Craziest MediumTex Quotes

[upside]

Arthur Laffer and Nichole Kidman with husband Keith Urban live down there, among others.

Go on. This is damn exciting stuff.

[pershing83]

Well, you may be being sarcastic, not too worry, but Williamson county (Franklin) and southern middle Tenn are very wealthy. Williamson county as I recall has the 15th highest per capita income in America.

As an aside I have yet to find more funds that mimic PP, maybe one, but I can't recall the details, not impressive. I'm surprised more have not tried. A guy on Seeking Alpha was shilling an awful CEF, PCEP as a single fund for all times.

Headed for work, I try to work a few hours weekly.

[moda0306]

Pershing,

You referred to the "PP's" rise over the last 10 years, not PRPFX, when you said the perfect storm.  I figured you meant the HBPP.

I have no doubt anyone "could" get 15% return in a year.  It's a matter of knowing whether we can consistantly get that without taking a large risk with our portfolio.

Can you answer my question now?  Where do you see the HBPP faltering over the next 10 years?  Are you expecting prosperity, inflation, deflation, or something else?  Which asset do you feel is grossly inappropriate.

The way I see it is this... if we want to use some of the PP principals to make 13-15% instead of 10%, there's a few things you probably will need to do.

1) Get rid of cash.  It's just a cushion, and especially today weakens the portfolio's return prospects
2) Lower your LTT and gold allocation, unless you think the economy will fall really hard into a deflationary or inflationary recession some time soon.  These still will act remarkably well, most likely, when your stocks are hurting, and keep the best parts of the PP machine running.
3) Take some more risk with non "Total Stock Market" assets, maybe foreign, emerging markets, REITs, or growth stocks.  Maybe speculate into some miners and energy stocks.
4) Maybe enact some kind of relative strength system where you count on the momentum of certain assets to continue.

Those are some legit VP ways, IMO, to "use" the PP principals while expanding potential return.  I definitely think each one of those choices, though, comes with drawbacks that could make one give up and sell at a loss, or take a long, sustained, heavy loss that's tough to swallow.

[MediumTex]

Well, you may be being sarcastic, not too worry, but Williamson county (Franklin) and southern middle Tenn are very wealthy. Williamson county as I recall has the 15th highest per capita income in America.

I don't think he was being sarcastic.  I think it's cool to have famous people in your community.

To the points about the permanent portfolio enjoying the perfect storm from a rewards perspective, the 1970s actually saw much larger permanent portfolio returns than the 2000s did.  I agree that PRPFX has been firing on all cylinders for about 10 years now, which is what one would expect from a fund with a tilt toward gold, silver, commodities and a weak dollar (it's ironic that the fund had to wait almost 20 years to find its groove).  All of PRPFX's bets have paid off big in the last 10 years.  Will PRPFX's inflation tilt continue working going forward?  I don't know.  I do know that nothing good lasts forever, but that's part of the reason that I like Harry Browne's permanent portfolio--with this allocation I am ready for whatever the market throws at me next. 

I don't know why you think that most of us don't have large commitments to the permanent portfolio strategy.  Part of the reason we started this forum was because we had large commitments to it and wanted a place to talk through all of the related issues.

Part of what is interesting to me about the PP are the underlying economic/financial/political/cultural factors that it allows one to observe that are subtle and otherwise difficult to detect.  Harry Browne designed quite an elegant machine with the permanent portfolio--it offers endlessly interesting lessons about the larger world, in addition to providing a safe place for your money.  It's what one would expect from a philosopher turned investment advisor.

As far as poking holes in the strategy, it's something I try to do every day.  I just haven't had much success yet.  I do not consider lagging VWINX over some periods to be a flaw in the strategy, since the PP has had similar returns to VWINX going back to the early 1970s, but provided better inflation adjusted returns in the 1970s than VWINX did.  In other words, if I want to protect my purchasing power in the face of an uncertain future, the PP provides me with a level of security that VWINX can't. 

The permanent portfolio is not for everyone.  Part of what we are trying to do here is help people figure out if it is right for them.  The idea of the permanent portfolio is to have an allocation strategy that you can carry with you through life without worrying about it becoming obsolete (this is part of what, IMHO, makes PRPFX unsuitable for long term investors--i.e., inflation tilt, high expenses, manager risk, etc.).  The theory behind why the permanent portfolio will not (and cannot) become obsolete is that an economy has a limited number of conditions--it is either expanding (prosperity) or contracting (recession), and its money supply is either expanding (inflation) or contracting (deflation).  There are not really any other options, except for the transitory "tight money" Fed induced recessions we saw in the early 1980s, which are by definition short term events.

[Lone Wolf]

How many on the MB have 100% of their portfolios invested in a PP? None would be my guess.

Me.  Apart from my 529 money (which doesn't allow one to build a proper PP), I'm 100% in the 4x25 Permanent Portfolio.  (The 529 is 50% Total Stock \ 50% Total Bond, FWIW.)

I agree with Pershing that we are in "uncharted waters".  My belief is that we are always in uncharted waters, especially when assessed at the very time one is swimming through those waters.  The comfortable charts always follow in the calm of ex-post, when all is clear, obvious.

Agreed.  Nothing is ever a calm, obvious pattern when it's happening to you (and your money.)

[pershing83]

I have no problems with anything said. I was curious if posters were putting their money where their mouth is  .

OTOH I would never put 100% of my holding in any single asset.

May not matter after tomorrow!

[Storm]

I'm about 80% invested in PP.  I keep a small VP mainly because I like a few tech stocks like AAPL and ARMH that have done well lately, and my company has a stock plan with a purchase price discount and I don't want to pay short-term capital gains by dumping the stock the day I buy it.

But all of the money I care about, 401k, IRA, and individual brokerage accounts, are fully in the PP.  I'm not a big fan of PRPFX, although it has done extremely well.  PRPFX had more volatility in 2008 due to the modifications.  Also, I try to minimize expenses where possible which includes buying my own bonds and looking for the lowest expense ratios where I need a stock fund.

What really matters to me are locking those inflation+3-4% returns consistently, year after year, without volatility.  Look at what has happened to boomers about to retire this decade.  Now, a good number of them are working past the age of 70 because their money was in the stock market and real estate.  People tend to panic, sell out at the 2008-2009 lows, and not buy back in until the 2010-2011 highs.  That's a good recipe for losing 50% of your retirement.

Craig has a historical returns chart on the PP.  I think the worst year it had was just a couple % loss in the early 80s when gold tanked.  In 2008, PRPFX took a hit, but the pure PP was almost flat due to the protection of long bonds.

We choose the PP not because we want the hottest returns on the block - we just want consistent returns that don't get hammered 1 year out of every decade.  We know our own human nature well enough to know that you need to prepare for all scenarios, but not overanalyze and back out when the going gets tough.  I think, if anything, the SHTF planning capabilities of most people on this board makes us consider crazy end of the world scenarios and how our portfolios would react.  This is hardly "the PP can do no wrong" but more like "what would happen if the world economy collapsed, how would our PPs be doing then?"

[l82start]

i have 100% of the money i cant afford to loose, invested in the 4 asset HBPP
i have a small silver and gold bullion VP that was not particularly planned out, it is just what was left over from a flirtation with gold investing that i had in the 90s

[moda0306]

OTOH I would never put 100% of my holding in any single asset.

Are you implying the PP is "one single asset"?  PRPFX is one asset on some levels, but the HBPP could hardly be described as "one asset" just because it's one strategy.

If I were to try other strategies, I would consider them as part of a VP, as anything vastly different than the PP's assets is sucker's diversification in most cases.  I'm not saying its dumb to have a VP, but to have one and say "this is in case the PP fails," unless maybe if it's made up of cash, probably will fail right along with the PP.

1) If you want a VP that hedges against PP failure, I'd imagine additional cash in a treasury MM account or short-term treasuries would be about the only thing you could truly rely on and not just be blindly guessing what will rise if the PP stumbles. But even then, cash will rarely have a big gain... so you're usually just buffering a PP failure, not hedging it so much.

2) If you want a VP that is your speculation of what will succeed or return well, like REITs or mining stocks, or what-have-you, then that's great, but don't expect it to be "PP failure insurance."  

What it all comes down to is "risk adjusted return."  The PP appears to have far superior back-tested and forward-imagined risk-adjusted return out of any portfolio we've been able to conjure here, and they're based on macroeconomic principals and not technical indicators.

Pershing... I really am curious to hear your thoughts on what the PP should maybe lose (cash?) or gain (REIT's?) to both capture some of what makes it work but juice returns some more.  We do a lot of that here, but it always seems after we rid ourselves of cash to run a 3x33 portfolio, we start getting into back-tested calendar year losses that are unacceptable to many if they do an honest gut-check... remember, a portfolio is only as good as your ability to stick with it when times get tough.

One idea I've had is to enact a 40/30/20/10 PP (Stocks, Bonds, Gold, Cash) to capture some more returns out of the same principal, but I've only been able to muster .5% improved CAGR over the normal PP backtested over the last 40 years, with a max calendar year drawdown of 1.7% lower than the 4x25.

[Roy]

OTOH I would never put 100% of my holding in any single asset.

Not sure what you mean here.  The HB PP is an investment strategy, but differs from most in that it can actually articulate the strategy through comprehensive economic reasoning.  There are 4 asset classes in the HB PP and all the "balanced" funds we've been discussing (including VWINX and PRPFX) contain multiple asset classes.  No matter how many funds and asset classes one owns, the portfolio it describes is a de facto strategy.  So how many asset classes is enough? 


Also, thinking about "uncharted waters" again.  Larry Swedroe does an interesting analysis each year focusing only on the events that occurred in a year and comparing them with market returns.  Often, even in great years for the market, there are international events that, were you privy to that info alone beforehand, might cause one to sit in cash that year.  Multiply that by the speculation of the news and internet forums and DYI investing can be challenging.

[pershing83]

Uncharted waters: 20% returns on pp or PRPX or for that matter pp. Lower case should be used for these shade tree, back yard mixes.

As for the cash, you may wish you had some, right? Now you aficionados are going wrong if you believe!

Tex says pp is not for everyone. Well, why not, unless you are a trader or just think you can make a lot money on something else?

I am not used to such proper message board. I have 3 others that get pretty ugly. Like posting pictures of the headless chicken that lived 3 yrs. Noting the rapture tomorrow and the Mayan calendar, all out in '12.

[MediumTex]

Uncharted waters: 20% returns on pp or PRPX or for that matter pp. Lower case should be used for these shade tree, back yard mixes.

The Harry Browne permanent portfolio had returns of 30%+ in the 1970s.  Those waters are charted.

As for the cash, you may wish you had some, right? Now you aficionados are going wrong if you believe!

What do you mean? 

Tex says pp is not for everyone. Well, why not, unless you are a trader or just think you can make a lot money on something else?

Some people prefer to take more risk because of the greater potential returns.  Some people look at the PP and it simply makes no sense to them--these people should probably look for something that does make sense to them.  I have spoken with enough people about the PP to know that it strikes many people as crazy.

I am not used to such proper message board. I have 3 others that get pretty ugly. Like posting pictures of the headless chicken that lived 3 yrs. Noting the rapture tomorrow and the Mayan calendar, all out in '12.

You mean "Headless Mike"?

I told you when you arrived that we are all pretty friendly here.  Just enjoy it. 

[Pkg Man]

Arthur Laffer and Nichole Kidman with husband Keith Urban live down there, among others.

I met Laffer once, and he said the reason he lives in TN is due to no income tax.  I can really understand the appeal after paying 7% of my realized capital gains to my favorite state this past April.

[Pkg Man]

I have no problems with anything said. I was curious if posters were putting their money where their mouth is   :).

OTOH I would never put 100% of my holding in any single asset.

May not matter after tomorrow!

Almost 90% PP for me

[Gumby]

100% in the 4x25 PP for me...and very happy about it.

[AdamA]

100% PP. 

I often have VP ideas that I think are good, but can never come with a plan as to when I'd exit the investment. 

I know from past experience that leads to a lot of second guessing, so I just stick to the PP...it's hard sometimes though. 

[julian]

what dates r u using

VWINX should not be compared to the PP.  Would you have wanted to be sending your daughter off to college in 2008?



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Max draw-down during last crisis:
VWINX: 19%
PRPFX: 19%
HB PP: 17%

Using Morningstar for the first two and http://www.etfreplay.com/combine.aspx for HB PP.

Wwwww

[Gumby]

what dates r u using

VWINX should not be compared to the PP.  Would you have wanted to be sending your daughter off to college in 2008?



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Max draw-down during last crisis:
VWINX: 19%
PRPFX: 19%
HB PP: 17%

Using Morningstar for the first two and http://www.etfreplay.com/combine.aspx for HB PP.

I've looked into this extensively, with actual data, and I can say with a fair degree of certainty that ETF Replay is dead wrong about 17%. Between Mar 18, 2008 - Nov 19, 2008 the HB-PP saw a 13% to 15% drawdown — it varies, depending on when you started your PP.

The only way ETF replay is correct is if you didn't rebalance your assets. Since ETF replay doesn't rebalance assets, there's no way it can replay 2008 properly.

The actual HB PP also rebounded very rapidly after Nov 19th 2008, thanks to rebalancing.

[pershing83]

I've got 30% of my net in VWINX and 35% in PRPFX, some old CD's.One reason I started buying PP was I was getting old, so 5 yrs ago I got rid of my stocks. This was fortuitous since I avoided the '08 thing. Luck ie. But, one needs a little excitement so I've been buying AGNC, FTR, Chile Fund (CH) and the Indonesia Fund (IF). Several yrs ago I asked a guy I know at Schwab if he had heard of PRPFX, said no. then it had assets of maybe 700mil, now I think 12-13 bil!

Tenn is right to work and no income tax. Times appear bad, maybe desperate even. The old Confederacy should consider secession again.

[Gumby]

Clive, I certainly don't know have any experience with quasi-PP portfolios, but have you found a realistic low-risk portfolio that allows you to hold 25% of your wealth as cash and beat the PP over time?

Whenever I see the PP compared to VWINX or whatever, I can't help but wonder how anyone could claim to invest 100% of their wealth in something that has no cash. It seems like one can't really compare two portfolios when one portfolio doesn't hold any cash and the other one lets you accommodate a lot of your cash.

I mean, most people feel comfortable having access to a good amount of cash at a moments notice. Even if one was 100% invested in PRPFX, they wouldn't exactly have any cash on hand. In 2008, everyone was clamoring for cash.

It seems like it would be more realistic to include a typical cash portion (25%, 20%, 10% ?) in every hypothetical portfolio we compare the PP to.

[moda0306]

Great point Gumby.  A 3x33 PP should really be what's compared to most "other" portfolios if you really want to compare apples to apples.

In some ways anyway...

[l82start]

some other portfolios do recommend a 6 to 8 month emergency fund that gets counted separately, no two investors would have the same cash holding depending on the number of months they are comfortable having and the differences in there cost of living, i am not sure how you could come up with a useable number to account for it in a comparison. 

[Gumby]

some other portfolios do recommend a 6 to 8 month emergency fund that gets counted separately, no two investors would have the same cash holding depending on the number of months they are comfortable having and the differences in there cost of living, i am not sure how you could come up with a useable number to account for it in a comparison.  

Emergency funds, of whatever size, are a lag on overall returns.

Moda's approach of eliminating the cash entirely from the PP (for hypothetical portfolio comparison's only) is probably the best way to do it — since apparently that's how every other portfolio does it. I'm just saying that it's ridiculous and totally unrealistic to compare a portfolio with zero cash to a portfolio with 25% cash.

Either the cash amounts between two different portfolios need to be equal (or zero), or other portfolios need to have a realistic cash level included in their performance.

Even someone who was 100% PRPFX would require a few months of extra cash for emergencies. That extra cash would affect an investor's ability to realize PRPFX's full reported performance, in most circumstances.

[Gumby]

I've got 30% of my net in VWINX and 35% in PRPFX, some old CD's.One reason I started buying PP was I was getting old, so 5 yrs ago I got rid of my stocks. This was fortuitous since I avoided the '08 thing. Luck ie. But, one needs a little excitement so I've been buying AGNC, FTR, Chile Fund (CH) and the Indonesia Fund (IF).

pershing is a great example. If I interpret his comment correctly (and maybe I didn't) it sounds like he might have 10-30% of his money in cash-like investments. It's hard to say. He would have to include all of his cash in his overall total return before he could even begin to determine if a full 4x25 PP was better or worse than his current investment allocations.

[Gumby]

Cash is a very subjective term. Not that I'm advocating a FTM, but as an example Larry Swedroe's Fat Tail Minimisation with 10% in each of SCV, IV and EM and 70% in TIP's beat the PP in nominal and real gain terms since 1972 and some might consider that as holding 70% cash.

Well, a TIPS fund (like VIPSX) lost roughly 15% of its value during 2008. So, no, I don't think anyone can consider TIPS to be the equivalent of cash.

Clive, if you owned Larry Swedroe's Fat Tail Minimization, you would still needed to hold a few months of actual cash outside of his Fat Tail Minimization portfolio. That extra cash would dilute its performance (the amount of dilution would be different from person to person, of course). So, it's completely unrealistic to show a portfolio with no actual emergency cash and compare it to a portfolio that incorporates a substantial and stable cash strategy.