Advisor Perspective's Article on PP/PRPFX

[AdamA]

It's sad that articles like this are all most people will ever know of the Permanent Portfolio.

I think it goes beyond bad articles...

Have you ever tried to explain PP to the average person?  

It really takes some open mindedness and maybe also some (bad?) experience with other investment strategies to appreciate PP for what it is.

 

[EdwardjK]

"I ran the three-fund version of the PP through Quantext Portfolio Planner, my forward-looking asset allocation tool. "

For those who don't know Geoff Considine: he's selling an Excel-based Monte Carlo tool. I tried it and it perfectly does what a usual MC tool does - uses past performance data to predict the future outcome for your portfolio. 

Foglifter,

Your comment about Mr. Considine's selling a software tool is inappropriate.  His article discusses the merits of the Permanent Portfolio and nowhere does he make a sales pitch to sell that tool through the article.

The points that Mr. Considine raise are no more or less valid than if he if he did not happen to offer his softwate tool.  If you happen to believe that anyone that tries to generate some income by way of their writing or blogging is compromised or biased, then you may want to stop writing in this blog.  Note that CraigR likley earns some income from the ads placed on the Crawling Road website.

Please stick to facts and not emotion.

Ed

[Lone Wolf]

I think the article's biggest problem, along with much of what is written about HB's investment strategy, is that it misses the broader point that the PP allocation is intended for money that you can't afford to lose.  It is supposed to protect you come what may, while likely offering a competitive return.  It is far and away the best asset allocation for that purpose that I've seen. 

I think that's exactly right.  And to make sure I'm speaking as precisely as possible, I think that the PP is designed to protect purchasing power that you can't afford to lose.  Its inflation-adjusted returns are crazy-steady.  That's why I would have liked the author to spend a little more time backing up the idea that the PP would lose in a world dominated by long-term inflationary trends.  I'm much more used to being looked at like a wild-eyed gold bug so this was an intriguing criticism.

But I don't think HB intended it to be a singular "be all and end all" portfolio into which an investor has to pour all his money (unless he literally can't afford to take any risk whatsoever), regardless of any expectations he may have.  That is why HB wisely incorporated a VP into his strategy.

I invest as close to 100% in the PP as is practically possible even though I am young enough to take risk.  For me, it's more that I anticipate it being very unlikely that I can beat the PP's returns by a wide enough margin to justify the risks that I take.  I find the loss of purchasing power unpleasant enough that I want to be pretty well compensated for risking it.

I do agree that the VP and the "wall between VP and PP" is a very important component of the strategy though.

[Lone Wolf]

I don't know, I think his article reflects what most of the world thinks about the PP.  If you have half of your money in SHY and TLT when interest rates rise  and GLD reverts to the mean, you have a very low probability of success.

I agree that TLT will be down in the dumps in a rising rates scenario but I see the "cash" allocation swimming with the tide pretty well, don't you think?

I also agree that gold's behavior will be interesting to watch.  I think that this will all be down to what is causing interest rates to rise.

If rates are rising due to inflation, I think that gold will be just fine (as in the 70s.)  In situations like this where inflation is not arrested, the real rate of interest is typically below 0 and gold does well.

If rates are rising due to increased economic output, we will see a real interest rate greater than 0 (as the economy is expected to grow faster than inflation.)  Should be a great environment for stocks.  Gold will really stink here.

And if rates are rising because the Ben Bernank stomped on the brakes to drive a stake into inflation's foul, black heart... well, hello 1981!

You just never know how it'll all work out.  Will be interesting.

[AdamA]

I invest as close to 100% in the PP as is practically possible even though I am young enough to take risk.  For me, it's more that I anticipate it being very unlikely that I can beat the PP's returns by a wide enough margin to justify the risks that I take. 

Me too. 

I think many people fail to realize how hard it is to beat the market by enough to justify the risk inherent in speculation.  You may get lucky a couple of times, but I think it's really hard to realize a return greater than 9 or 10% on a regular basis for an extended period of time this way.  Even if someone could, what return would justify the extra time and the extra risk?  15%? 20%?  Good luck!

[MediumTex]

"I ran the three-fund version of the PP through Quantext Portfolio Planner, my forward-looking asset allocation tool. "

For those who don't know Geoff Considine: he's selling an Excel-based Monte Carlo tool. I tried it and it perfectly does what a usual MC tool does - uses past performance data to predict the future outcome for your portfolio.  ;)

Foglifter,

Your comment about Mr. Considine's selling a software tool is inappropriate.  His article discusses the merits of the Permanent Portfolio and nowhere does he make a sales pitch to sell that tool through the article.

The points that Mr. Considine raise are no more or less valid than if he if he did not happen to offer his softwate tool.  If you happen to believe that anyone that tries to generate some income by way of their writing or blogging is compromised or biased, then you may want to stop writing in this blog.  Note that CraigR likley earns some income from the ads placed on the Crawling Road website.

Please stick to facts and not emotion.

Ed

I interpreted the projection tool comment to offer insight into how Considine thought about risk and future returns--i.e., he has a tendency to think in terms of extrapolating past trends into the future, as evidenced by the tool he sells.

The PP, OTOH, does not rely on trend extrapolation to work; in fact, it often works best when trends are in the process of shifting among the volatile assets.

For example, the PP would have allowed one to fully participate in the current gold rally, while most other allocation strategies wouldn't have had you with 25% gold in 2000.

That was how I interpreted foglifter's comment.

[moda0306]

While he DID raise some good points, the Geoff's point about "6.5% not being enough for a retired couple" just seemed way out of left field for me.  Also, a portfolio made up of 75% cash, stocks and gold should do extremely well in times of inflation.  Even with 1-3 year treasuries you roll into those high interest rates extremely fast.  I also agree with Adam in that gold will skyrocket if no other asset class looks like it's going to beat inflation in a relatively safe way, so if the opposite is true, we really could have another 1981 on our hands... so in some ways I respect his skepticism.  It's just some of the facts around it confuse me.