Larry Swedroe's Comments on the Permanent Portfolio

[WildAboutHarry]

Something tells me that Larry will be back.

I've learned a bunch from Larry over the years at Bogleheads.  His (thousands?) of posts are always thought provoking, and I agree with CraigR that he is one of the good guys.  His no-fat-tail portfolio is, in its own way, is designed to achieve the same thing as the HBPP.

If you have never read one of Larry and Rick Ferri's debates at Bogleheads I recommend them highly.  There are several.

Perhaps Larry will be back if the Mods can make him an honorary Senior Member.  "Larry Swedroe, junior member" sounds funny.

[Roy]

As has been discussed many times, though his approach clearly differs in large ways, there are also strong similarities between Larry's approach and what the PP has done.  (I think a basic Larry portfolio, holding 25-30% internationally-diversified equities, and the rest in Treasuries, declined about 8% in 2008, so it did better than most and certainly more investors could have weathered those losses than many alternative allocations.)

He advises a passive, low-cost approach with rebalancing, uses Bonds of the highest quality in generous amounts, and is aware of the financial and emotional devastation Fat Tails can cause.  We've studied those similarities for years, on Bogleheads and here.  In fact, I learned about how they work through his early discussions of them years ago.   For me, I think he has demonstrated a clear understanding of the way different assets and portfolios of different types can work and has explicated that in books or articles.  

I don't think he is missing anything here or that his pertinent education is incomplete.  But he, like Bogle or others, has looked at the various evidence and simply has his own strong preferences for asset allocation strategies. No matter how strongly the individual differences get argued, a lot of this comes down to preferences and tastes (Fama's words), however arrived at, which then enable the necessary conviction.  

[Reub]

Something tells me that Larry will be back.

I've learned a bunch from Larry over the years at Bogleheads.  His (thousands?) of posts are always thought provoking, and I agree with CraigR that he is one of the good guys.  His no-fat-tail portfolio is, in its own way, is designed to achieve the same thing as the HBPP.

If you have never read one of Larry and Rick Ferri's debates at Bogleheads I recommend them highly.  There are several.

Perhaps Larry will be back if the Mods can make him an honorary Senior Member.  "Larry Swedroe, junior member" sounds funny.

I think that Larry's lack of humility actually fits in much better at that other website.

[MediumTex]

One question i might ask Larry is whether he has personally ever owned any gold.

If he hasn't I don't know how he can make such confident pronouncements about it.  That would be sort of like a "relationship expert" admitting that he had never actually been on a date but had read a lot of books about women.

In general, there seems to be with Larry that common Wall Street malady of what you might call "a preoccupation with abstraction."  In this view of the world, no investments are actually "things."  They are just ideas and bookkeeping entries that float around from ledger to ledger and hopefully increase in notional value over time.  

As with many PP-related questions, though, this matter of the psychological aspects of real/tanglible investments vs. more abstract instruments requires an open mind that is ready to engage and possibly learn something new.  Larry just seems to bring a closed mind to the whole PP topic and predictably seems to comes away from it knowing little more than when he started.  Efforts to engage him with some of the finer points of the PP are met with comments like "I know more about this than you", but then he proceeds to talk about TIPS providing great deflation protection and commodities being a better hedge against inflation than gold.

I would like to know how Larry's portfolio has performed against the PP over the last three or four years.  If the PP has performed better (either on an absolute or risk-adjusted basis), I wonder how Larry would explain this.  

[MediumTex]

Something tells me that Larry will be back.

I've learned a bunch from Larry over the years at Bogleheads.  His (thousands?) of posts are always thought provoking, and I agree with CraigR that he is one of the good guys.  His no-fat-tail portfolio is, in its own way, is designed to achieve the same thing as the HBPP.

If you have never read one of Larry and Rick Ferri's debates at Bogleheads I recommend them highly.  There are several.

Perhaps Larry will be back if the Mods can make him an honorary Senior Member.  "Larry Swedroe, junior member" sounds funny.

I think that Larry's lack of humility actually fits in much better at that other website.

It's funny, but the same swagger that can make someone look like a stud in one environment can make them look like a fool in another.

[moda0306]

We 100% rely on government to maintain the value of our currency, as well as enforce the contracts that give our stocks value, as well as enforce the deed that keeps us in our home and on our land.  We also depend on them for social security... which shouldn't be discounted as it makes up a very solid chunk of most peoples' required retirement income.

If most people are retiring with a $200k home and between $200k-$1 Mil in financial assets to support them, where would anyone find fault in keeping a very solid chunk of that wealth in something that doesn't rely on efficient government operation.  Should we really trust government & Wall Street with all of our wealth?

Maybe 25% is too much... I'm not going to argue that... but is Larry really suggesting that if a couple has $200k in a home, $300k in financial assets, and $25k per year in Social Security that segregating a chunk of that as portable form of wealth not dependent on government to give it value is a mistake?

Further, this metal doesn't only come to life when the government collapses... it reacts strongly in price to any hint of a threat to the projected real value status of their other wealth. 

The PP would allocate $75,000 of that person's money into that metal... maybe that's too much, but $30,000 certainly seems appropriate.  Lastly, any other metal has a value floating on a sea of commerce that is encouraged by government... saving alumanim cans for dollar debasement and government idiocy is NOT an efficient way to store value.

[Roy]

Hi, Tex:

I don't doubt that owning a security or portfolio—having one's own money in the game—can offer valuable illumination.  And I don't know if Larry ever held Gold.  But I've never owned Junk Bonds, Long-Short funds, and a host of other securities, yet I feel pretty confident I've a reasonable understanding both of how they work and why I don't want them. 

Regarding recent comparative portfolio performance, I'm not sure any non-cherry-picked portfolio composition did better than the PP.  And I can't know what Larry might say about why his portfolio lagged the PP,  but this is a short period in which Gold and Long Treasuries performed admirably.  One might find several years over the last 40 where the comparative outperformance went the other way.  Over decades, the portfolios provided similar returns and standard deviations and also small drawdowns, and both seemed to address their prime directives not to lose much money.  Both may incur tracking error issues.

I know the debate can get tonally spirited but it seems largely a question of differences in security preferences, even given a similar objective. 
--

Also, I think this is a terrific site for several reasons, and I am thrilled about the book you two have.

[AdamA]

We 100% rely on government to maintain the value of our currency, as well as enforce the contracts that give our stocks value, as well as enforce the deed that keeps us in our home and on our land.  We also depend on them for social security... which shouldn't be discounted as it makes up a very solid chunk of most peoples' required retirement income.

If most people are retiring with a $200k home and between $200k-$1 Mil in financial assets to support them, where would anyone find fault in keeping a very solid chunk of that wealth in something that doesn't rely on efficient government operation.  Should we really trust government & Wall Street with all of our wealth?

Maybe 25% is too much... I'm not going to argue that... but is Larry really suggesting that if a couple has $200k in a home, $300k in financial assets, and $25k per year in Social Security that segregating a chunk of that as portable form of wealth not dependent on government to give it value is a mistake?

Further, this metal doesn't only come to life when the government collapses... it reacts strongly in price to any hint of a threat to the projected real value status of their other wealth.  

The PP would allocate $75,000 of that person's money into that metal... maybe that's too much, but $30,000 certainly seems appropriate.  Lastly, any other metal has a value floating on a sea of commerce that is encouraged by government... saving alumanim cans for dollar debasement and government idiocy is NOT an efficient way to store value.

I agree.  Call them whatever you want to, but futures contracts are not "real" assets.

[MediumTex]

Lastly, any other metal has a value floating on a sea of commerce that is encouraged by government... saving alumanim cans for dollar debasement and government idiocy is NOT an efficient way to store value.

I agree.  Call them whatever you want to, but futures contracts are not "real" assets.

I also think that very few investors really have a strong understanding of how the commodities markets work and what it really takes to be successful.  I think that it is much harder than it looks.

Investing in commodities is a lot like investing in stock options.  The right call (e.g., "oil is about to go up") with the wrong timing (e.g., oil goes up, but only after your contract expires) can be just as bad as a completely wrong call.

I know lots of people who have dabbled in commodities.  I don't know anyone who has consistently made money in commodities.

[MediumTex]

Regarding recent comparative portfolio performance, I'm not sure any non-cherry-picked portfolio composition did better than the PP.  And I can't know what Larry might say about why his portfolio lagged the PP,  but this is a short period in which Gold and Long Treasuries performed admirably.  One might find several years over the last 40 where the comparative outperformance went the other way.  Over decades, the portfolios provided similar returns and standard deviations and also small drawdowns, and both seemed to address their prime directives not to lose much money.  Both may incur tracking error issues.

This got me thinking...

According to Paul Boyer's analyis, in 2011 Swedroe's two portfolios returned .6% and .1%, while the HB PP returned 11.5%

http://madmoneymachine.com/wp-content/u ... image5.png

In looking at another part of Paul's website, he has data from January 2008 to September 2010, which shows a total return over this period for the HB PP of a little under 20%, while Swedroe's portfolio shows a small loss.

http://madmoneymachine.com/wp-content/u ... image1.png

Thus, in the last three years an HB PP investor would be up 30% or so, while a Swedroe investor would have basically had returns of 0%. 

It's possible that this is just a remarkable period of HB PP outperformance relative to Swedroe's portfolio, but when a portfolio is up 30% more than another portfolio the lagging portfolio has to have many years of superior returns to catch up.

I just wanted to post this information because from Larry's overall tone you wouldn't know that the HB PP had so dramatically outperformed his allocations.

I also think that at some point it is simply a matter of having a little grace to be able to say "I have never thought much of the Harry Browne Permanent Portfolio, but I have to give it credit these last three years because it has done a lot better than I have for my clients.  Who knows what will happen from here, and I will certainly do my best to show my followers that I have a better answer than Harry Browne's simplistic allocation, but for now I am simply giving credit where it's due."

Even the gigantic egos of professional athletes and coaches are normally able to exhibit such grace in the face of a loss.  I don't know why investment guys have so much trouble digesting even a small slice of humble pie.

[moda0306]

Clive,

So assuming those underlying businesses aren't functioning well for one unthinkable reason or another, these commodity operations could suffer immensely during times when gold is doing just fine, correct?  Isn't it very likely that stocks are also suffering immensely at this time as well?

I'm not opposed to tossing some commodities into a VP, but I think gold, given its nature of a "money without a government," and not having its value boueyed by industrial demand, is much better to own as a portfolio asset... not something we plan on using to take delivery on 300 bags of wheat in the near future.

[upside]

Prepare for Clive to post a shitload of graphs.

[moda0306]

Prepare for Clive to post a shitload of graphs.

What the hell have I done???

I just let Gizmo eat food after midnight, didn't I?

[img width=500]https://lh4.googleusercontent.com/-ObfA ... 1600/1.jpg[/img]

[Reub]

Clive, I wish you would reconsider. The readers here greatly appreciate your input!

[moda0306]

Clive, I wish you would reconsider. The readers here greatly appreciate your input!

I second this... my sarcastic response was simply in jest, as I'm sure upside's was as well.  We value your input... I usually don't respond simply because it would take too much forethought and planning to post a reasonably thought-out retort to your points.

[MediumTex]

Prepare for Clive to post a shitload of graphs.

Nope. Lost interest with this web site since the announcement of a book that will deprive Harry's widow of royalties (and having posts to that effect pulled). Other than cursory glances I have no desire to support/add/burden further.

Clive,

A new book about the Permanent Portfolio will deprive Harry Browne's widow of nothing.  If anything, a new book about the topic will sell more of Harry Browne's books as we build more interest in the topic.

There is no copyright issue involved in simply writing a new book covering a concept that another author previously wrote books about.

I'm not following your logic.  Do you think that there is a copyright issue for anyone who ever wanted to write a book updating the strategy that Harry Browne originally recommended? 

Do you think that a person who wrote a book about Winston Churchill should pay a portion of the proceeds to Churchill's family because Winston Churchill himself wrote books covering the same topics?

Should Cuggino pay a portion of his PRPFX management fees to Browne's widow because the fund prospectus discusses the application of Browne's ideas?

I don't understand why you are upset.  What would you have us do instead?  Craig has talked to Browne's widow in the past and she has always seemed supportive of what we are doing with this forum.  To me, writing a book is just a logical extension of the exploration of Browne's ideas that happens here every day.

[moda0306]

^ That.

If Craigr & MT can't write a PP book that gives HB credit left and right (which I'm sure it will), I'm not sure who could write a book about any historical figure or strategy/philosophy.

[upside]

Clive, I wish you would reconsider. The readers here greatly appreciate your input!

I second this... my sarcastic response was simply in jest, as I'm sure upside's was as well.  We value your input... I usually don't respond simply because it would take too much forethought and planning to post a reasonably thought-out retort to your points.

Yeah, I was just being a smartass.

[MediumTex]

Clive, I wish you would reconsider. The readers here greatly appreciate your input!

I second this... my sarcastic response was simply in jest, as I'm sure upside's was as well.  We value your input... I usually don't respond simply because it would take too much forethought and planning to post a reasonably thought-out retort to your points.

Yeah, I was just being a smartass.

I love clive.  I hope he will reconsider his position on this matter.

[Roy]

Hi, Tex,

Regarding your comparisons over 3 years (perhaps even 10 years), such is a short period of recency and specifically for comparisons that include the HB PP.  Over decades, their performance and defensive qualities (the "Larry" portfolio and the HB PP) appear more similar, as might some other, more traditional, conservative approaches, like Wellesley, or some other assemblage of funds that contained a strong commitment to high-quality bonds.  

For sure, few if any portfolios have met the rough times in this last decade better than the HB PP, nor have done so more simply, while providing excellent real returns—in all periods.  But it will face criticism in other environments when it lags—when that future becomes the present.  Viewed from today, such a time may feel far away.

Regarding the tonal issues that many investment professionals can display, I agree.  But at times, they may also receive attacks that are unfair simply because they are "authorities".

[MediumTex]

Regarding the tonal issues that many investment professionals can display, I agree. 

You see it up close every day, right?  Literally.

[AdamA]

Hi, Tex,

Regarding your comparisons over 3 years (perhaps even 10 years), such is a short period of recency and specifically for comparisons that include the HB PP.  Over decades, their performance and defensive qualities (the "Larry" portfolio and the HB PP) appear more similar, as might some other, more traditional, conservative approaches, like Wellesley, or some other assemblage of funds that contained a strong commitment to high-quality bonds.  

For sure, few if any portfolios have met the rough times in this last decade better than the HB PP, nor have done so more simply, while providing excellent real returns—in all periods.  But it will face criticism in other environments when it lags—when that future becomes the present.  Viewed from today, such a time may feel far away.

Regarding the tonal issues that many investment professionals can display, I agree.  

I think there is some historic evidence that what you're saying is true.  Investors tend to flock out of PRPFX during bull stock markets (1990's), and back in after a crash (2000's).

[Roy]

Regarding the tonal issues that many investment professionals can display, I agree. 

You see it up close every day, right?  Literally.

Well, yes.  I have clients who are these guys!  Sometimes arrogance is the price I pay for information;  I know that going-in.  But I don't pretend it is any less annoying and sometimes, with the ones I like, I wish they could phrase things differently.

[flyingpylon]

A new book about the Permanent Portfolio will deprive Harry Browne's widow of nothing.  If anything, a new book about the topic will sell more of Harry Browne's books as we build more interest in the topic.

Hi, I'm a newbie and a perfect example.  I found Craig's site several months ago and wasn't really "ready" for all of the info presented there, but subscribed to the blog via RSS.  Over time I became more interested.  I didn't even realize there was an associated forum until several weeks ago and I've been hooked ever since. I have just recently purchased "Fail Safe Investing" and "How I Found Freedom in an Unfree World" from trendsaction.com and will recommend them to others. So yes, more discussion about the PP and updated materials will absolutely build interest in the PP, result in more revenue for HB's widow and likely contribute to HB's legacy.

I'd also like to take the opportunity to thank everyone for their contributions to the forum... there's a tremendous amount of great information here.  At first I was kind of baffled by all of the responses to an imaginary "Clive" but I have since figured out what has been going on.  So... not much of an "epic first post" but there you have it.  A lot of stuff gets a little too deep or a little too advanced for me to contribute but I had to add my two cents on this one topic.

[AdamA]

A new book about the Permanent Portfolio will deprive Harry Browne's widow of nothing.  If anything, a new book about the topic will sell more of Harry Browne's books as we build more interest in the topic.

Hi, I'm a newbie and a perfect example.  I found Craig's site several months ago and wasn't really "ready" for all of the info presented there, but subscribed to the blog via RSS.  Over time I became more interested.  I didn't even realize there was an associated forum until several weeks ago and I've been hooked ever since. I have just recently purchased "Fail Safe Investing" and "How I Found Freedom in an Unfree World" from trendsaction.com and will recommend them to others. So yes, more discussion about the PP and updated materials will absolutely build interest in the PP, result in more revenue for HB's widow and likely contribute to HB's legacy.

I'd also like to take the opportunity to thank everyone for their contributions to the forum... there's a tremendous amount of great information here.  At first I was kind of baffled by all of the responses to an imaginary "Clive" but I have since figured out what has been going on.  So... not much of an "epic first post" but there you have it.  A lot of stuff gets a little too deep or a little too advanced for me to contribute but I had to add my two cents on this one topic.

I'd recommend listening to Craig's podcasts.  There aren't that many and they're very good.