forum and from the book but i genuinely no longer trust the PP as a viable investment strategy for the current economic environment. The theory sounds fantastic but it does not hold. The strategy proved to be way too volatile and risky for my liking and I certainly would not recommend it to newbies.

Catacomb -- I sincerely hope you find an investing strategy that works for you.  I feel inclined to note, however, that based on your posts you only invested in the PP for 2-3 months.  Generally speaking, that is not enough time to fairly evaluate any investment strategy.  Almost anything you invest in can show that level of volatility (or more) over the short term.  It's the long game that counts.

It sounds like something closer to cash is more what you're looking for from a volatility perspective, which is just fine.  However, if one changes direction every few months based on how the winds are blowing, he is likely to sail in circles.  The problem may not be the underlying investment strategy, but the strength of his rudder. 

My hope for everyone is that they find an investment strategy they believe in enough to stick with even in tough times.  For me it's the PP.  For others it may be something else.  To all, happy sailing.

[JMoyle]

I almost feel sorry for Catacomb... until, I remember losing over $200,000.00 in 2008-2009 with my Boglehead-type Portfolio. No one that I know or follow... I mean no one... saw that coming! Not even Bob Brinker, the MarketTimer! At least Goldman Sachs predicted the sell down of gold back in May.

Having said that, Harry, Craig, and Medium Tex expressed in their respective books that the Permanent Portfolio should protect against a large asset class price drawdown. With gold down over 30%, the "total" Permanent Portfolio is down around 6%-7%. Gold's current fall is clear evidence of a major element in Harry's, Craig's, and Medium Tex's theory - Porfolio Protection! We do not have to look backward and argue about economic eras to prove this trait of the Permanent Portfolio.

Another investing lesson that Catacomb has not learned... accumulating more shares at the cheapest possible price. If an market asset did not fall occasionally, investors would never have the opportunity to buy an asset while it was "on sale" and accumulate more shares/ounces.  Gold is almost "on sale" again and I am about to buy according to my rebalancing bands (the Permanent Porfolio's indicator of "on sale" assets)! Obviously, Catacomb does not understand the differences between being a market investor and a market speculator. If he/she keeps buying high and selling low, his/her investing education will be very expensive.

This may sound crazy to Catacomb but I hope Gold keeps falling at least until I can reach a rebalancing band (i.e. an "on sale" price)! I still have Gold bought from people who believed $225.00 per ounce was too expensive and just wanted out of the market! I love it when people are selling what I want to own at low market prices! Lower prices = more share/ounces!

[ozzy]

Well said JMoyle.

I too am buying physical gold as my gold portion is getting close to 15%. I just ordered a couple 1oz buffalo coin today.

I have no fear at all.  I've done extensive research and I believe the PP is the safest, simplest, neutral, non-speculative portfolio available. 

I’m down about 7% and not losing any sleep.  I still have 20 more years until retirement so I’m in this for the long haul. 
The only thing that would make me rethink the PP is two consecutive years of a 10% or greater loss.  Other than that I’m a believer.

[MediumTex]

catacomb,

I echo what others are saying above (mostly).

I'm sorry to hear that your experience with the PP was not a happy one.  We all have to do what makes sense to us as individuals, and it sounds like you are no longer comfortable with the PP, which is a perfectly valid rationale for moving on to something else.

None of us knows what the future holds, and the PP helps to protect against a lot of that uncertainty, but there are periods of volatility in any portfolio and right now the PP is experiencing some rough waters.

Craig and I try to provide as much information and explanation of our understanding of the theory behind the PP and how and why it has worked historically, but ultimately it is critically important for each individual investor to make sure that he has come to his own understanding of how and why the PP works and has decided for himself whether the portfolio is right for him after his own reasoned analysis.  However persuasive anything I write may be, it is still just the product of one mind among millions that are all trying to fathom an unknown (and un-knowable) future.

I have satisfied myself that the PP is a sound investment strategy for me, but it isn't for everyone, and it is times like these that should remind us all that without conviction about an investment strategy (whichever strategy you may choose to use), any extended period of volatility or downward drift may cause you to give up at the worst possible time. 

I've always thought it was unrealistic to ask most human beings to cope with the kind of regular drawdowns that many traditional investment strategies tend to deliver, and the PP is better in many respect (IMHO) because its drawdowns are typically much less traumatic than those delivered by most other strategies that attempt to provide positive real returns.  But low volatility doesn't mean no volatility.

Best of luck and I hope you still check in from time to time. 

[timerscraw]

This may not be the best spot for this after what Catacomb posted, but how is everyone tracking their rebalancing bands?

Do you all just use a spreadsheet, and manually update the data based on the current day's prices?

I've downloaded some of the spreadsheets on the forum previously, but I'm wondering if there is a better way to be "up-to-date" without this manual step.

Thanks!

[rickb]

This may not be the best spot for this after what Catacomb posted, but how is everyone tracking their rebalancing bands?

Do you all just use a spreadsheet, and manually update the data based on the current day's prices?

I've downloaded some of the spreadsheets on the forum previously, but I'm wondering if there is a better way to be "up-to-date" without this manual step.

Thanks!

The spreadsheets mentioned in this thread, download current price data automatically from various websites.  Another approach is to set up a model of your own portfolio on a website that tracks portfolio values, such as Morningstar or Google or Yahoo (see this thread).  However you do it, there's likely to be some manual effort since the tool won't know when you buy or sell anything (and may or may not track dividends appropriately).

[rocketdog]

90% bonds? Unless they're all ultra short-term, you'll get crushed when interest rates normalize, which they will.  If you're smarter and faster than all the professional bond traders, financial "insiders," FED, ECB, etc, then....

You can avoid catastrophe with bonds by purchasing high-quality bonds directly, rather than by using funds.  At least that way you know you'll at least get your principle back when the bond matures... if you can resist selling it before then, that is.

But unfortunately you won't know what that principal will be worth when you get it back.
Which is just another example of the fact that there is no such thing as a riskless investment; all you can do is try to pick the risks that are the least distressing to you.

What do you mean?  If you buy a 5-year bond for $1,000 and hold it to maturity, you get your entire $1,000 back. 

[Pointedstick]

What do you mean?  If you buy a 5-year bond for $1,000 and hold it to maturity, you get your entire $1,000 back.

I think what he's getting to is that if there's, say, 10% inflation during every one of those years, that $1,000 you get back will only have the purchasing power of $590.

[rocketdog]

This may not be the best spot for this after what Catacomb posted, but how is everyone tracking their rebalancing bands?

Do you all just use a spreadsheet, and manually update the data based on the current day's prices?

I've downloaded some of the spreadsheets on the forum previously, but I'm wondering if there is a better way to be "up-to-date" without this manual step.

Thanks!

Daily updates?  Yeesh.  You're bound to get yourself all worked up over nothing. 

I maintain a spreadsheet that I manually update once a month when my statements come out (or once a quarter in the case of my wife's 401K).  I haven't been in the PP long enough to hit a rebalance band yet, and I don't have a lot invested in my PP at this point.  So even if I did hit a rebalance band I'd probably just add cash to the "losing" asset to bring things back into balance instead of selling off some of my "winning" assets. 

[rocketdog]

What do you mean?  If you buy a 5-year bond for $1,000 and hold it to maturity, you get your entire $1,000 back.

I think what he's getting to is that if there's, say, 10% inflation during every one of those years, that $1,000 you get back will only have the purchasing power of $590.

10% inflation for 5 years running?  Where the hell do you live... the Weimar Republic? 

[Pointedstick]

What do you mean?  If you buy a 5-year bond for $1,000 and hold it to maturity, you get your entire $1,000 back.

I think what he's getting to is that if there's, say, 10% inflation during every one of those years, that $1,000 you get back will only have the purchasing power of $590.

10% inflation for 5 years running?  Where the hell do you live... the Weimar Republic? 

No prediction of the sort; it was merely used as an illustration. But I suspect it's high on Libertarian666's list of things to worry about.

[Libertarian666]

I think what he's getting to is that if there's, say, 10% inflation during every one of those years, that $1,000 you get back will only have the purchasing power of $590.

10% inflation for 5 years running?  Where the hell do you live... the Weimar Republic? 

No prediction of the sort; it was merely used as an illustration. But I suspect it's high on Libertarian666's list of things to worry about.

How did you guess?
So can I count on you to explain my comments in the future if I'm not available? That is another thing I don't have to worry about then. 

[annieB]

And we were feeling sorry for Catacomb.
Guy will probably start a newsletter.
Freakin gold...

[foglifter]

I'm glad I didn't post a screenshot of my IAU position that I bought in January. That would be in the wrong place at the wrong time. I'm not easily spooked by red ink anymore. PP does change investor's mentality. 

[rocketdog]

I don't know about anyone else, but when I made my initial PP buy-in I told myself that no matter when I took the plunge at least one of the assets I bought was going to start losing money almost immediately.  But I was wrong... because two of the assets started losing money almost immediately! 

Ah well, it just means that more buying opportunities lie ahead...

[annieB]

Fog:

I too was smarter in January!

[frugal]

For me it is also difficult to see the PP going down.

What I don't understand is:

Catacomb, which % DD was your limit?

7%? to quit?

[deke99]

What do you mean?  If you buy a 5-year bond for $1,000 and hold it to maturity, you get your entire $1,000 back.

I think what he's getting to is that if there's, say, 10% inflation during every one of those years, that $1,000 you get back will only have the purchasing power of $590.

10% inflation for 5 years running?  Where the hell do you live... the Weimar Republic? 

More like the Carter administration.

[Robert]

You're upset about a single digit paper decline for a 2 month old portfolio!?!?!?! This can't be serious. If this post is for real I would respectfully say that you really don't understand investment risk and should be in T Bills, CD's and I Bonds. 2 months is a trade, that's not investing.

[rickb]

As you can see there is quite a bit of volatility in the monthly returns. But over the course of the year it typically balances out.

Indeed.  Here are several years of monthly and rolling 12-month returns for an idealized PP consisting of 25% each TLT, GLD, SHY, and VTI (rebalanced monthly, dividends included, no tax and no fees)


          Month  Previous 12 months
Jul-2010  +0.30%    +12.03%
Aug-2010  +2.39%    +13.15%
Sep-2010  +2.95%    +12.98%
Oct-2010  +0.87%    +14.46%
Nov-2010  +0.18%      +9.16%
Dec-2010  +1.28%    +14.36%
Jan-2011  -1.71%    +12.19%
Feb-2011  +2.80%    +14.02%
Mar-2011  +0.48%    +13.51%
Apr-2011  +3.67%    +14.46%
May-2011  +0.13%    +14.53%
Jun-2011  -1.54%    +12.46%
Jul-2011  +2.71%    +15.18%
Aug-2011  +4.03%    +17.19%
Sep-2011  -1.39%    +11.04%
Oct-2011  +3.37%    +13.59%
Nov-2011  +0.83%    +14.36%
Dec-2011  -1.50%    +11.32%
Jan-2012  +3.99%    +17.97%
Feb-2012  -0.31%    +14.04%
Mar-2012  -0.64%    +12.53%
Apr-2012  +1.06%      +9.87%
May-2012  -0.88%      +9.07%
Jun-2012  +1.15%    +11.83%
Jul-2012  +1.43%    +10.60%
Aug-2012  +1.58%      +8.05%
Sep-2012  +1.16%    +11.17%
Oct-2012  -1.92%      +5.41%
Nov-2012  +1.00%      +5.58%
Dec-2012  -0.89%      +6.34%
Jan-2013  +0.41%      +2.90%
Feb-2013  -0.54%      +1.08%
Mar-2013  +1.08%      +4.34%
Apr-2013  -0.62%      +2.79%
May-2013  -2.30%      +1.97%

[Edit: Include the data]

The June data is -3.86% for the month and -2.93% for the rolling 12-month window.  This is the first negative rolling 12-month window in the last 3+ years.

[koekebakker]

Seems like Catacomb is back, after the 'crash and burn' of his PP:

http://www.bogleheads.org/forum/viewtop ... 1&t=120624

Could be another Israeli investor off course although him mentioning Early Retirement Extreme makes it unlikely.

Recency bias... go!

[MediumTex]

Seems like Catacomb is back, after the 'crash and burn' of his PP:

http://www.bogleheads.org/forum/viewtop ... 1&t=120624

Could be another Israeli investor off course although him mentioning Early Retirement Extreme makes it unlikely.

Recency bias... go!

I'm certain that's him.  I hope he finds an allocation that works well for him.  Feeling adrift with your life savings is no fun at all.