PP investors--stay the course

[buddtholomew]

This portfolio is a gem...down when the equity markets are up and when the equity markets are down. Definitely consistent.

I think you should go with something better, like 200% long in emerging markets. The returns are enormous... and often even positive!

Perhaps a 100% gold portfolio? Gold was up today.


Or maybe 100% stocks, since the equity markets seem to be your benchmark. Why not just own the benchmark? Then you'll never have to worry about underperforming it!

PS, are you affiliated with the PP in any way? Are you hired to respond to any criticism of the portfolio or just a cheer leader?

The S&P 500 is a common benchmark. The PP is down and under-performing any other portfolio that I could imagine holding. Deal with it!

[Tyler]

This portfolio is a gem...down when the equity markets are up and when the equity markets are down. Definitely consistent.

An investment portfolio that historically generates reasonable returns with low volatility while remaining largely decoupled from any one dominant market is one feature I really like about the PP.  Sometimes it goes down.  More often it goes up.  When it does either relative to the stock market (or any other market) really doesn't matter to me. 

People tend to appreciate this feature much more when the stock market craters but the PP keeps on doing its thing.

[Pointedstick]

PS, are you affiliated with the PP in any way? Are you hired to respond to any criticism of the portfolio or just a cheer leader?

The S&P 500 is a common benchmark. The PP is down and under-performing any other portfolio that I could imagine holding. Deal with it!

It's rather rude to accuse people of being sock puppets. No, I'm just an investor in the PP, same as you. I invest in the PP because it gives me peace of mind. Clearly it doesn't give you peace of mind, and for that reason, you might want to consider something else. But then you would need to figure out what that is. 100% stocks will have huge drawdowns. 100% cash will avoid drawdowns but tread water or lose to inflation. A mix of stocks and bonds will be like all stocks, but slightly watered down.

But from your posts, it isn't clear to me what will make you happy:

When the stock market is up but the PP is down, you're unhappy.
When the stock market is up but the PP isn't up as much, you're unhappy.
When the stock market is down and the PP is down, you're unhappy.
When the stock market is down and the PP is up, you don't seem to notice.

So you really seem to be attuned to the stock market, but in other posts, you seem terrified of drawdowns. It's like you want a portfolio that only goes up and you're disappointed that the PP isn't it.

[Libertarian666]

As for me, I don't use the PP, so I'm certainly not biased toward it. I appreciate its virtues nonetheless.

[Kshartle]

As for me, I don't use the PP, so I'm certainly not biased toward it. I appreciate its virtues nonetheless.

Yes if I had less than ten years of life expectancy and had no intention of passing on my wealth then I would use it also. I would even use it if rates were much higher and I had no inkling of what the medium to long-term future would look like.

I do believe I have good idea though. The economy in the US will deteriorate. The FED will print and the government will spend to fight this. Cash and bonds will return nothing or be negative. Stocks and gold will continue to climb as the dollar is devalued.

All bets are off once the FED stops. Then it's time for cash and gold. It will be getting bumpy. Maybe a nice plane ticket to South America and have your gold and cash offshore for a couple years.

[buddtholomew]

PS, are you affiliated with the PP in any way? Are you hired to respond to any criticism of the portfolio or just a cheer leader?

The S&P 500 is a common benchmark. The PP is down and under-performing any other portfolio that I could imagine holding. Deal with it!

It's rather rude to accuse people of being sock puppets. No, I'm just an investor in the PP, same as you. I invest in the PP because it gives me peace of mind. Clearly it doesn't give you peace of mind, and for that reason, you might want to consider something else. But then you would need to figure out what that is. 100% stocks will have huge drawdowns. 100% cash will avoid drawdowns but tread water or lose to inflation. A mix of stocks and bonds will be like all stocks, but slightly watered down.

But from your posts, it isn't clear to me what will make you happy:

When the stock market is up but the PP is down, you're unhappy.
When the stock market is up but the PP isn't up as much, you're unhappy.
When the stock market is down and the PP is down, you're unhappy.
When the stock market is down and the PP is up, you don't seem to notice.

So you really seem to be attuned to the stock market, but in other posts, you seem terrified of drawdowns. It's like you want a portfolio that only goes up and you're disappointed that the PP isn't it.

I apologize for my comment. I will respond to these four scenarios:

When the stock market is up but the PP is down, you're unhappy.
only because the equity portion is insufficient to carry the overall portfolio
When the stock market is up but the PP isn't up as much, you're unhappy.
not true. The PP is less volatile than the stock market
When the stock market is down and the PP is down, you're unhappy.
Correct. If the PP falls along with the stock market, then I should just hold equities and sufficient cash to reduce volatility
When the stock market is down and the PP is up, you don't seem to notice.
Oh, believe me, I notice

[Pointedstick]

I apologize for my comment.

I accept your apology. No hard feelings.

I will respond to these four scenarios:

When the stock market is up but the PP is down, you're unhappy.
only because the equity portion is insufficient to carry the overall portfolio
When the stock market is up but the PP isn't up as much, you're unhappy.
not true. The PP is less volatile than the stock market
When the stock market is down and the PP is down, you're unhappy.
Correct. If the PP falls along with the stock market, then I should just hold equities and sufficient cash to reduce volatility
When the stock market is down and the PP is up, you don't seem to notice.
Oh, believe me, I notice

So you are happy when the PP is up and unhappy when the PP is down. I understand. I'm in the same boat.

Perhaps you should try not to compare the PP to the stock market so much. As a hedged portfolio, the PP is always going to underperform a single asset that's shooting up. Right now that's stocks. But throughout the 2000s, the PP underperformed gold. Unfortunately, anyone who stuck with their 100% gold portfolio has seen a lot of their gains evaporate in the last year, and are now basically flat for the past 3 years--without even any dividends as a consolation prize! By contrast, the PP has risen almost 18% during that time period:



That's the risk you take when you make a concentrated bet, and it can happen with stocks as easily as it can for gold. There's no way to avoid that risk. As you can see, the PP, like gold, hasn't been doing great for the past year. But that means it's flat, unlike the concentrated bet in gold which has fallen dramatically and wiped out two whole years of solid gains. Ouch! That why I'm here: as a PP investor, for me a bad year is no gains, rather than years of gains destroyed.

Am I annoyed by the flat year? Yes. But I see no alternative that isn't far more dangerous.

[MediumTex]

If I had invested all my money in the S&P 500 in the late 1990s because "stocks always go up if given enough time" I would probably be a grumpy investor today after watching my portfolio decline in value almost 40% TWICE, and looking at my portfolio today and seeing that on an inflation-adjusted basis I had basically a zero or negative return for all of my decade-plus of stress waiting for those big stock market returns to show up.

If, however, I had plowed all of my money into the stock market in the spring of 2009 and sold it all a month or so ago, I would be happy as a clam.  The problem is that no one was saying in the spring of 2009 that stocks were a great investment, but a LOT of people in the late 1990s were saying that they were.

History has a way of looking so neat and inevitable in retrospect, but it's just darn messy when it's actually unfolding.

[smurff]

One factor to consider is that there's lots of attention paid to the stock market on a minute by minute basis during the week. This is not the case with the other PP assets.  Several cable TV  channels are dedicAted to following stocks during the week, despite their occasional reference to bonds and PMs. Most of the financial analysts focus on stocks.  Except for life insurance specialists, personal finance consultants focus on stocks, and only consider bonds as an age-related technicality.  Analysts who focus on the other assets are disparaged in so many ways.  This leads to all sorts of biases.

So there is so much support for stock investing.  When the stock market has a good day or week or year, everyone knows about it.  The nightly news programs and web financial sites even include a big green arrow pointing up, just in case the viewer is math-challenged.  But if  Gold has a good day, the public does not hear about it.  And the way bond data are displayed on CNBC and Bloomberg TV tickers, the general public cannot figure out whether it's good news or bad news they're looking at.

All this means there are built-in supports in the system for the idea of loading up on stocks and then becoming upset when stocks don't do well, no matter how well any other assets are performing.  There is a systemic bias toward becoming impatient with any portfolio that is not stock-heavy, especially when stocks are doing very well compared to other assets in the portfolio.  I feel it, too, but I also remember the purpose of the PP, recall that the portfolio must be looked as a unit whole, remember why I allocated my financial assets using it, take a deep breath, and focus my attention on something else.

[dualstow]

If I had invested all my money in the S&P 500 in the late 1990s because "stocks always go up if given enough time" ...

One of my favorite friends who doesn't really know anything about investing has a lot of stocks in his 401(k). Some good broad index funds, plus some inherited indie stocks.

He said, "As long as we get out during an upswing", we'll be fine, he said. "Famous last words", I told him, and left it there.
His reply was that they have "safe" money, too.
Fair enough. I'm not going to give him any more unsolicited advice. He also said something about the market always coming back, eventually.

[frommi]

If I had invested all my money in the S&P 500 in the late 1990s because "stocks always go up if given enough time" ...

One of my favorite friends who doesn't really know anything about investing has a lot of stocks in his 401(k). Some good broad index funds, plus some inherited indie stocks.

He said, "As long as we get out during an upswing", we'll be fine, he said. "Famous last words", I told him, and left it there.
His reply was that they have "safe" money, too.
Fair enough. I'm not going to give him any more unsolicited advice. He also said something about the market always coming back, eventually.

Perhaps he is not smarter than you, but does instinctly the right thing. Most if not all PP users are heavily biased against stocks because of the last 10 years. But you have to face reality here, with stocks earning yields around 5.2% and 10y treasuries around 2.6% its the right thing to go mostly stocks. Gold in the last 10 years was like the netherlands tulips bubble. Face it, it explodes right in your face and you don`t notice. 

[dualstow]

Perhaps he is not smarter than you, but does instinctly the right thing. Most if not all PP users are heavily biased against stocks because of the last 10 years. But you have to face reality here, with stocks earning yields around 5.2% and 10y treasuries around 2.6% its the right thing to go mostly stocks. Gold in the last 10 years was like the netherlands tulips bubble. Face it, it explodes right in your face and you don`t notice. 

I disagree on all counts.
- If you mean instinctively, he is not instinctively doing the right thing.
- Instinct aside, he *is* smarter than me, but he is unaware of asset allocation.
- I don't know about other PP users, but I am still at 50% stocks in pp+vp and was in all stocks for most of my life. (You did say most users. Fair enough; I don't know).
- The reality I'm facing is apparently not the same as yours. Even the stocks I've held since '04 are yielding just 4.5% on cost, and less than 3% on holdings. Stocks are not earning 5.2%. The individual ones that are are not "the right thing" to hold. Not in my reality.
- Gold in the last ten years was nothing like the tulip bubble, and even if it had been, it would not be the case for holders of Harry Browne's Permanent Portfolio.

edited for typos

[frommi]

I disagree on all counts.
- If you mean instinctively, he is not instinctively doing the right thing.
- Instinct aside, he *is* smarter than me, but he is unaware of asset allocation.
- I don't know about other PP users, but I am still at 50% stocks in pp+vp and was in all stocks for most of my life. (You did say most users. Fair enough; I don't know).
- The reality I'm facing is apparently not the same as yours. Even the stocks I've held since '04 are yielding just 4.5% on cost, and less than 3% on holdings. Stocks are not earning 5.2%. The individual ones that are are not "the right thing" to hold. Not in my reality.
- Gold in the last ten years was nothing like the tulip bubble, and even if it had been, it would not be the case for holders of Harry Browne's Permanent Portfolio.

edited for typos

. On multpl.com you can see S&P500 Earnings Yield (not dividend yield), its 5,2% currently. As i said before, gold is only worth what someone else is paying you for it, so its value is purely speculation. There is some correlation with negative interest rates and that was it. Its not a good inflation hedge! But i don`t want to argue here about gold, because very few people in this forum are realistic about gold. (Perhaps not you, but most others  ).
I haven`t done the math myself, but i would say the cheapest way to hedge against catastrophic outcomes in investing in equities are currently long running out-of-the-money puts. On the first sight this looks cheaper than buying bonds, because the opportunity costs are much lower.

[dualstow]

Ah, I get that part now. The earnings of stocks. I thought you were saying, "with stocks earning yields of x%" and I thought, what a strange way to say "with stocks paying yields of x%" and yet I copied the structure in my reply to you, lol.

I'm glad you don't want to argue about gold either. I think the debate has already been thoroughly explored here and elsewhere. I choose to hold some. It has been explained to me why cholesterol is bad, but I still love a cholesterol-rich breakfast. I'll take my chances with both.
You said that

gold is only worth what someone else is paying you for it

. True, but I said something similar to my friend -- he's not the one mentioned above -- when Apple was between 500 and 700. I think this was also before it began paying a dividend. He asked me, "So you don't think Apple is a good company?" I think Apple is a great company. But, at some point I do think one is in greater-fool territory when the share price behaves like that.

In other words, at some point it doesn't matter that Apple is a company of people creating things and gold is an inanimate object.

Options just aren't an option ( ) for me at this time, but if I ever did use them, I would only do covered calls.

[Pointedstick]

I'm glad you don't want to argue about gold either. I think the debate has already been thoroughly explored here and elsewhere. I choose to hold some. It has been explained to me why cholesterol is bad, but I still love a cholesterol-rich breakfast.

Thankfully, your blood cholesterol has very little to do with your dietary cholesterol intake. Blood cholesterol is manufactured in the liver. Having too much blood cholesterol is symptomatic of liver issues or a diet too high in fructose (which causes the liver to produce a lot of LDL to get rid of it), not excessive dietary cholesterol.

This is why eggs are healthy despite having a bazillion grams of cholesterol.

[dualstow]

Yes, PS, you can imagine how happy I was to see these new (new for me) theories from Machine Ghost and others here. I ignored everyone who criticized what I was eating, and anyway this criticism occurred mainly when I was about ten years old.

I don't think smokers will ever enjoy the same revelation.

[buddtholomew]

I feel hopeless. I have been thinking about how to unwind my positions in the permanent portfolio.

[stuper1]

I feel hopeless. I have been thinking about how to unwind my positions in the permanent portfolio.

Budd, how long have you been in the PP?  I've been in since April of this year, and I've lost about $20k or more in that time.  I consider it some of the best money I've ever "spent", because I've learned so much more about investing and personal finance by reading MT's and Craig's book and lurking on this forum than I ever knew before.  Look at the graph of past PP performance.  It hasn't always gone up in a straight line.  There have been periods of flat or negative performance before.  Just about the time that you unwind your positions is probably when it will start going up again. 

What would your alternate plan look like?

[Tyler]

I feel hopeless. I have been thinking about how to unwind my positions in the permanent portfolio.

One should not invest in something that makes them feel hopeless. 

That said, one should also have realistic expectations when it comes to investing.  If a gradual decline of less than 5% over one year causes that much anxiety or depression, be very careful when selecting the alternative "hopeful" portfolio.  All mainstream portfolios regularly experience far worse, and the PP is actually quite tame in that regard.

My only real word of advice is not to trade when emotions are high.  Get your head right, and then formulate a plan you feel you can stick with through good times and bad without beating yourself up.

[buddtholomew]

I have been invested in the PP since 2011. I would feel more comfortable having 45% in equities and IT-Treasuries with only 10% allocated to Gold. I dont envision having the intestinal fortitude to rebalance into either Gold or LTTs when the need arises. Investing in equities after the 2008 decline was difficult, but I followed through with the plan.

It looks as though I am more comfortable with a bullet FI strategy than a barbell one and not comfortable at all having 25% allocated to precious metals.

[dragoncar]

I feel hopeless. I have been thinking about how to unwind my positions in the permanent portfolio.

One should not invest in something that makes them feel hopeless. 

That said, one should also have realistic expectations when it comes to investing.  If a gradual decline of less than 5% over one year causes that much anxiety or depression, be very careful when selecting the alternative "hopeful" portfolio.  All mainstream portfolios regularly experience far worse, and the PP is actually quite tame in that regard.

My only real word of advice is not to trade when emotions are high.  Get your head right, and then formulate a plan you feel you can stick with through good times and bad without beating yourself up.

I feel hopeless, but I don't have any better ideas. 

[stuper1]

I don't have any better ideas, and I don't feel hopeless.  I feel like we're in a not-so-great time for the PP, but better times will come.  Be happy that gold etc. is "on sale" right now.  Be happy if you generally eat three meals a day and have a roof over your head.  If you're reading this, it probably means that you already won the genetic lottery (i.e., you weren't born dirt poor in a poor country with little chance to advance).

[buddtholomew]

I don't have any better ideas, and I don't feel hopeless.  I feel like we're in a not-so-great time for the PP, but better times will come.  Be happy that gold etc. is "on sale" right now.  Be happy if you generally eat three meals a day and have a roof over your head.  If you're reading this, it probably means that you already won the genetic lottery (i.e., you weren't born dirt poor in a poor country with little chance to advance).

One can respond to any negative experience using the same line of reasoning. From a PP perspective, I am not pleased with the current behavior of the individual components of the portfolio as they respond to the crises unfolding. The portfolio has not met my expectations, accurate or inaccurate aside.

[stuper1]

Budd, you've probably looked at the long-term graph of PP performance over time.  There have been several times where it went sideways or slightly downward for fairly long periods.  Did you think that would never happen again?  I hope you realize that I'm only saying all this to try to convince myself that I didn't make a big mistake when I went all in on the PP back in April.

[goodasgold]

I feel hopeless. I have been thinking about how to unwind my positions in the permanent portfolio.

As stated by others, the HBPP sometimes has down years, and this is especially glaring during years (such as the present one) when alternative strategies are doing better.

I wish you well, Budd, whatever decision you make. As for myself, I am satisfied with the long-term returns of the PP and believe any investment approach is best considered on a long-term basis. So I am sticking with the PP.