Gyroscopic Investing

I just discovered the discussion group but have been in PRPFX for a couple of years. I was very interested in seeing all of the discussion of alternate versions of PRPFX, and am always looking for a better mousetrap, but haven't see the benefit quantified anywhere? I just ran a comparison of the "4/4" ETF (VTI, SHY, TLT, SGOL) version. For the period of 1/1/05 to date it appears to lag PRPFX by about 2%, although was slightly ahead during the turmoil in late '08 - early '09. I'm just using the monthly closing prices, and rebalancing the 4/4 constantly. I'm using the NAV prices which should reflect any fees charged by either approach. I'm not accounting for any dividends, but they should be similar. What am I missing?
Thanks in advance.
Henry

I suspect lower management fees as well as direct asset ownership would be the obvious benefits of a 4x25 approach.  That said I like PRPFX for it's simplicity.

I'm also reading about a 5x20 approach that seems to be in line with the PP Philosophy. 

If you have listened to Harry Browne's radio shows you might have heard his comments about the Permanent Portfolio fund.  Even though they were a sponsor to the show, he freely admitted that while the fund is good it is preferable to do the actual PP yourself.  This was one of the things that really made me know Browne was truly sincere in his position.  Listening to HB is almost like listening to your grandfather give you advice; you realize that he is not going to intentionally steer you wrong.

As SmallPotatoes said, fees are part of the reason for opting to create your own PP. The other is that it is more theoretically sound than PRPFX, having the benefit of refinement.  That said, it does have a similar historical return and is not a bad choice for those who like to keep things as simple as possible.  This can be a good thing.  I was discussing the PP concept at work and one question was "what fund does this so I don't have to?"  A lot of folks just don't want to bother, and there is nothing wrong with that.

The three primary issues with the fund vs. the 4x25 split approach for me:

1) It biases towards inflation assets (precious metals and Swiss Francs) and holds less in deflation and prosperity assets (bonds and stocks).
2) It uses active stock picking.
3) It has higher costs.

The past five years have been spectacular for gold and lousy for stocks. So this is why you see the slight edge towards the fund since 2005 as it favors precious metals and Francs over the general stock market.

But in the long run the fund and the 4x25 largely track each other minus the higher management costs of the fund (which have fallen lower over the years - a rare thing and good to see!). Sometimes one is ahead of the other. Sometimes not.

The 4x25 split is preferable because you can do it for lower costs, is perhaps more evenly balanced, has no active stock picking and does not have manager risk*. However, if you don't want to manage the portfolio yourself then the fund is a fine choice. I think it's an excellent fund to be in when compared to the vast majority of other mutual funds available on the market. The fund offers very stable and moderate returns for a reasonable fee with little active management overall. It's also very tax efficient if you can't hold it in a tax-deferred account.

* Manager risk is the risk that management of the fund does something dumb to impact performance. Although when you run things yourself you are the manager and that too is a risk if you do something dumb. For instance, when the fund is running it rebalances because that's what they agreed to do. When you run it and you get nervous and don't rebalance and get burned there is nobody to blame but you. So if you don't like seeing the ups and downs of the individual assets, the fund may be a good thing to use as these details are hidden.

>>largely track each other minus the higher management costs of the fund

The fund has lower tax effects though, no?

For example, as a non-US citizen subject to 30% withholding, I was wondering how the fund might help tax-wise.

stylo~ wrote: >>largely track each other minus the higher management costs of the fund

The fund has lower tax effects though, no?

Depends. If you are smart how you do tax-loss harvesting and limiting gains then the 4x25 allocation is quite tax efficient.

For example, as a non-US citizen subject to 30% withholding, I was wondering how the fund might help tax-wise.

This I don't know. I'm a US taxable investor and run the 4x25 split and I've found the tax load to be very reasonable myself. I don't know how the fund will help out for an international investor. I'm just not versed enough in the taxes involved.

I did a check on Yahoo! Finance today out of curiosity.  PRPFX, at least since 1996, has beat about every standard benchmark and recommended MF out there.  Perhaps I'm not good at reading the charts, but it seems that since inception PRPFX has steadily increased its value by 120%.  It's almost too good to be true. 

So tell me: am I just reading the charts wrong?  If not, then why is not everyone invested in PRPFX or some facsimile like the 4x25 PP?

FWIW, it appears PRPFX had about a 27% drop (peak to trough) during the market decline, where as the 4x25% method appears to have had about a 15% drop. If you had $100K portfolio - seeing almost $30K being wiped out initially might be too much to bear, where as $15K might be more tolerable?
FYI -I have not invested in either method yet- still evaluating the EFT approach because I do not want to own physical gold, nor treasury bonds.

SmallPotatoes wrote: I did a check on Yahoo! Finance today out of curiosity.  PRPFX, at least since 1996, has beat about every standard benchmark and recommended MF out there.  Perhaps I'm not good at reading the charts, but it seems that since inception PRPFX has steadily increased its value by 120%.  It's almost too good to be true.  :o

There could be performance chasing going on right now. The Permanent Portfolio strategy is really not designed to beat the market. It's designed to capture the returns of each asset class that the market provides. Overall, it should have a relatively moderate return with low risk. It is not made to swing for the bleachers. If the stock markets take off again you could find that interest in the Permanent Portfolio will wane. It's too boring of a strategy for most.

Henry T wrote:I just ran a comparison of the "4/4" ETF (VTI, SHY, TLT, SGOL) version. For the period of 1/1/05 to date it appears to lag PRPFX by about 2%, although was slightly ahead during the turmoil in late '08 - early '09. I'm just using the monthly closing prices, and rebalancing the 4/4 constantly.

What do you mean rebalancing the 4/4 constantly???

You're not supposed to rebalance back to 4x25% constantly. You should only be rebalancing when you hit a rebalancing band (i.e. only if an asset grows to 35% or falls to 15%). If you rebalance constantly, your 4x25 PP won't take advantage of the bubble effects.

Odd, looking at PP today compared to prpfx (+ 10% edv), and PP is up (gold and vti) whereas prpfx is down a good chunk.

Why would that be when prpfx is said to be overweighted towards inflation (gold especially)?

stylo~ wrote: Odd, looking at PP today compared to prpfx (+ 10% edv), and PP is up (gold and vti) whereas prpfx is down a good chunk.

Why would that be when prpfx is said to be overweighted towards inflation (gold especially)?

My sources indicate both PRPFX and EDV ended up today. Strange. Perhaps VTI, GLD, SHY, & TLT did better yet.

I only wish PRPFX didn't involve active stock picking, which I think has been sufficiently debunked.

SmallPotatoes wrote: I suspect lower management fees as well as direct asset ownership would be the obvious benefits of a 4x25 approach.  That said I like PRPFX for it's simplicity.

I'm also reading about a 5x20 approach that seems to be in line with the PP Philosophy. 

SmallPotatoes, what 5x20 approach are you referring to?

Bonafede wrote:

SmallPotatoes wrote: I suspect lower management fees as well as direct asset ownership would be the obvious benefits of a 4x25 approach.  That said I like PRPFX for it's simplicity.

I'm also reading about a 5x20 approach that seems to be in line with the PP Philosophy. 

SmallPotatoes, what 5x20 approach are you referring to?

The 5x20 includes real estate and natural resources. It's really an Ivy+PP portfolio. Also TW would be used in place of TSM.

It's not a bad approach, but after much consideration I feel that it compromises the mechanics of the PP and functions more like a BH portfolio.

I'm curious, what are the five assets in this 5x20 portfolio?  If you add two assets to the 4x25 that makes six assets.