Investing in the PP - Why Do I Feel Like My Head is in the Sand?

[buddtholomew]

It appears as if 2 of the 3 PP assets (GLD and TLT) are the pariahs of the investment world and I am the fool that is left holding the bag. The FED is perhaps set to taper later in the week and I am bracing for a significant DD in both GLD and TLT. It feels as if I am fighting a losing battle, all the while aware that I shouldn't be long gold or LT treasuries during a period when tapering is perceived as tightening and interest rates are on the rise.

I'm starting to loathe this portfolio...perhaps it was a mistake...

[Kshartle]

"Perhaps" set to taper.

I think they will not but even if they do they will reverse it. Could be wrong.

Is the taper baked into the cake? Time will tell.

Unfortunately we can't know what will happen or how all parties will react. The rest of the world is guessing at what the prices should be and we're at those prices. Some guesses will be right and others wrong.

I'm ok taking a look at what I think is more likely and what the more likely reaction is to that more likely action. That's why I'm heavy gold and stocks. I anticipate more printing and more after that.

If I was less comforatble I would adopt the PP.

The PP is not going to gain very much anytime soon (in my opnion). But even if the FED stopped printing today I don't think you'd lose much in real terms. 20% or even 30% would not be a complete catastrophe if the entire price level collapsed along with it.

Bon Chance.

[MediumTex]

In the wake of the last couple of "taper" events, interest rates fell.

This day to day stuff, or even month to month stuff, will wear you out if you let it.

[Kshartle]

In the wake of the last couple of "taper" events, interest rates fell.

This day to day stuff, or even month to month stuff, will wear you out if you let it.

It is the irony of the PP....it's designed so you can check in a couple times a year but then attracts a lot of folks who sweat out every day and every move, scutinizing it.

You really have to buy into the concept of letting the chips fall or pursue some more intensive strategy.

[buddtholomew]

In the wake of the last couple of "taper" events, interest rates fell.

This day to day stuff, or even month to month stuff, will wear you out if you let it.

It is the irony of the PP....it's designed so you can check in a couple times a year but then attracts a lot of folks who sweat out every day and every move, scutinizing it.

You really have to buy into the concept of letting the chips fall or pursue some more intensive strategy.

In my opinion, the PP attracts the conservative investor with little appetite for volatility. I wonder whether long-time PP investors had similar concerns with investment performance even when the portfolio returns were positive for the year.

[Gumby]

I haven't looked at my Permanent Portfolio in over a month and don't plan on looking at it today. If it's down, it's down. If it's up, it's up. I've come to realize that it doesn't really move that much for me to care that much. I just stopped caring because it got too boring — like watching a tree grow and an odd limb or twig occasionally falling off. That's just how I view it. Sorry I can't be of more help!

[buddtholomew]

In the wake of the last couple of "taper" events, interest rates fell.

This day to day stuff, or even month to month stuff, will wear you out if you let it.

I am familiar with the recommendation to look less frequently. Let's assume that I followed that advice on 1/1/2013 and looked at the portfolio today, 9/16/2013. Would I feel relief after updating the NAV for each of the assets? Certainly not, although I may feel more inclined to sell than I do now. It's not the -3.58% YTD return, but rather the 10-12% difference between my 60/40 and the PP.

[Pointedstick]

It's not the -3.58% YTD return, but rather the 10-12% difference between my 60/40 and the PP.

You'll always feel bad if you compare your investment portfolio to one that's doing better. Something's always going to be beating your investments. This year it's any stock-heavy portfolio. Maybe next year it will be gold-heavy portfolios or bond-heavy portfolios. If your 60/40 was getting destroyed but gold was taking off like a rocket, would you be as unhappy? More? Less? Ask yourself why.

If I were you, I'd be happy you have a VP that's beating your PP. My VP has been pretty miserable lately.

[Bean]

Why don't you walk away and let the portfolio do its thing? 

John Bogle had an amazing speech that I need to find and post, but basically the two highest correlated items to a good return was lower expenses and less transactions.

If you can't walk away, then set up a side portfolio, where you can play out all your investment fantasies.  Then 5 years down the road when the PP beats all your wiz-bang investment moves, take thanks in the fact that you didn't do that with your real McCoy portfolio.

[buddtholomew]

Why don't you walk away and let the portfolio do its thing? 

John Bogle had an amazing speech that I need to find and post, but basically the two highest correlated items to a good return was lower expenses and less transactions.

If you can't walk away, then set up a side portfolio, where you can play out all your investment fantasies.  Then 5 years down the road when the PP beats all your wiz-bang investment moves, take thanks in the fact that you didn't do that with your real McCoy portfolio.

Good advice for any investor Bean, but I am far from a market timer who oscillates between investment approaches. I have had success investing in the PP, but have come to realize that the portfolio is certainly slanted to outperform during difficult economic climates (inflation, deflation). In other times, the portfolio under-performs more than I would have expected.

[Pointedstick]

I have had success investing in the PP, but have come to realize that the portfolio is certainly slanted to outperform during difficult economic climates (inflation, deflation). In other times, the portfolio under-performs more than I would have expected.

I agree with this assessment.

You could always overweight equities in your VP. 

[buddtholomew]

I have had success investing in the PP, but have come to realize that the portfolio is certainly slanted to outperform during difficult economic climates (inflation, deflation). In other times, the portfolio under-performs more than I would have expected.

I agree with this assessment.

You could always overweight equities in your VP. 

Thanks PS, I am actually 65/35 now in my VP as 5% of FI (cash) was exchanged for GDX (mining stocks) several months ago. The 35% is split between IT-Bonds and Stable Value for a 2-3 year average duration.

[Pointedstick]

Every once in a while I tinker with the idea of substituting a small-cap value index for the broad stock market index in order to capture more of those stock gains. Eventually I settled on making part of my VP simply more stocks in the form of a big VT holding. I think one of these days I'm going to make the TSM->SCV switch in one of my two PPs and see how it performs compared to the other. With my luck, I'll do it right as the market has peaked and it will fall faster than the TSM PP. That's why I haven't pulled the trigger already; the market looks too peaky. But then again I've always been a terrible market timer.

[notsheigetz]

I don't know why you feel like you are hiding your head in the sand because it sounds to me like you are doing the exact opposite.

It's the rest of us who are hiding ours heads in the sand and personally I do it as a deliberate coping mechanism. It keeps me from panicking and making stupid decisions.

[rhymenocerous]

Buy low and sell high.  Unless you are withdrawing assets now, you should be happy you get to buy them at a lower price.  The PP, or any other static allocation really, forces you to do this.  That's a good thing, even though behaviorally it feels wrong.

[frommi]

I acted yesterday and sold half of my bonds and gold and bought more undervalued stocks. Now it can go up with gold and bonds . But than i will sell the other half  . I can`t loose now. 

I am not really able to buy "low" when low means buy bonds or gold at unreasonable high prices.

[magneto]

It appears as if 2 of the 3 PP assets (GLD and TLT) are the pariahs of the investment world and I am the fool that is left holding the bag.
I'm starting to loathe this portfolio...perhaps it was a mistake...

After the 32 year bull run for bonds and the later surge in gold, we shouldn't be surprised if we have seen weakness in these asset classes.  Just leaves stocks and cash to do the heavy lifting.

Stocks may have a bit further to go but the bull run is quite mature and valuations middling to full.  Cash real returns are negative, but hopefully real returns will improve if inflation does not rear it's ugly head.

The real question for us is has the HBPP had unusual tail winds over the last few decades which are now abating?  I have no idea!

[happyspec]

What astonishes me in many discussions I find here is how many people doubt the effectiveness of the PP. For me the real value of the PP is that it ties specific asset classes to specific economic conditions - an assumption that I agree with because it's logical to me. Furthermore it describes any economic environment we can think of or a combination of these environments. So we have a comprehensive concept of how to invest that is really down, down, down to earth, not some investing voodoo. So why don't you stay with it and let it run its course!? The worst enemy of any investor is second-guessing his own decisions permanently and changing course permanently. If we believe that this time it's different or if we consider us smarter than the PP we have two choices: Leave the PP completely (and then it would be nice to not irritate those guys who try to stay the PP course) or to set up a VP with part of your money. I have decided to do the latter by taking the same investment vehicles as in the PP in combination with market timing - be it trend following or contrarian investments (I look to get in the well-hated bonds soon  . They will rise together with gold when the crisis hits back. Stocks are in the latter part of their home run, i.e. wave 3, then I anticipate a bigger correction.) If we choose to have a VP we have to decide how much money we pour into it. I choose to put 80 % in the PP and 20 % in the VP. Because I don't consider myself to be a market call genius and I give a s... on pundits' opinions - even my own - I'm better off leaving the bulk in the PP. And believe me: I don't look for performance with the PP. For me it's mostly an insurance against anything going wild and wrong in this crazy world. And that gives  me some peace of mind. Anyone thinking like me about the PP 

[frommi]

What astonishes me in many discussions I find here is how many people doubt the effectiveness of the PP. For me the real value of the PP is that it ties specific asset classes to specific economic conditions - an assumption that I agree with because it's logical to me. Furthermore it describes any economic environment we can think of or a combination of these environments. So we have a comprehensive concept of how to invest that is really down, down, down to earth, not some investing voodoo. So why don't you stay with it and let it run its course!? The worst enemy of any investor is second-guessing his own decisions permanently and changing course permanently. If we believe that this time it's different or if we consider us smarter than the PP we have two choices: Leave the PP completely (and then it would be nice to not irritate those guys who try to stay the PP course) or to set up a VP with part of your money. I have decided to do the latter by taking the same investment vehicles as in the PP in combination with market timing - be it trend following or contrarian investments (I look to get in the well-hated bonds soon  . They will rise together with gold when the crisis hits back. Stocks are in the latter part of their home run, i.e. wave 3, then I anticipate a bigger correction.) If we choose to have a VP we have to decide how much money we pour into it. I choose to put 80 % in the PP and 20 % in the VP. Because I don't consider myself to be a market call genius and I give a s... on pundits' opinions - even my own - I'm better off leaving the bulk in the PP. And believe me: I don't look for performance with the PP. For me it's mostly an insurance against anything going wild and wrong in this crazy world. And that gives  me some peace of mind. Anyone thinking like me about the PP 

The problem for me was to accept that model. How was it possibe to have both inflation and deflation at the same time in the last 10 years?
And when that is possible is it possible that we get 10 years without both? Meaning bonds and gold drop both? Yes it is as seen this year. For me that was the key. Whats great about the PP is the idea to buy low and sell high. But with value investing you get the same kind of thinking but you really know what high and low is. In the PP its only vague and relative.

[Tyler]

IMHO, whether the PP is right for you comes down to what you want out of investing.

I used to want my investments to make me the highest return possible. I would read up on market trends, research fund managers, and watch investing shows to help me determine where to best put my money every year. I often lost money in the process, but that's actually beside the point as I could have easily rationalized that away if that's what I still wanted to do.

Now, I want my investments to protect the substantial savings that my wife and I have accumulated over the years, and to grow consistently enough to fund an early retirement.  The last year of meager returns doesn't bother me in the slightest, because the way the portfolio has weathered a huge price drop in gold has given me confidence that it will similarly protect me when stocks ultimately fall as well.  And when I'm no longer working as much, that confidence in my portfolio is worth far more than a few more risky percent (that I don't really need when I'm honest with myself) I may or may not get in market chasing.

The PP is a zen portfolio for me. It meets my needs with no stress, and lets me focus my financial efforts on what I can control rather than on what I cannot.

[happyspec]

The PP is a zen portfolio for me. It meets my needs with no stress, and lets me focus my financial efforts on what I can control rather than on what I cannot.

Zen Portfolio! Now that's a nice and absolutely appropriate name for the PP – I fully agree with you, Tyler - OOOMMMM  . I also agree with you that PP must suit or you should leave it aside. I also chased money, lost money, won money, lost, won and so on. This experience has proven to me that I will never become something like a market wizard and that I cannot rely on my capability to call the markets. So I prefer to go with the agnostic character of the PP - we don't know anything about the future - with most of my net worth. This takes a lot of stress out of my life so that I have much more time to enjoy life and to do the things I want. This is invaluable. If we follow the PP we have the chance to see substantial gains in the long run in combination with very low risks in comparison to other strategies - and this with very, very little time needed. This IMHO is really a good trade, perhaps the best you can make in the investment world!

[frommi]

Its great when it works for you and you can sleep better at night. For me its not working, so i decided to sell the rest of bonds and gold and stop with the PP. I wish you all good luck in the future and a good return.

Regards frommi

[happyspec]

Sorry to hear that, frommi  . For which reasons did you quit? Doesn't a split in a PP and a VP work for you?

[Kshartle]

frommi you realize you've singlehandedly initiated the greatest stock collapse in history with these moves?

j/k - succesful investing is not easy. It's not easy emotionaly or practically.

Good luck.

BTW - are you global with your stocks and are you still holding ST treasuries or cash?

[Pointedstick]

I wish my PP were doing better. I bet we all do. Before I adopted the PP I had a very stock-heavy portfolio so part of me feels like a dope for abandoning something that would now be doing great. But then I remember that I abandoned that stock-heavy portfolio because of years of poor performance!

In the end, the PP makes more logical sense to me due to its broad diversification. A stock-heavy portfolio makes sense if we consider the historical average return rates, but only if we're prepared to potentially endure multiple decades of losses, periods of which which have happened many times in the past. Realizing that I was not prepared to ensure this helped to quiet those nagging voices telling me to double down on stocks. Figuring out what will shut up the voice of dissent is a really tough thing to do, but probably necessary to avoid second-guessing yourself and wasting money springboarding between investment strategies (*raises hand*).