Permanent Portfolio Using Relative Strength (SHY, TLT, GLD, VTI)

[AdamA]

From Why the Best-Laid Investment Plans Usually Go Wrong

A relative strength study is an excellent way to discover which investments you should have bought last month, but I've seen no evidence that it fortells which investments will do well next month.

[Drewskers]

There is plenty of evidence cited in the papers I referenced previously! Did you read any of them? Those papers clearly demonstrate that momentum as measured by 6 to 12 month relative strength exists, and is a profitable (not infallible) strategy for adjusting asset allocations. This, over a large number of markets, and over a long period of time - longer back than the PP has been backtested - there are some papers out there that demonstrate momentum existed in markets centuries ago.

As wonderful as HB's books are, and as well as they have with stood the test of time - nothing is carved in stone. There actually is new information that has been collated and made available since he wrote his books. There are new ways to study and classify data. In short: new research has been done, and new insights have been gained. Harry may not have seen the evidence - it may not have existed in his time - but that doesn't mean the evidence does not exist now.

[Gumby]

There are new ways to study and classify data.

Drewskers, if you don't mind me asking... how long have you been investing for?

[Drewskers]

There are new ways to study and classify data.

Drewskers, if you don't mind me asking... how long have you been investing for?

For whatever relevance that has to the discussion at hand, 33 years.

[MediumTex]

There are new ways to study and classify data.

Drewskers, if you don't mind me asking... how long have you been investing for?

I'm not answering for Drewskers, but I would just note that I have noticed a tendency among people in general that when they are first getting involved with something new there is a strong desire to accumulate all manner of gadgets and alternative ideas about what the best way to do it.

It doesn't matter whether you are talking about girls, photography, surfing, video games, bow hunting, knitting, playing the trombone or investing, there is always that period when you first get started where you are convinced that there is some optimally perfect approach to what you are trying to do, and often the answer appears to lie in buying all manner of gadgets, books, and other accessories and instruction materials.

As one gets more involved in his area of interest, however, he begins to see that the accessories and gadgets don't matter that much, and can even distract him from the essence of the experience.  After a significant amount of experience is acquired, he begins to notice that certain behaviors have become completely internalized, and he no longer even notices himself doing them--he just acts and finds that he has acquired an almost unconscious skill in his area of interest.  And so it goes until the new interest is just part of him and he no longer thinks about it much at all, though he gets great satisfaction from doing the activity.

I think that the PP is sort of like that.  In fact, I think that the sooner one can fully internalize the concepts, the sooner he can start really enjoying his PP investing experience.

The PP is sort of like a style of guitar playing.  It's certainly not the only style, it's not the most difficult style, it's not the most intricate style, and it's not the flashiest style, but for those whose temperament matches up well with it, it can provide good service.  I think that sometimes people get frustrated with it because it appears that we are all sitting around playing the same three chords over and over again.  The thing is, though, we LIKE those three chords, and that style of play is what interests us.

[Drewskers]

It's true, MT, there is power in keeping things simple, of mastering the basics, and not getting distracted by doo-dads and esoteric theories - it's true in any field. It teaches the practitioner two very important things: discipline, and mastery.

But, it's odd you should mention photography. I've been a photographer since I was in the sixth grade. My father taught me how to develop black and white film, and make fine prints in the basement darkroom. He also taught me, the only true photography was black and white photography. And the only proper way to work was using the Zone System. Over the years, I mastered the Zone System and the use of the various developers, burning and dodging techniques, papers, and toners. (Though of course, being a trained as a True Believer in the Ansel Adams Zone System, I rarely used any film other Tri-X). The closest thing to a doo-dad that we ever used was a spot exposure meter, that was a a great advance, even Ansel Adams bought one of those! By the time I was in my late 20s, I was a technical virtuoso in the black & white darkroom. But the strange thing was: I could not get an exhibition to save my life. My work was technically perfect, and visually stultifying.

Then a funny thing happened. One day I went crazy (bonkers I tell ya), and I bought a roll of Kodachrome and shot it. Blasphemy! Color film in a miniature (35mm) camera! What good could come of THAT? I felt like I needed to go to confession or something. But I liked the results so much I bought an Agfa chemistry and paper kit for printing slides that used lye as the developer. Some really weird stuff!  I played around with that and I liked the prints so much I signed up for a class in in color printing. On the third week of the color printing class, the teacher pulled me aside and quizzed me up and down about my experience and so forth. The next week he pulled me aside and offered me a one man show at his gallery. The rest, shall we say, is history. I've had a lot of shows since then. And I've only rarely shot a roll of black and white film again. But the things I learned by shooting black and white were indispensable in color photography. I don't mean the nuts and bolts of black and white photography, for they became irrelevant. I mean, discipline and mastery - which are portable skills.

Now, how would I have ever found that out, how would I have met with success in that field, if I had not explored, experimented, investigated, and looked at other ways of doing things?

What if I only chose to see things as BLACK AND WHITE?

OK! So with that true-life parable related (and hopefully I have not put too fine a point on it), I want to know what the problem is, discussing this topic of relative strength, now that it has been moved to the VARIABLE PORTFOLIO section of this forum?

Harry Browne himself said of the VP, "...any trading method is acceptable; any forecast can be used. Follow an appealing system, your intuition, your favorite advisor, a preferred astrologer, or any guiding light that you choose..."

[MediumTex]

OK! So with that true-life parable related (and hopefully I have not put too fine a point on it), I want to know what the problem is, discussing this topic of relative strength, now that it has been moved to the VARIABLE PORTFOLIO section of this forum?

Harry Browne himself said of the VP, "...any trading method is acceptable; any forecast can be used. Follow an appealing system, your intuition, your favorite advisor, a preferred astrologer, or any guiding light that you choose..."

I never said there was a problem with it (or if I did I didn't mean to).

I just joked around a little.  I do that sometimes.

Thanks for sharing the photography experiences.  That's a great example of the kind of internalization of skills I was talking about.

Getting a true "feel" for how an investment allocation is going to behave in different environments is hard to do.  People often don't stick with anything long enough to really see how it works under a variety of conditions.

[AdamA]

There is plenty of evidence cited in the papers I referenced previously! Did you read any of them?

Drewskers--

I didn't mean to be so dismissive.

I have read "The Ivy Portfolio" and actually found it very compelling, which is kind of my point.  If I know about it, then a lot of other people probably do too.

I know you could make the same argument for the PP. 

Maybe I'm drinking too much of the Kool Aid, but the underlying macroeconomic principles of the PP make it hard for me to call it a trading system.

RS could work, and probably does work, but with all this "new data" and hype, I doubt it will work as well as it has in the past, at least for a while. 

Again, I didn't mean to be dismissive.  I myself actually was very close to using Mebane Faber's idea prior to discovering the PP last year, and I often wonder about momentum trading myself. 

[Odysseusa]

Relative Strength

TLT 97.84
GLD 95.68
SHY 79.95
VTI 61.54


Source:
www.ETFscreen.com