Gyroscopic Investing

Huge thanks to you, Tyler and rickb, for putting these graphics together.  Fantastic.

I agree. Great graphics very informative.  Really what the non-heat map graphs said is one should seriously consider PP with leverage.

Harry Browne and Company did backtesting back to 1900 and further when designing the portfolio, am I right?  I am wondering: where are those numbers?  Can they be found?  I know that weird things will happen with the gold (like a huge jump from $20 to $35 in a single year, and then a whole lot of perfectly flat years), but that's OK, that's just how it was.

Is the data available on stocks, bonds, gold, and cash, to be able to show what returns a person with the 4-way split of the PP would have got from, say, 1900 onward?

Also, does anyone want to make available their spreadsheets where they're getting the numbers to make these multi-colored marvels?

LC475 wrote: Also, does anyone want to make available their spreadsheets where they're getting the numbers to make these multi-colored marvels?

The graphs I've been posting are from an awk program I wrote that takes the numbers from a spreadsheet and turns them into an HTML table.  The spreadsheet itself is not very interesting (each cell is an RRI computation between a starting value, ending value, and the number of years).  All the original data is from P2T's site.

LC475 wrote: Harry Browne and Company did backtesting back to 1900 and further when designing the portfolio, am I right?  I am wondering: where are those numbers?  Can they be found?  I know that weird things will happen with the gold (like a huge jump from $20 to $35 in a single year, and then a whole lot of perfectly flat years), but that's OK, that's just how it was.

Is the data available on stocks, bonds, gold, and cash, to be able to show what returns a person with the 4-way split of the PP would have got from, say, 1900 onward?

Also, does anyone want to make available their spreadsheets where they're getting the numbers to make these multi-colored marvels?

The PP is designed for a fiat money world.  Its performance in a gold-backed dollar world is undefined.

Well, sort of. If currency is backed by gold then PP cash and PP gold are really interchangeable. So you have 25% stocks, 25% long term bonds, 50% cash. Which is an awful lot like 25% stocks, 75% short-intermediate bonds.

I think one way of viewing the PP, is taking a 25/75% Boglehead portfolio from an alternate dimension of hard currency, and reconfiguring it to work the same way in our fiat currency dimension.

LC475 wrote: Also, does anyone want to make available their spreadsheets where they're getting the numbers to make these multi-colored marvels?

I used the returns data from Craig's blog (crawlingroad.com) and got the inflation numbers from bls.gov.  My charts are made in Excel 2010 using the conditional formatting tools.  Drop me a PM if you're interested in a copy.

Xan wrote: The PP is designed for a fiat money world.  Its performance in a gold-backed dollar world is undefined.

I agree, but I also a little bit disagree.  Yes, it is designed for a fiat money world, and in particular a world in which the fiat dollar is the number one money in the world and the united states is either the number one or at least a very important economy in the world.  It takes advantage of the unique characteristics of this situation in some very clever ways.  Also, it was invented in the late 1970s, and so there is no actual performance before that time to look at -- it's all hindsight.  Also known as back-testing.

However, back-testing is a real thing.  It has at least some value.  As Harry would say, it can't prove an investment method will always work in the future, but what it can prove is that an investment method did not work in the past.  It can't prove your idea, but it can disprove it.

I have heard on the radio show that Harry Browne and his friend John Chandler did extensive back-testing of the Permanent Portfolio idea when they were developing it.  This was in the very early days of computers, but, being very forward-looking, they decided to use computers in the research.  Harry himself wrote some of the code.  They looked at what the performance would have been going way, way back.  I don't know how far back.  Someone else here may know.

In any case, if the numbers for US debt instruments are available, I know that numbers for the stock market and gold price are available.

If currency is backed by gold then PP cash and PP gold are really interchangeable. So you have 25% stocks, 25% long term bonds, 50% cash. Which is an awful lot like 25% stocks, 75% short-intermediate bonds.

Yep, pretty much.  Except that Harry would probably be quick to gently correct your use of the word "backed," a very fuzzy, nebulous term with no clear meaning that can be pinned down exactly.  Instead, he would say that a currency convertible to gold is interchangeable for gold (since that is what convertibility means -- you can interchange, or convert, your currency for gold).

Even then, paper currency and gold is not exactly the same thing, since the paper currency must be taken to some party to make the interchange into gold.  Paper currency is thus an obligation of someone else, an IOU.  Gold, in contrast, is a solid asset with no counter-party.  You own it directly.  So even if a currency is perfectly convertible to gold, because events could transpire, problems could occur, and that perfectly-convertible currency could become non-convertible (as happened with the dollar), it is wise to hold actual gold for safety, as well as currency for convenience and liquidity.

But I think you know all that and are just making a point about returns.  As far as returns, yes, gold should track the dollar 1-to-1 during times when the dollar was perfectly convertible to gold.  Even during the 1800s, however, that was not always the case.

Me wrote: Also, does anyone want to make available their spreadsheets where they're getting the numbers to make these multi-colored marvels?

rickb wrote: The graphs I've been posting are from an awk program I wrote that takes the numbers from a spreadsheet and turns them into an HTML table.  The spreadsheet itself is not very interesting (each cell is an RRI computation between a starting value, ending value, and the number of years).  All the original data is from P2T's site.

Tyler wrote: I used the returns data from Craig's blog (crawlingroad.com) and got the inflation numbers from bls.gov.  My charts are made in Excel 2010 using the conditional formatting tools.  Drop me a PM if you're interested in a copy.

Thanks!

FWIW, I ran across this site today:

http://www.crestmontresearch.com/stock-matrix-options/

It's the source for the original heat map referenced in this thread, and includes a lot more detail, referenced source data, and a few different iterations.

Enjoy.

LC475 wrote: Harry Browne and Company did backtesting back to 1900 and further when designing the portfolio, am I right?  I am wondering: where are those numbers?  Can they be found?  I know that weird things will happen with the gold (like a huge jump from $20 to $35 in a single year, and then a whole lot of perfectly flat years), but that's OK, that's just how it was.

Is the data available on stocks, bonds, gold, and cash, to be able to show what returns a person with the 4-way split of the PP would have got from, say, 1900 onward?

Also, does anyone want to make available their spreadsheets where they're getting the numbers to make these multi-colored marvels?

The HBPP wouldn't make sense in a world in which the dollar was the same as gold, such as most of the time from 1791 to 1932, nor in the US while gold was illegal to own, from 1932 to 1974 (the lifting of that prohibition being due largely to Ron Paul). Accordingly, I don't think he/they actually modeled it before 1974.