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Permanent Portfolio versus Mechanical Timing & Boglehead Buy Hold
Posted: Fri Sep 09, 2011 4:17 pm
by hrux
As MedTex is aware I decided against the 100 percent adoption of the PP in lieu of including some active strategies such as Hussman, Doubleline, Driehaus, Caldwell & Orkin, etc... Needless to say so far I remain puzzled as to which approach is best. Decency bias obviously suggests the PP is the way to go which leads to my question.
Has anyone considered blending the PP with other strategies such as stock timing (GTAA), boglehead global buy hold rebalance and/or including a few active managers? My rationale is to try and diversify strategies so one is not all in a PP. If one was to consider diversifying the PP what would you recommend and why?
For example, 1/4 in PP, 1/4 in GTAA, 1/4 in Wellington and the balance in Hussman Strategic Growth, Doubleline Total Return, Driehaus Active Income, FPA Crescent, Leuthold....
Thanks. Heather
Re: Permanent Portfolio versus Mechanical Timing & Boglehead Buy Hold
Posted: Fri Sep 09, 2011 4:19 pm
by TripleB
My advice would be NOT to rebalance from one portfolio into another. i.e. if your active managed fund takes a 50% drop, don't pour your PP money in there, because then it's just a race to the bottom. An actively managed fund can theoretically go to zero, and rebalancing back into it could make your entire portfolio drop to nothing.
As Harry Browne would say, you can have a Variable Portfolio, but keep it isolated from the PP. So consider what you are doing as a 25% PP that is internally balanced only, and a 75% Variable Portfolio.
Re: Permanent Portfolio versus Mechanical Timing & Boglehead Buy Hold
Posted: Fri Sep 09, 2011 6:25 pm
by Storm
Heather,
Recency bias will definitely hurt us all as investors. The emotions that come into play are very real:
Situation 1: The stock market has just had 60 days of losses, while the PP has performed admirably well. Recency bias says we should sell what we have and put it all into the PP.
Situation 2: The stock market has just had 2-3 years of 30-40% gains, while the PP has done what it normally does, ~10%. Recency bias says we should sell the PP and put it all into equities.
If we shift back and forth based on fear in situation 1 or greed in situation 2, in the end we end up harming our net worth. We lose a significant amount of money by being heavily into stocks during situation 1, and we never gain it back by being in a conservative allocation like the PP in situation 2.
If I were you I'd just go PP and stick with it. Portfolio hopping will just get you the worst of both worlds.
Re: Permanent Portfolio versus Mechanical Timing & Boglehead Buy Hold
Posted: Fri Sep 09, 2011 7:43 pm
by cowboyhat
Another idea would be to put 1/2 of your money in the PP and 1/2 your money in something else that seems sensible to you. Then promise yourself you won't change anything for 12 months. At the end of the 12 months ask yourself which investment strategy made you happier. Not in the sense of which one made you more money, but which one caused you less heart ache.
My personal experience following the Decision Moose with a small amount of money was that the decisions took a tremendous toll. The PP gives you lots of time and energy to think about what you are doing, which the best research suggests are the keys for human beings making good probabilistic decisions. Jason Zweig's book, "Your Money and Your Brain" is an excellent discussion of these ideas.
In the end what matters is how happy you are, not how much money you have. Lots of money doesn't make you happier than some money, so you should invest in a way that is sensible and makes you content.
Re: Permanent Portfolio versus Mechanical Timing & Boglehead Buy Hold
Posted: Fri Sep 09, 2011 7:45 pm
by AdamA
cowboyhat wrote:
Another idea would be to put 1/2 of your money in the PP and 1/2 your money in something else that seems sensible to you. Then promise yourself you won't change anything for 12 months. At the end of the 12 months ask yourself which investment strategy made you happier. Not in the sense of which one made you more money, but which one caused you less heart ache.
My personal experience following the Decision Moose with a small amount of money was that the decisions took a tremendous toll. The PP gives you lots of time and energy to think about what you are doing, which the best research suggests are the keys for human beings making good probabilistic decisions. Jason Zweig's book, "Your Money and Your Brain" is an excellent discussion of these ideas.
In the end what matters is how happy you are, not how much money you have. Lots of money doesn't make you happier than some money, so you should invest in a way that is sensible and makes you content.
That is great advice.
Re: Permanent Portfolio versus Mechanical Timing & Boglehead Buy Hold
Posted: Fri Sep 09, 2011 8:08 pm
by Odysseusa
cowboyhat wrote:
In the end what matters is how happy you are, not how much money you have.
Lots of money doesn't make you happier than some money,
so you should invest in a way that is sensible and makes you content.
There is so much truth and wisdom in that. Thank you.
Re: Permanent Portfolio versus Mechanical Timing & Boglehead Buy Hold
Posted: Fri Sep 09, 2011 9:48 pm
by clacy
I use the HBPP, as well as a relative strength strategy. I only have about 1/3rd of my money in the HBPP, but will likely increase that to 50/50. That way I am 50% mean reversion (HBPP) and 50% momentum.
I think both of these strategies will out perform the other half of the time, as some times momentum is where you want to be and other times buying low and selling high is the best route.
Re: Permanent Portfolio versus Mechanical Timing & Boglehead Buy Hold
Posted: Sat Sep 10, 2011 6:16 am
by stone
Clacey, don't the fairly wide (15%-35%) rebalance bands of the PP give it some momentum aspect as they leave it overweight for what has recently out performed?
Re: Permanent Portfolio versus Mechanical Timing & Boglehead Buy Hold
Posted: Sat Sep 10, 2011 8:12 am
by clacy
Stone, yes to a small degree, you will get a RS aspect to the HBPP, not of your own making of course. The band settings will determine how great of a degree this RS creeps in. Of course the tighter the bands, the less RS involved.
Overall though, I would still lump the HBPP into a mean reversion category because the intent is that you are buying low and selling high, where as with Relative Strength you are buying high and selling higher.