Yes, these keywords indicate that the pp strategy is being viewed from the Boglehead lens. It's not a bad entry at all, although it doesn't really explain why gold or long bonds are there. Just how to modify, minimize, or get around them. :-)
The essential goal of being an all-weather portfolio is stated in the Harry quote, at least. LadyGeek is bright and knows how to write.
dualstow, I can certainly see your point of view and requested that the blog entry include how each asset class in the portfolio is expected to perform under different economic conditions. More importantly, an investor should look at the overall performance of the portfolio and not focus on the performance of a specific asset class. Bogleheads are not sold on an investment that pays zero dividends and generally strive to maintain an intermediate-term (5-6 years duration) fixed income portfolio. Although, of late, there has been a movement to shorter-duration fixed income investments.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
Yes, these keywords indicate that the pp strategy is being viewed from the Boglehead lens. It's not a bad entry at all, although it doesn't really explain why gold or long bonds are there. Just how to modify, minimize, or get around them. :-)
The essential goal of being an all-weather portfolio is stated in the Harry quote, at least. LadyGeek is bright and knows how to write.
Hi:
Lady Geek asked me to send along the following note:
Thank you for the compliment. The perspective is indeed through the Boglehead lens simply because that is the depth of my investing experience. If anything is missing or incorrect, please get the message back to the Bogleheads forum and I'll update the blog post.
As noted by buddtholomew, and with some behind-the-scenes assistance, I have updated the blog post to include a description of the asset classes and their roles in the economic climates.
We also added a segment mentioning Craig's and JM's book, and also added an editorial expansion to the Bernstein quote for PRPFX.
thanks,
Last edited by barry barnitz on Wed Apr 30, 2014 2:52 am, edited 1 time in total.
Just took a look at the post. The statement about gold is not surprising, but I was genuinely annoyed at the statement that cash and long treasuries are verboten in the Boglehead philosophy. REALLY?? I thought there were a number of Boglehead-safe portfolios that include one or the other of those, if you count "short term bonds" as "cash". Also they seem to have completely missed the concept of the barbell. If you don't like the barbell then presumably you don't like intermediate bonds either.
They could also have stated that the Permanent Portfolio is unique in limiting bond and cash holdings to Treasuries and excluding TIPS.
Nice of them to give back performance numbers, but maybe they could have said something positive about the "tracking error" - which amounts to steadier returns over time. The point about many investors using the PP to chase performance is valid but overemphasized, as if it's the main point of the blog post - and it probably is.
So overall I give this article a D-.
"Democracy is two wolves and a lamb voting on what to have for lunch." -- Benjamin Franklin
A D minus?! Ouch!
Yeah, long treasuries are out. I remember that from their paperback guide to investing. Bogleheads use cash, but not as an investment (I think).
if you count "short term bonds" as "cash"
You have a point there.
Overall, I think the article accurately describes the pp strategy, though. If it were an endorsement...I'd be scratching my head.
sophie wrote:
Nice of them to give back performance numbers, but maybe they could have said something positive about the "tracking error" - which amounts to steadier returns over time.
This is a point that many people seem to overlook. If you're interested in a portfolio that doesn't go down much when a stock heavy portfolio does, what exactly do you think should happen if stocks go bubbling up? I don't want a portfolio that follows stocks as they go down 30% or more (which they seem to do annoyingly often). But I understand the price of this is a portfolio that doesn't follow stocks on the way up either. In my book, tracking error is a good thing. As long as the long term (20+ year) return is even moderately close, I don't want my portfolio to track stock prices - down or up. I like roller coasters rides at amusement parks - not with my life savings.
Correct you are, Sophie, that the idea of the barbell was missed.
Also, isn't the term "tracking error" just being used incorrectly? The PP is not trying to track any variation of a boglehead portfolio. It's only trying to deliver whatever returns are available from the four assets.
Finally, the claim about PP investors backing out when their portfolio is underperforming is questionable without data that back that up. Somehow I don't think that most boglehead investors just rode out the 2000-2002 and 2007-2009 periods by calmly continuing on in the face of terrible losses.
barrett wrote:
Finally, the claim about PP investors backing out when their portfolio is underperforming is questionable without data that back that up. Somehow I don't think that most boglehead investors just rode out the 2000-2002 and 2007-2009 periods by calmly continuing on in the face of terrible losses.
There were people here who bailed on the PP in 2013, and a number came close. This was with a nominal yearly loss of about 3%. That speaks to the ranges of investor risk tolerance, if you ask me. I think a 3% nominal loss is small, but to some people it seems large. For them, even the PP may be too risky unless they can learn to tolerate more volatility.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
barrett wrote:
Finally, the claim about PP investors backing out when their portfolio is underperforming is questionable without data that back that up. Somehow I don't think that most boglehead investors just rode out the 2000-2002 and 2007-2009 periods by calmly continuing on in the face of terrible losses.
There were people here who bailed on the PP in 2013, and a number came close. This was with a nominal yearly loss of about 3%. That speaks to the ranges of investor risk tolerance, if you ask me. I think a 3% nominal loss is small, but to some people it seems large. For them, even the PP may be too risky unless they can learn to tolerate more volatility.
Risk tolerance isn't only WRT downside. For example, I'm willing to accept a loss of 5% if I expect average annual returns of 50%. People who bailed probably didn't like the ratio of downside risk to upside potential. For the record, I didn't bail and continued my regular PP contributions.
Interesting, PS, but folks bailing in 2013 almost definitely has to do with the feeling that they were being left behind in the face of a great year for stocks. I think the daily recap of markets should read something like "The Dow was up 42 points in relatively heavy trading and we are just going to ignore whatever happened in the rest of the financial world." I am new to the PP but I am sure it's hard to tune out the stock noise when they are having a banner year.
barrett wrote:
Interesting, PS, but folks bailing in 2013 almost definitely has to do with the feeling that they were being left behind in the face of a great year for stocks. I think the daily recap of markets should read something like "The Dow was up 42 points in relatively heavy trading and we are just going to ignore whatever happened in the rest of the financial world." I am new to the PP but I am sure it's hard to tune out the stock noise when they are having a banner year.
Exactly. That's what was meant by "huge tracking error relative to more conventional portfolios." People used to seeing economic and portfolio performance measured in the movement of the Dow can panic when it outperforms the portfolio, even though the portfolio isn't really even trying to outperform the Dow.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
I personally am not a big Bogleheads fan because if its tracking error relative to the Permanent Portfolio.
Given two portfolios with roughly the same long-term performance, the one with less volatility seems like the benchmark to me. But I can forgive people for comparing everything to stocks when that's all you ever hear about.
Wow, I'm surprised to see I've posted over there. I thought I had never participated! I shall hang my head in eternal shame.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Pointedstick wrote:
There were people here who bailed on the PP in 2013, and a number came close. This was with a nominal yearly loss of about 3%. That speaks to the ranges of investor risk tolerance, if you ask me. I think a 3% nominal loss is small, but to some people it seems large. For them, even the PP may be too risky unless they can learn to tolerate more volatility.
Really? List names!
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Pointedstick wrote:
There were people here who bailed on the PP in 2013, and a number came close. This was with a nominal yearly loss of about 3%. That speaks to the ranges of investor risk tolerance, if you ask me. I think a 3% nominal loss is small, but to some people it seems large. For them, even the PP may be too risky unless they can learn to tolerate more volatility.
Really? List names!
I'm bad with names, but I'm specifically thinking of the Israeli guy who lives on $400 a month or something. Started a PP and abandoned it in a panic 3 months later when gold tanked and the whole portfolio was down a grand total of about 4%.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
