Gyroscopic Investing

The more publicity the PP gets the more nervous I get.....
http://seekingalpha.com/article/274266- ... using-etfs

Why does PP media chatter make you nervous?

Look at PRPFX's asset growth in the last few years.  If there is anything PP-related to be nervous about, I would say it is that.

MediumTex wrote: Why does PP media chatter make you nervous?

Look at PRPFX's asset growth in the last few years.  If there is anything PP-related to be nervous about, I would say it is that.

Are you saying that simply b/c of the potential for large amounts of turnover (and therefore taxes) within the mutual fund, or is there something more ominous?

Adam1226 wrote:

MediumTex wrote: Why does PP media chatter make you nervous?

Look at PRPFX's asset growth in the last few years.  If there is anything PP-related to be nervous about, I would say it is that.

Are you saying that simply b/c of the potential for large amounts of turnover (and therefore taxes) within the mutual fund, or is there something more ominous?

Speaking from a "chatter" position, I would not be any more nervous implementing the HB PP than I would an ordinary index/passive strategy. 

Active strategies are another matter.  Asset bloat is an added challenge for actively-managed mutual funds, where individual security selection is afoot.  As an active fund grows, they incur greater market costs (additional to the already higher ER) for trading larger bundles, or to avoid that, they must diversify more and become, incrementally, a closet index fund.

I found the article funny in that most of its energy was in replicating PRPFX, of course.  After all, it has to be better since it is five-star actively managed, has more sub-asset classes, and Cuggino appears on TV.

MediumTex wrote: Why does PP media chatter make you nervous?

Look at PRPFX's asset growth in the last few years.  If there is anything PP-related to be nervous about, I would say it is that.

What makes me nervous is the adoption of PP by more investors whether PRPFX or do it yourself approach.  Before the crisis one rarely heard anything about the strategy.  As Bernstein said is this performance chasing?  Disclosure:  Myself I am currently only comfortable with a small portion of my net worth in the PP

PRPFX's growth in assets might make me nervous just because if all the new money piled out of the fund its tax efficiency could operate in reverse for the remaining owners of the fund.

It's probably not anything worth worrying about, though.

As for the HB PP, I think that if an investor has conviction that it truly is a "permanent" allocation (as I and many of us here do), the level of media interest in the strategy is totally irrelevant.  I would be shocked if more than 1% of all investors would ever use the strategy, no matter what the media said about it.  I'm not including PRPFX in this 1% observation, since I am fairly certain that many PRPFX investors don't understand what the underpinnings of the PP are all about.

hrux wrote: What makes me nervous is the adoption of PP by more investors whether PRPFX or do it yourself approach.  Before the crisis one rarely heard anything about the strategy.  As Bernstein said is this performance chasing?

Nothing to be nervous about IMO.  As you said, is some of this performance chasing?  Absolutely... but who cares?  I think most of us believe that the next raging bull stock market will shake a ton of people out of the PP strategy.

It really doesn't matter, though.  At the end of the day, most people are market timers and believe that you can predict the future.  Even those that don't believe that will tend to fixate on one of the four asset classes, decide that they hate them, and conclude that the strategy is nuts.  (In isolation, I hate most of the PP's asset classes as well!) 

When the performance chasers head for the exits, my personal opinion is that PRPFX will be dumped disproportionately compared to the 4x25 do-it-yourself crowd.  It's a much more roundabout journey to performance-chase your way into a 4x25.  That would generally involve reading Harry's books, the Bogleheads thread, or coming here.  And as Gumby's transcript reveals, even analysts don't appear to understand why PRPFX works as well as it does.

As I was thinking about this topic it occurred to me that even if people were to flee the PP as quickly as they had piled into it, that doesn't mean that the PP would stop working, it would just mean that the people who piled out of it would no longer be enjoying the security and steady gains it offers.

MediumTex wrote: As I was thinking about this topic it occurred to me that even if people were to flee the PP as quickly as they had piled into it, that doesn't mean that the PP would stop working, it would just mean that the people who piled out of it would no longer be enjoying the security and steady gains it offers.

...like jumping out of a cruise ship into an angry, foaming sea.

"Man overboard!!"

As big as PRPFX may seem, the amount of assets in permanent portfolios is really minuscule compared to the stock and treasury bond markets.  Also if someone were to liquidate their PP and buy something else, their new portfolio would probably involve a lot of stocks and treasuries, too.  So I really doubt that a mass sell-off of PPs could have any significant effect on prices of the stock, bond, or cash allocations.

The gold market is smaller, but still big enough that I don't believe PP outflows could affect it to any significant degree.

Ok doomsday scenario comes. Large numbers of people liquidate their assets that comprise the 4x25 permanent portfolio. The sell their stocks. Sell their bonds. Sell their gold. Sell their cash(???).

So where do they put the money from all this trading? They are going to put it somewhere and odds are that one of the basic asset classes in the portfolio is going to receive the bulk of it.

The above is why I don't worry much about the 4x25 split portfolio. The problem really arises in a fund though because the manager needs to shuffle that money around and handle large outflows. So there is a risk in the PRPFX side, but it's up to the managers to mitigate this risk.

craigr wrote: The problem really arises in a fund though because the manager needs to shuffle that money around and handle large outflows. So there is a risk in the PRPFX side, but it's up to the managers to mitigate this risk.

I don't understand why the mutual fund should behave any differently than the HB PP in this regard.

Can you explain?