Why "should" the PP system work?

[frommi]

Wait. I thought I could get rich ignoring everything around me, pretending it was impossible to make any reasonabl prediction about the future and still do as well the most volitile asset class with half the risk?  kidding....

Exactly that is promised everywhere in this forum and the books about the PP, same returns as the stock market but with lower volatility. 

What the PP does is bet that purchasing power will trend between these different assent classes at, fairly close to even intervals. And it's pretty much always going to be one of these based on the world currently. By owning all four, and we can almost cut out cash.......you are certain to own whatever goes on a bull run and let it run for a while.

So in reality the only thing the PP does for sure is protect your purchasing power in the long run, but it will not grow it for sure .

[Mdraf]

Since diversification is the core philosophy of the PP I am also applying diversification to my investment strategies.  A while back I "carved out" about 25% from my HBPP and set up a Dynamic Allocation portfolio. I am watching the two "compete".

[frugal]

hi,

3 years should be our limit for losses?

Tks

[Mdraf]

hi,

3 years should be our limit for losses?

Tks

In my case yes. I don't know what others think

[frugal]

hi,

3 years should be our limit for losses?

Tks

In my case yes. I don't know what others think

Why 3 and not 4 or five?

It's also a big doubt I have that is not discussed in the book.

Thank you.

[buddtholomew]

Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy unless one of the fundamental building blocks of the portfolio is no longer true. For example, returning to the gold standard.

[Pointedstick]

Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy unless one of the fundamental building blocks of the portfolio is no longer true. For example, returning to the gold standard.

+1.

Choosing an arbitrary number isn't going to make you feel better. Once you really understand what makes the portfolio tick, you can evaluate for yourself whether the prevailing conditions that support it still exist. Here are some things that I believe would alter the underpinnings of the PP and make me switch portfolios:

• 30-year bond rate falling to 1%
• government moving to true unbacked fiat money and no longer selling bonds
• government running a surplus and no longer selling long-term bonds (fat chance)
• returning to the gold standard
• dramatic change that causes gold to lose its status as a store of value (technology developed to easily and cheaply extract gold from seawater, for example)
• collapse of civilization

[Mdraf]

I respectfully disagree. One of the fundamental keys to successful investing is to know when to cut your losses and never be emotionally attached to an investment.

[Libertarian666]

What alternative strategy can realistically promise better risk-adjusted returns  than the PP regardless of economic conditions? I don't know of any, so if I didn't have extremely strong opinions about future economic conditions, I would use the PP.

[Mdraf]

What alternative strategy can realistically promise better risk-adjusted returns  than the PP regardless of economic conditions? I don't know of any, so if I didn't have extremely strong opinions about future economic conditions, I would use the PP.

It's a bit of a paradox. We buy the PP because we don't know what will happen in the future but we base its performance on the past. So we don't really know what alternative strategy might be more successful in the future 

It boils down to a personal subjective decision. I will not tolerate more than 3 consecutive years of losses or a total of -7% whichever comes first. Mainly because I bought in for principal stability first.

[Libertarian666]

What alternative strategy can realistically promise better risk-adjusted returns  than the PP regardless of economic conditions? I don't know of any, so if I didn't have extremely strong opinions about future economic conditions, I would use the PP.

It's a bit of a paradox. We buy the PP because we don't know what will happen in the future but we base its performance on the past. So we don't really know what alternative strategy might be more successful in the future 

It boils down to a personal subjective decision. I will not tolerate more than 3 consecutive years of losses or a total of -7% whichever comes first. Mainly because I bought in for principal stability first.

What other strategy would you use if you stopped using the PP?

[Mdraf]

What alternative strategy can realistically promise better risk-adjusted returns  than the PP regardless of economic conditions? I don't know of any, so if I didn't have extremely strong opinions about future economic conditions, I would use the PP.

It's a bit of a paradox. We buy the PP because we don't know what will happen in the future but we base its performance on the past. So we don't really know what alternative strategy might be more successful in the future 

It boils down to a personal subjective decision. I will not tolerate more than 3 consecutive years of losses or a total of -7% whichever comes first. Mainly because I bought in for principal stability first.

What other strategy would you use if you stopped using the PP?

Possibly a form of Dynamic Allocation using the same or a few more ETFs. As I posted earlier I am testing out one of these now. Actually two of them but one on a very small scale.

There are nearly infinite methods of DA strategies as well which makes things difficult !

[frugal]

Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy unless one of the fundamental building blocks of the portfolio is no longer true. For example, returning to the gold standard.

+1.

Choosing an arbitrary number isn't going to make you feel better. Once you really understand what makes the portfolio tick, you can evaluate for yourself whether the prevailing conditions that support it still exist. Here are some things that I believe would alter the underpinnings of the PP and make me switch portfolios:

• 30-year bond rate falling to 1%
• government moving to true unbacked fiat money and no longer selling bonds
• government running a surplus and no longer selling long-term bonds (fat chance)
• returning to the gold standard
• dramatic change that causes gold to lose its status as a store of value (technology developed to easily and cheaply extract gold from seawater, for example)
• collapse of civilization

PS,

can you please explain each point.

Thank you very much!

What alternative strategy can realistically promise better risk-adjusted returns  than the PP regardless of economic conditions? I don't know of any, so if I didn't have extremely strong opinions about future economic conditions, I would use the PP.

It's a bit of a paradox. We buy the PP because we don't know what will happen in the future but we base its performance on the past. So we don't really know what alternative strategy might be more successful in the future 

It boils down to a personal subjective decision. I will not tolerate more than 3 consecutive years of losses or a total of -7% whichever comes first. Mainly because I bought in for principal stability first.

Hi,

-7% only?

A Drawdown of 10-20% is not uncommon!



Tks

[PP67]

Using peak-to-trough's calculator, for the period 1972-current the number of times there were drawdowns >7%:

HBPP w/ 35/15 rebalance: 15

60/40 Stocks/Bonds (annual rebalance): 52

100% Stocks: 116

100% Bonds: 70

100% Gold: 186

100% Cash: 0

Past performance is no guarantee of future results...

Bottom Line: Pick your poison

[Mdraf]

Using peak-to-trough's calculator, for the period 1972-current the number of times there were drawdowns >7%:

HBPP w/ 35/15 rebalance: 15

60/40 Stocks/Bonds (annual rebalance): 52

100% Stocks: 116

100% Bonds: 70

100% Gold: 186

100% Cash: 0

Past performance is no guarantee of future results...

Bottom Line: Pick your poison

That's fine but I won't be there. I always have a max 7% loss on my investments. Even if I get jerked around by a volatile security. Now for the first time I didn't bail out of gold and bonds this year because I'm looking at the PP as a whole. And so far I only have 1 year loss and 2.x% total profit. So nothing will be happening soon.

[buddtholomew]

Using peak-to-trough's calculator, for the period 1972-current the number of times there were drawdowns >7%:

HBPP w/ 35/15 rebalance: 15

60/40 Stocks/Bonds (annual rebalance): 52

100% Stocks: 116

100% Bonds: 70

100% Gold: 186

100% Cash: 0

Past performance is no guarantee of future results...

Bottom Line: Pick your poison

That's fine but I won't be there. I always have a max 7% loss on my investments. Even if I get jerked around by a volatile security. Now for the first time I didn't bail out of gold and bonds this year because I'm looking at the PP as a whole. And so far I only have 1 year loss and 2.x% total profit. So nothing will be happening soon.

Jumping from strategy to strategy is likely to under-perform a buy, hold and re-balance portfolio (whichever AA or approach you choose). If you constantly seek alternative investments when you reach a -7% threshold, then my previous comment is almost a certainty. Buy high, sell low...

[Pointedstick]

PS,

can you please explain each point.

Thank you very much!

Sure:

• 30-year bond rate falling to 1%

This would reduce the upside for bonds to (IMHO) unacceptably low levels; we might as well swap it for cash and go back into bonds later once yields were better.

• government moving to true unbacked fiat money and no longer selling bonds

Then there wouldn't be any new treasury bonds for us to buy and the existing supply would slowly shrink as they matured.

• government running a surplus and no longer selling long-term bonds (fat chance)

Same; then there wouldn't be any new treasury bonds for us to buy and the existing supply would slowly shrink as they matured.

• returning to the gold standard

Then gold wouldn't have such volatility because it would no longer be a commodity, as its value in terms of dollars/euros/whatevers would be manipulated by the government and held artificially steady.

• dramatic change that causes gold to lose its status as a store of value (technology developed to easily and cheaply extract gold from seawater, for example)

Then gold's value would plummet and probably never return, and possibly a new element or commodity would take its place as a durable long-term store of value.

• collapse of civilization

I think this one speaks for itself.

[Mdraf]

Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy

Are you implying one has to be committed forever regardless of what is happening to your portfolio? If not how long before you face reality that you've made a mistake?

...And cutting losses at 7% is my investment strategy and has served me well enough.

[Libertarian666]

Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy

Are you implying one has to be committed forever regardless of what is happening to your portfolio? If not how long before you face reality that you've made a mistake?

...And cutting losses at 7% is my investment strategy and has served me well enough.

I can't see why you will tolerate any losses at all if you have a choice. In fact, why not demand 10% gains every year?

Seriously, though, there is no way to guarantee any particular results in real terms. Thus, saying "I'll cut my losses at 7%" has no meaning.

[albertklu]

This is an excellent question, especially since Harry himself warned us against accepting historical performance as proof of concept.

Harry's explanations, particularly concerning the non-neutrality issue, left many of us dissatisfied. Nevertheless, the portfolio has continued to perform well. Why?

In my opinion, there is a fundamental economic explanation as to why the PP works. It relates to central bank intervention and the business cycle.

It is well understood that more money leads to higher prices. But what is often missed is the new money is never introduced uniformly into the economy. The new money is, instead, loaned and spent into circulation. This leads to some asset prices rising prior to others. Hence the profit opportunity.

The brilliance of the PP is that it holds asset classes that respond quickly to central bank action (stimulus or pullback). The act of rebalancing locks in these gains before they are eventually wiped out by the spread of inflation to other sectors.

Harry's 4 broad economic categories are not all encompassing conditions. Rather, they are periods within the Austrian business cycle. In anticipating the business cycle, the PP is actually a speculative portfolio.

I've published a podcast on this topic at http://wbadvisors.com/harrybrowne. Anyone familiar with Harry's writings should skip directly to Part 2 or 3. Feedback is appreciated.

[buddtholomew]

Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy

Are you implying one has to be committed forever regardless of what is happening to your portfolio? If not how long before you face reality that you've made a mistake?

...And cutting losses at 7% is my investment strategy and has served me well enough.

I already supported my argument with an example. If you choose only to quote an excerpt of my post to make your point, then you are anchored to a set of beliefs and not open to dissenting points of view.

I'm happy that cutting your losses at 7% has served you well. This is not a pissing match... Market timers are always in search of another strategy, technique or signal that will perform better than their current strategy. Good luck in your journey.

[Mdraf]

Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy

Are you implying one has to be committed forever regardless of what is happening to your portfolio? If not how long before you face reality that you've made a mistake?

...And cutting losses at 7% is my investment strategy and has served me well enough.

I already supported my argument with an example. If you choose only to quote an excerpt of my post to make your point, then you are anchored to a set of beliefs and not open to dissenting points of view.

I'm happy that cutting your losses at 7% has served you well. This is not a pissing match... Market timers are always in search of another strategy, technique or signal that will perform better than their current strategy. Good luck in your journey.

Point taken. Could you give me some more examples other than the gold standard one please ?

[buddtholomew]

PS has captured a list of changes that would prompt me to reconsider my investments.

Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy unless one of the fundamental building blocks of the portfolio is no longer true. For example, returning to the gold standard.

+1.

Choosing an arbitrary number isn't going to make you feel better. Once you really understand what makes the portfolio tick, you can evaluate for yourself whether the prevailing conditions that support it still exist. Here are some things that I believe would alter the underpinnings of the PP and make me switch portfolios:

• 30-year bond rate falling to 1%
• government moving to true unbacked fiat money and no longer selling bonds
• government running a surplus and no longer selling long-term bonds (fat chance)
• returning to the gold standard
• dramatic change that causes gold to lose its status as a store of value (technology developed to easily and cheaply extract gold from seawater, for example)
• collapse of civilization

[Libertarian666]

Three or five years is an arbitrary time frame. I think that you have to remain committed to the strategy unless one of the fundamental building blocks of the portfolio is no longer true. For example, returning to the gold standard.

+1.

Choosing an arbitrary number isn't going to make you feel better. Once you really understand what makes the portfolio tick, you can evaluate for yourself whether the prevailing conditions that support it still exist. Here are some things that I believe would alter the underpinnings of the PP and make me switch portfolios:

• 30-year bond rate falling to 1%
• government moving to true unbacked fiat money and no longer selling bonds
• government running a surplus and no longer selling long-term bonds (fat chance)
• returning to the gold standard
• dramatic change that causes gold to lose its status as a store of value (technology developed to easily and cheaply extract gold from seawater, for example)
• collapse of civilization

I would change my investment strategy in the bolded case.

[frugal]

This is an excellent question, especially since Harry himself warned us against accepting historical performance as proof of concept.

Harry's explanations, particularly concerning the non-neutrality issue, left many of us dissatisfied. Nevertheless, the portfolio has continued to perform well. Why?

In my opinion, there is a fundamental economic explanation as to why the PP works. It relates to central bank intervention and the business cycle.

It is well understood that more money leads to higher prices. But what is often missed is the new money is never introduced uniformly into the economy. The new money is, instead, loaned and spent into circulation. This leads to some asset prices rising prior to others. Hence the profit opportunity.

The brilliance of the PP is that it holds asset classes that respond quickly to central bank action (stimulus or pullback). The act of rebalancing locks in these gains before they are eventually wiped out by the spread of inflation to other sectors.

Harry's 4 broad economic categories are not all encompassing conditions. Rather, they are periods within the Austrian business cycle. In anticipating the business cycle, the PP is actually a speculative portfolio.

I've published a podcast on this topic at http://wbadvisors.com/harrybrowne. Anyone familiar with Harry's writings should skip directly to Part 2 or 3. Feedback is appreciated.

Hi,

so you are an expert in this subject...

I will listen your podcasts.

Do you have VP?