PP investors--stay the course

[Reub]

This portfolio has seen its best days...

If you truly believe that, isn't getting out now the best course of action? Since you hate this portfolio and feel pessimistic about its future, why continue to torture yourself?

My sentiments exactly. In my own time, thank you.

Budd! I'm surprised at you! Now eat all of your vegetables and go to your room!

[Pointedstick]

I sincerely doubt that gold and bonds will soar in response to falling equity prices. I suspect gold declines and investors shun long-term treasuries as the current mindset is for yields to rise. This portfolio has seen its best days...

Where's the money going, then?  It just about has to be in gold, bonds, stocks, or cash.

Could be a lot of places: Real estate, foreign stocks, commodities, art, corporate bonds, munis, cash--but without pushing up the yield, etc.

Personally I think the hot money is going into stocks and real estate right now, creating new bubbles in each sector that are going to explode if and when the Fed stops QE, or before then if they ever become too large to sustain, especially real estate. People gotta live somewhere. Just watch the real estate and DIY channels on TV. They've got middle-class people buying reasonably-nice-looking houses in reasonably nice areas for half a million dollars and up.

[dragoncar]

According to Peak2Trough, for the last 12 months, the HBPP has return of -2.89%...and there have been several calls that the HBPP is doomed...

However, over the past 42 yrs when there apparently was nothing inherently wrong with the HBPP, there have been 120 periods (which were undoubtedly less or greater than 12 months) that had a drawdown over 3%...

Am I missing something here or can one surmise that the recent (last 12 months) performance of the HBPP is nothing to get too excited about?

If I had the programming prowess of Peak2Trough or many others on this forum, I would develop a program (like Peak2Trough) that you could put your start date and let it show you how your returns for that time period rank with similar time periods over the last 42 years...  That could be very enlightening...

As far as I can tell, we've now had at least 2 years of negative real returns (p2t shows 1.27% cagr for the last 2 years).  This is getting pretty close to my 3 year negative return alarm.  I'm givig it one more year before I seriously consider a new strategy.  As of now, I don't have a better one (a 50/50 bogleheads isn't seeming too hot looking forward)

That doesn't mean I can't blow off some steam in this thread on occasion.


Edit:  perhaps this is an unrealistic expectation, since it looks like there have been a few 5-year periods with negative real returns since 1974.

[buddtholomew]

If you truly believe that, isn't getting out now the best course of action? Since you hate this portfolio and feel pessimistic about its future, why continue to torture yourself?

My sentiments exactly. In my own time, thank you.

Budd! I'm surprised at you! Now eat all of your vegetables and go to your room!

Not sure what this means, but I enjoy vegetables and would welcome some alone time...

[Xan]

Not sure what this means, but I enjoy vegetables and would welcome some alone time...

That's what she said.  heyoooo

[dualstow]

Budd! I'm surprised at you! Now eat all of your vegetables and go to your room!

Yeah, Budd, eat your Reub-barb pie!

[DragonJoey3]

According to Peak2Trough, for the last 12 months, the HBPP has return of -2.89%...and there have been several calls that the HBPP is doomed...

However, over the past 42 yrs when there apparently was nothing inherently wrong with the HBPP, there have been 120 periods (which were undoubtedly less or greater than 12 months) that had a drawdown over 3%...

Am I missing something here or can one surmise that the recent (last 12 months) performance of the HBPP is nothing to get too excited about?

If I had the programming prowess of Peak2Trough or many others on this forum, I would develop a program (like Peak2Trough) that you could put your start date and let it show you how your returns for that time period rank with similar time periods over the last 42 years...  That could be very enlightening...

So I haven't made a program for it yet, but I did use excel and found that -2.89 over a 12 month period is worse than 95% (+/- 2%) of all 12 month trailing returns.  That being said, it's not super uncommon, since there are still twenty two TTM periods in which the return was worse than -2.89.

Long story short, the PP is performing as expected, and there isn't really any need for panic based on the numbers I'm crunching.  If you consider it not beating the S&P 500 Index as a failure, I would recommend buying the S&P 500 directly, as you will always match the index.

It's easy to get distracted in this runaway bull market and start thinking about returns, without remembering that it wasn't all that long ago you were more concerned about losses.  That's why I invested in the PP to start with.  To prevent losses and get real returns.  A single down year, isn't going to dissuade that.

P.S.  Bought the book last week, and love it.  Very well done Craig and Lawson.

[PP67]

Thanks, DJ3...  I guess one perspective would be that the PP has experienced an abnormally low performance in the past 12 months that has occurred less than 5% of the time over last 40+ yrs...  One could surmise that while this low performance is certainly possible, it is unlikely to be the norm going forward over an extended period...  If preservation is a higher priority than growth, the HBPP still appears to work as advertised...  Should be an interesting upcoming 12 months!

[DragonJoey3]

I'm at work at the moment, so I haven't much time to clean this up, but here is the TTM return of the PP from 1971 through August 2013. 

https://docs.google.com/file/d/0B2wKDjK ... sp=sharing

You'll see that this isn't too uncommon, and happens about every 5-8 years.  Bearing in mind that inflation plays a big role in the returns, so real returns looks a bit different from that.

Still you should get the idea, of how this isn't exactly "panic time" just yet.

[buddtholomew]

Thanks, DJ3...  I guess one perspective would be that the PP has experienced an abnormally low performance in the past 12 months that has occurred less than 5% of the time over last 40+ yrs...  One could surmise that while this low performance is certainly possible, it is unlikely to be the norm going forward over an extended period...  If preservation is a higher priority than growth, the HBPP still appears to work as advertised...  Should be an interesting upcoming 12 months!

"If preservation is a higher priority than growth, the HBPP still appears to work as advertised..."

I'm starting to see this statement more frequently and would like further explanation. I was under the assumption that PP historical returns (1972-current) were similar to a 60/40 AA with less volatility. Doesn't this suggest that the portfolio can provide both preservation of capital and growth?

[DragonJoey3]

Thanks, DJ3...  I guess one perspective would be that the PP has experienced an abnormally low performance in the past 12 months that has occurred less than 5% of the time over last 40+ yrs...  One could surmise that while this low performance is certainly possible, it is unlikely to be the norm going forward over an extended period...  If preservation is a higher priority than growth, the HBPP still appears to work as advertised...  Should be an interesting upcoming 12 months!

"If preservation is a higher priority than growth, the HBPP still appears to work as advertised..."

I'm starting to see this statement more frequently and would like further explanation. I was under the assumption that PP historical returns (1972-current) were similar to a 60/40 AA with less volatility. Doesn't this suggest that the portfolio can provide both preservation of capital and growth?

I can certainly give you my interpretation of it.

The PP is designed to both preserve and grow your money, but in the case where there is a significant crisis in an asset (such as what happened with Gold earlier this year) the primary focus is preservation.  That isn't to say the 60/40 portfolio is bad, but the 60/40 portfolio is "less safe" than the HBPP because it doesn't take into account situations in which both stocks and bonds would lose value.  As such the PP is more focused on preservation.

Preserving still means growth however, because without some growth it will lose to inflation.  The goal of the PP if I were to sum it up in one sentance is quite simply:

"Real above inflation returns in a safe environment that can weather any storm."

That doesn't guarantee it'll beat the 60/40, or even necessarily keep up with it, but it does mean that it should beat inflation over the course of time, and certainly do so in fashion that is safer, in terms of risk and volatility.

[Rien]

Preserving still means growth however, because without some growth it will lose to inflation.

But in deflationary times the portfolio may go down, and still maintain purchasing power.

[frugal]

I'm at work at the moment, so I haven't much time to clean this up, but here is the TTM return of the PP from 1971 through August 2013. 

https://docs.google.com/file/d/0B2wKDjK ... sp=sharing

You'll see that this isn't too uncommon, and happens about every 5-8 years.  Bearing in mind that inflation plays a big role in the returns, so real returns looks a bit different from that.

Still you should get the idea, of how this isn't exactly "panic time" just yet.

Hello,

nice chart.

My biggest fear is to lose, let's say 30-40% and get out from the PP in the worst moment, If I lose faith on it...

You have any plan to quit PP if something occurs?


Regards

[DragonJoey3]

You have any plan to quit PP if something occurs?

Yes actually.  My plans to leave the PP essentially revolve around it behaving in a way that I would feel doesn't fit with expectations.  Some of those might be:

1. A draw down of 25%+ lasting longer than a single day panic (perhaps 2 weeks).
2. A 5 year rolling real return that is less than -3% (lowest in PP history based on CPI data was -1.43% in July 1978).
3. A 1 year real return of -15% or less

Mostly I expect a decent amount of volatility, but not huge draw downs that last a long period.  For some perspective on the draw downs, here is what I have for 2008 in terms of draw downs per month.

Month% diff All Time High
2008-010.00%
2008-020.00%
2008-03-0.05%
2008-04-1.69%
2008-05-2.44%
2008-06-2.54%
2008-07-1.26%
2008-08-2.52%
2008-09-4.31%
2008-10-3.61%
2008-11-13.13%
2008-12-7.96%
2009-01-0.17%
2009-02-4.62%
2009-03-6.98%
2009-04-4.36%
2009-05-6.03%
2009-06-2.68%
2009-07-3.44%
2009-08-1.40%
2009-09-0.20%
2009-100.00%


So you'll notice that the worst draw down (as measured at the beginning of the month) was 13% off all time high (as measured at beginning of the month).  I would expect that 30% may occur on a day or two, but consistent losses would be cause for worry.  This draw down period shown here is one of the worst in the portfolio history, and understandably so, because 2008 was a lousy year.

[robg]

For a significant drawdown to occur with the PP, it almost certainly means that there is more than 1 asset class involved. And that means almost every "conventional" portfolio would be affected even more.  This year certainly tests my patience with owning Gold (which is the part I was least interested in), but even with the huge drawdown in Gold, my portfolio is only down a few percent.

DragonJoey-- do you happen to know from your analysis if there was every a PP drawdown over say 5% that didn't correlate with a similar or larger drawndown in either a 100% stock or 60/40 portfolio?

[DragonJoey3]

DragonJoey-- do you happen to know from your analysis if there was every a PP drawdown over say 5% that didn't correlate with a similar or larger drawndown in either a 100% stock or 60/40 portfolio?

Yes, there was one from late 1980 through mid 1982.  You can almost see it in the data on crawlingroad (https://web.archive.org/web/20160324133 ... l-returns/).

The draw downs in that period were caused entirely by the collapse of Gold.  As such, bonds and stocks were doing alright, and thus the 60/40 wouldn't be impacted as much.

This is the draw down most anti-gold people point to as the failing of the PP, but it performed as expected, with returns above inflation through almost the entire period.

[dragoncar]

For a significant drawdown to occur with the PP, it almost certainly means that there is more than 1 asset class involved. And that means almost every "conventional" portfolio would be affected even more.  This year certainly tests my patience with owning Gold (which is the part I was least interested in), but even with the huge drawdown in Gold, my portfolio is only down a few percent.

DragonJoey-- do you happen to know from your analysis if there was every a PP drawdown over say 5% that didn't correlate with a similar or larger drawndown in either a 100% stock or 60/40 portfolio?

Uh, wasn't there one this year?

Max Drawdown 7.80% (2012-10-02 - 2013-06-26)

[frugal]

You have any plan to quit PP if something occurs?

Yes actually.  My plans to leave the PP essentially revolve around it behaving in a way that I would feel doesn't fit with expectations.  Some of those might be:

1. A draw down of 25%+ lasting longer than a single day panic (perhaps 2 weeks).
2. A 5 year rolling real return that is less than -3% (lowest in PP history based on CPI data was -1.43% in July 1978).
3. A 1 year real return of -15% or less

Mostly I expect a decent amount of volatility, but not huge draw downs that last a long period.  For some perspective on the draw downs, here is what I have for 2008 in terms of draw downs per month.

Month% diff All Time High
2008-010.00%
2008-020.00%
2008-03-0.05%
2008-04-1.69%
2008-05-2.44%
2008-06-2.54%
2008-07-1.26%
2008-08-2.52%
2008-09-4.31%
2008-10-3.61%
2008-11-13.13%
2008-12-7.96%
2009-01-0.17%
2009-02-4.62%
2009-03-6.98%
2009-04-4.36%
2009-05-6.03%
2009-06-2.68%
2009-07-3.44%
2009-08-1.40%
2009-09-0.20%
2009-100.00%


So you'll notice that the worst draw down (as measured at the beginning of the month) was 13% off all time high (as measured at beginning of the month).  I would expect that 30% may occur on a day or two, but consistent losses would be cause for worry.  This draw down period shown here is one of the worst in the portfolio history, and understandably so, because 2008 was a lousy year.

thanks for posting

after suffering all that lost I would have always that feeling:

"Am I quitting in the MINIMUM?

I might be leaving PP in the LOW..."

No?


Regards!

[Pointedstick]

The only really sane reason to quit the PP is if you've found a different asset allocation that you feel suits you better. Quitting out of fear with no alternative in mind is usually a terrible idea, and it's just your lizard brain tying to sabotage you.

If the PP is too volatile for you, there are very few other options aside from extremely cash-heavy allocations that lose to inflation most of the time. So you've got to pick your poison.

[LC475]

The only really sane reason to quit the PP is if you've found a different asset allocation that you feel suits you better.

I agree.  Harry Browne always said 'this is the best way, as far as I know, as far as I've been able to figure out.'  Maybe something better will come along.  Who knows? 

Eventually the world will change, the US will no longer be in the special position it is in, and the Permanent Portfolio as it is now will no longer work.  Until then, and until someone comes up with an even better investment strategy, the Permanent Portfolio seems to be the best.

[dualstow]

I still have a good feeling about the pp and I am a bit envious of those who are just getting in this year.
Gold's down to US$1225 as I type and I'm chomping at the bit here. A little lower (or a little higher in the stock market) and my bands will be hit.

Some don't like the idea of buying more of a "losing asset." For me, it'll feel gold to reduce my average cost.

[Austen Heller]

Gold's down to US$1225 as I type and I'm chomping at the bit here.

You are not alone.  Porter Stansberry has indicated that $1200 or below is a fantastic price to pick up some gold.  At that price, he would like to buy a 2-foot-long solid gold bar:

[buddtholomew]

Some don't like the idea of buying more of a "losing asset." For me, it'll feel gold to reduce my average cost.

I see what you did there...

[dualstow]

Austen: Nooo! I'm holding my index fingers up in the sign of the cross. I don't mind being in the same boat as you, but Porter Stansberry? Please tell me that charlatan is merely saying, "I once caught a fish this big."

Budd: Haha, I didn't even see that. Total Freudian slip.

[portart]

I am thinking of shifting my VP completely to mining stocks. Do you think it's too early. I see there could be more to drop but looking at all the charts, they are dead on their ass as lows of ten years ago.
Any opinion on this?