Gyroscopic Investing

How did you first see the light?  ;D

For me it was when I realized that my stock and bond portfolio was made for only one scenario: endless boom. I realized that this was based on only a few decades of past performance, and that there was little to no analysis of stock behavior before that. The SEC requires all mutual funds to display on their prospectuses and advertisements that past performance is not indicative of future returns, yet every stock heavy portfolio is based almost completely on past performance continuing into the future. The long thread on the Bogleheads' forum at first seemed bizarre and out of place, but then as I read it I realized that this was the only portfolio that would work in any environment. And so after months of debating with myself and questions to MediumTex and CraigR, I adopted it!

All portfolios require maintenance and management.  The PP does, too, but not quite as much, maybe once a quarter or once a year.  The thing that sold me on the PP was the possibility of remaining calm during a market storm (several since The Long Term Capital Management of 1998), without having to think about whether to sell or hang on to a position while watching my capital dissolve away in a meltdown. 

I also wanted to be able to manage my own portfolio without having to rely on anyone else for more than a small bit of outside help.  I learned from the 2008-2009 financial crimes that the SEC, SIPC, and all the other alphabet institutions charged with ensuring honest dealings were incompetent, and compromised by the institutions they are supposed to regulate.  They will be of little to no help in a fraud, and will take no responsibility for their inaction.  The PP is profound, but simple enough to manage myself.  Any desire I might have for more complexity and risk can be fulfilled with a Variable Portfolio.

There are many great things about the PP, but one of the biggest is that during major market declines, there is no need to do anything to the portfolio--unless one really wants to.  The assets in the portfolio do all the work.

I have a margin account and was trying to create my own personal hedge fund. I liked the idea of turning a profit no matter the macro situation. I contemplated short selling securities, but the risk of shorting a single stock was too much. I also had a healthy respect for indices (not you, but I do respect you haha), so I was never going to short an index for an extended period of time.

Next, I began hunting for low correlations. At first I was looking strictly at equities, such as for profit education and other recession resistant stocks. I thought biotech also might exhibit some low correlations. I then broadened out and started looking towards bonds and gold.

Sometime around then I found the the thread on bogleheads and the rest of the story is pretty predictable. I basically have my own mini-hedge fund with the PP  8)

smurff wrote: I also wanted to be able to manage my own portfolio without having to rely on anyone else for more than a small bit of outside help. 

That's why I did it too.

I had been pundit surfing.  Some were sure there would be inflation and that you had to have gold.  Others were sure the banks would collapse, and said one should "wait things out" in T-bills.  Yet others were still stock picking.  All were very confident. 

I just wanted something that worked.

Everything else seemed to fall apart at the worst possible time, or required a certain economic environment in which to work properly (normally a prosperous economy).

An appreciation for the PP really begins, I think, after you learn to totally ignore most of what the "experts" say, or at least come to understand that it is basically just entertainment.

I've only been investing since the late 1990s and already we've been through 2 market crashes and countless mini market crashes.  I realized that corruption and greed had taken over wall street, and that if our retirement was entirely based on stocks, and the market lost 50% of it's value every few years, it was likely I would have no significant retirement.

Also, during the last crash in 2008, I realized that the entire "American dream" was a lie, since the market crash accompanied a housing market crash, and I've read about many people that were unfortunate enough to retire in the late 2000s having just lost 50% of their retirement portfolio as well as 50% of their house value.

People shouldn't rely on their home equity for retirement, yet millions of Americans do.  I've been told by countless people at dinner parties: "Just buy a house and don't worry about saving for retirement.  Property always goes up.  If you own a house you'll be fine."

The PP was the only way to save money that didn't care if the market crashed, and didn't seem to lose any significant value in the face of a market crash.

So, to me, the standard Bogleheads portfolio with your age in bonds is like taking the blue pill - you can work your 9 to 5 job, stick 10% in a 401k that will lose half it's value in a market crash every decade, put half your paycheck into a mortgage that might or might not be worth anything when you retire.

-or-

You can take the red pill, invest in the PP, and actually meet your retirement goals in a predictable manner, without needing to pay any so-called "experts" to do it.

i started out as a gold enthusiast, i picked up some gold bullion when i was in my mid 20's and didn't invest at all for the next 15 or so years (l82start), when my job disappeared with the housing bubble crash i rolled my 401k into a gold IRA and it did well (i lucked out with numismatic, coins and got out ahead later on), when i sold some property i purchased some more coins and i began studying DIY investing, found the boggle heads, built a 60/40 portfolio (plus gold coin), I discovered their animosity to gold, and found all the reasonable sounding gold enthusiasts on their forum were PP followers so i began reading/converting to the PP, i held a modified PP with total bond for about a year waiting for Roth IRA space to open up/new contributions and i was able to make the switch from total bond to LTT at the beginning of this year, i still have some numismatic i am behind the 8 ball with, but over all the journey from non investor to the PP was relatively quick and painless (around two years total).....

lessons learned along the way - gold IRA's are risky and expensive and don't fit the PP
                                           - numismatic gold has unseen risks and doesn't fit the PP either (somebody opened a vault in France and dumped a ton of coin on the market killing the numismatic value i had payed for)                                          

l82start wrote:I discovered their animosity to gold, and found all the reasonable sounding gold enthusiasts on their forum were PP followers so i began reading/converting to the PP...                                          

I'm glad you mentioned this because I sometimes forget that people often think that the permanent portfolio is really all about gold.

What IS ironic is the way some gold bugs will give their elaborate case for why people should own gold (much of which is just a guess about future outcomes) and then it turns out that they are only recommending that people hold 10-15% of their assets in gold.

Meanwhile, the PP'er finds himself owning 25% of his portfolio in gold while being much less certain that gold is the "must have" asset.

When I tell people about the PP, a common response is: "I would NEVER have 25% of my portfolio in gold--it's too volatile and unpredictable."  I always try to bridge the gap in their understanding by explaining that the only reason you would want to own 25% in gold would be if the remaining 75% was in other assets that offset gold's volatility while providing stability to the overall portfolio.

The next part of this conversation is normally: "You own 25% in long treasuries?  I would NEVER have 25% of my portfolio in long term treasuries--everyone knows interest rates have nowhere to go but up.  Do you know what happens to bonds when interest rates go up?  My broker told me it's not good.  He said China was also involved."

One of the things about the PP that can be genuinely frustrating is when I share the concept and its underpinnings with someone whom I like and respect and they give me that look like "Oh wow; I had no idea you had such a strange and primitive understanding of investing.  You poor thing--you probably don't even realize that any gains in one of those assets is going to easily be offset by losses in the other assets."

~Sigh~

I made the move last week, after the heavy volatility just finally did me in.  I started investing in 2000 when I got my first job, and as I've built up a larger and larger portfolio the market volatility has become too much to watch. I was 80% stock and 20% cash, and watching my portfolio swing $50K in a week was more than I could handle.  I've always considered myself very cool during the market storms, ready to pounce on low prices (thus the 20% in cash), but after this recent drop I wasn't interested in buying more stock.

A bunch of finance blogs were talking about wanting to buy in at the "discount" but these are guys that have less invested today than what I was gaining/losing in a single day. 

Then I stumbled onto CrawlingRoad and read this post (https://web.archive.org/web/20160324133 ... -downgrade), and I had to know more.  2 weeks later, I'm PP all the way.

tjt wrote: I made the move last week, after the heavy volatility just finally did me in.  I started investing in 2000 when I got my first job, and as I've built up a larger and larger portfolio the market volatility has become too much to watch. I was 80% stock and 20% cash, and watching my portfolio swing $50K in a week was more than I could handle.  I've always considered myself very cool during the market storms, ready to pounce on low prices (thus the 20% in cash), but after this recent drop I wasn't interested in buying more stock.

A bunch of finance blogs were talking about wanting to buy in at the "discount" but these are guys that have less invested today than what I was gaining/losing in a single day. 

Then I stumbled onto CrawlingRoad and read this post (https://web.archive.org/web/20160324133 ... -downgrade), and I had to know more.  2 weeks later, I'm PP all the way.

I hope you enjoy the ride.  It's very smooth most of the time.

tjt wrote:A bunch of finance blogs were talking about wanting to buy in at the "discount" but these are guys that have less invested today than what I was gaining/losing in a single day. 

Haha, yeah, exactly how i feel. Once you get older and have more skin in the game, and you actually start fantasizing about retirement, the swings become harder to stomach. Well, for me for sure!

When I heard of the PP I was a Boglehead.  I eventually came around to the PP, but only after a protracted period of soul-searching that resembled the 5 stages of grief (tongue in cheek).

Denial: There's no way this could work.  25% gold!? And long term bonds don't make sense.  This must be Internet BS.

Anger (while listening to the podcasts): Alright, the backtests do look good.  And the asset classes are negatively correlated and passively invested, which is consistent with modern portfolio theory.  But, 25% gold!?  There must be some simpleminded oversight or insidious motive in here.  I will listen to these radio shows until I expose it!

Bargaining: OK well Browne is right about conservative investing, at least.  Tell you what, I'll cherry pick a couple of his ideas and build my own conservative asset allocation which will be better!  Swedroe's minimize-fat-tails is almost as good.  30/10/60 SCV/gold/short term treasuries is almost as good.  Maybe I could use REITs instead of gold?  50/50 global-stock/IT-treasuries is a nice symmetric allocation like the PP.  Maybe the answer is international REITs, or timber, or emerging markets dividend stocks...

Depression: It must be nice to be one of those PP guys but I could never do that.  I'm locked in to a volatile portfolio and need to stay the course or else I will lock in losses.  And my 401k doesn't have perfect options.  And people would think I'm weird.  This is my lot in life.

Acceptance: Perfect is the enemy of done.  It's time to stop wringing my hands and implement the best PP I can with the resources available.  Then I can put all this time and energy into something more productive.

As soon as I stumbled upon it via the internet, I immediately liked the concept.  It just seemed to grounded in common sense.  It appeared very logical to me.  Then I read Fail-Safe Investing and I was sold....

I like there structural framework of the PP:

Buying low and selling high -This is a great counter-balance to my momentum strategy

A portfolio designed/hedged for all economic scenarios -Most people prepare for 1-2 economic situations and panic during times when they are caught off guard

You cannot predict the future -Many people try to predict the future and often fail.  Even the Bogleheads who don't understand that they try to predict the future, do so by default. If their time horizon is off relative to the economic cycle, their bets will miscalculated

The smooth volatility that this portfolio exhibits -It makes sense due to being hedged for most economic scenarios

clacy wrote: As soon as I stumbled upon it via the internet, I immediately liked the concept.

Me too...but only because I had screwed around enough with bad investing strategies to know
that it was different. 

Kevin, I love your stages of Portfolio "grief"...

I think the Bargaining phase reminds me so much of the Bogleheads threads on PP that I've read.  Everyone wants to tinker and they all think they could make it a little better by replacing treasuries with TIPS, gold with REITs, etc.

I think the simplicity of the PP is what throws people for a loop.  The first thought is "nothing this simple could ever work."

Kevin, that was great; really enjoyed it.

Awesomely done, KevinW.

After recovering 2008's horrific losses with some very aggressive purchasing in early 2009, I decided I'd had all the wild n crazy risk-taking that I cared to experience.  I had also become convinced that you needed some form of precious metals in a portfolio.  The problem was that gold looked like such a weak, volatile investment to me from an historical perspective that I figured I'd never be able to make it work.

When you start hunting around for a low-volatility investment strategy that uses gold, you end up heading this way very quickly.  craigr and MediumTex were such obviously sharp minds that I thought there really must be something to this approach.  It took some study, but before long I knew that I had essentially lucked my way into something amazing.

So here I am, grateful and only regretting that I didn't discover Harry Browne until after he'd died.

I got into the PP through the most unlikely of places:

A Money Magazine article.

It said nothing of the PP directly but showed that long-term treasury rates had a 10% return since 198x, and were one of the few things that jumped in 2008.  They also showed a graph.

I thought, "Man, this sure seems to offset stock losses really well... almost like its volatility is welcome..."

I then got to thinking about whether this could continue to work, and I remembered what people had said about the 70's stagflation, build up of interest rates, and poor stock performance... but after I realized  I owned a home I thought a Stock/LTT portfolio might be something worth looking at.

Somehow I came accross Craig's blog.  Gold seemed extreme at first, and cash seemed lazy, but it all sunk in eventually.  I "bought it" almost instantly, and have been trying to think and rethink it ever since, along with having discussions with you fine folks.

What a ride... the past few months have been particularly interesting.

Storm wrote: Kevin, I love your stages of Portfolio "grief"...

Liz L. wrote: Kevin, that was great; really enjoyed it.

Lone Wolf wrote: Awesomely done, KevinW.

Thanks, guys.

Storm wrote: I think the Bargaining phase reminds me so much of the Bogleheads threads on PP that I've read.  Everyone wants to tinker and they all think they could make it a little better by replacing treasuries with TIPS, gold with REITs, etc.

I think the simplicity of the PP is what throws people for a loop.  The first thought is "nothing this simple could ever work."

Yeah, I guess my point is that tinkering is a natural reaction.  And that going through the exercise of trying and failing to improve on the 4x25 allocation really made me appreciate how rock-solid it is.  It's akin to trying to find a counterexample to a correct mathematical proof.  Try as you might, you just can't do it, every case is covered.

Browne was a great communicator and chose to use simple nontechnical language in his radio show and later writings.  Sometimes that has a negative effect of causing well-read investors to assume that the PP is less technically sound than it is.  I know I fell into that trap at first.

I think I got into the pp via craigr's posts on bogleheads. At first I was suspicious -- there were a lot of annoying diversions from the boglehead philosophy, just as there is a lot of temptation to tinker on this forum. I viewed it with the same jaundiced eye. But, Craig was not about timing. Combine that with the feeling that I was missing out on gold's great run, and it wasn't long before I was hooked.

I have always viewed gold as something fun that just didn't belong in serious investing. It was a wonderful thing that became scary-looking and out of place in this new context, rather like Samuel L Jackson in a Star Wars film.

I listened to Harry Browne's radio shows and that was the clincher. Maybe the Bogleheads could use some dixieland.

I agree on the fabulosity of KevinW's grief stages.

KevinW wrote: When I heard of the PP I was a Boglehead.  I eventually came around to the PP, but only after a protracted period of soul-searching that resembled the 5 stages of grief (tongue in cheek).

Denial: There's no way this could work.  25% gold!? And long term bonds don't make sense.  This must be Internet BS.

Anger (while listening to the podcasts): Alright, the backtests do look good.  And the asset classes are negatively correlated and passively invested, which is consistent with modern portfolio theory.  But, 25% gold!?  There must be some simpleminded oversight or insidious motive in here.  I will listen to these radio shows until I expose it!

Bargaining: OK well Browne is right about conservative investing, at least.  Tell you what, I'll cherry pick a couple of his ideas and build my own conservative asset allocation which will be better!  Swedroe's minimize-fat-tails is almost as good.  30/10/60 SCV/gold/short term treasuries is almost as good.  Maybe I could use REITs instead of gold?  50/50 global-stock/IT-treasuries is a nice symmetric allocation like the PP.  Maybe the answer is international REITs, or timber, or emerging markets dividend stocks...

Depression: It must be nice to be one of those PP guys but I could never do that.  I'm locked in to a volatile portfolio and need to stay the course or else I will lock in losses.  And my 401k doesn't have perfect options.  And people would think I'm weird.  This is my lot in life.

Acceptance: Perfect is the enemy of done.  It's time to stop wringing my hands and implement the best PP I can with the resources available.  Then I can put all this time and energy into something more productive.

I first discovered the Permanent Portfolio concept in these "perma-bear market" essays discussing PRPFX.  I thereafter read Harry Browne's original work.  (Note a link to his essays at the bottom of the page.)  I disagree strongly with most of his recommendations but this is where it began for me, and also the notion that holding lots of stocks may not be a good idea.  Later, the quality of the discussions in the original thread on the Bogleheads board kept my interest.

http://www.financialsensearchive.com/ed ... /0128.html

http://www.financialsensearchive.com/ed ... /0120.html

http://www.financialsensearchive.com/ed ... /main.html

After receiving a large sum as inheretence, I began researching in order to put my money to work, to grow and protect it.  Bogle's book Common Sense Investing came first after a local library search.  It was so transparent and logical that I was convinced and adopted the strategy straight away.  However, I was far from satisfied in my depth of investment knowledge and kept researching.  Lo and behold, I came across gold. 

I began investing at the tail end of the 2008 crash, and gold was already being championed as the assest for the new era.  Some dilegent research on the shiney metal led to Harry Browne, his book on Fail-Safe Investing, and later 25% of my investment capital.  It seemed like anatural progression or compliment to the Boglehead Buy'n'Hold strategy and I've yet to discover anything more simple and more profound.

smurff wrote: The thing that sold me on the PP was the possibility of remaining calm during a market storm (several since The Long Term Capital Management of 1998), without having to think about whether to sell or hang on to a position while watching my capital dissolve away in a meltdown. 

Today's events, with hurricane/tropical storm and major shutdowns, is another reason I see for having a good chunk of assets in a PP.  While the NYSE managers insist that they will be open for business on Monday, telephone lines and electrical systems for residential use (needed for individuals to trade online) may not be.  It would not be a good day for someone who had to trade their own account due to market conditions.  With the PP, they don't have to, since it is largely independent of any single market.

I received a cash payout on a discontinued pension plan and chose a 2020 target-date retirement fund to invest the money, thinking it would be a fairly conservative investment. That was in 2008. It took about a 40 percent loss in year one. Not quite as conservative as what I had in mind.

What's left of it is now in the PP.