Gyroscopic Investing

One of the things that attracted me to the PP was the idea that I wouldn't be holding on through 25% losses to my portfolio. But human plans are prone to failure. Failure is something you can plan for in advance, or something you can let come as a surprise. In my view, part of mitigating disaster is designing in an eject button, and figuring out in advance when to push it.

What is the maximum loss you are willing to stand to your portfolio?

Were would you put your money if your PP hit your loss limit?

If the PP is down big, it is probably because every asset class except for cash under a mattress is down (and maybe that too).  In that scenario, what portfolio is doing great?  IMO, you have to accept that no portfolio or strategy will net you 4%+ real gains while never having a drawdown.  The PP is as close to that as possible.

I remember MT saying that 3 consecutive losing years would cause him to re-evaluate the PP.  I think that's a good plan.

what would be up in a "pp is down catastrophically" situation?
if the PP was down that badly, for a long enough period of time, and you had a alternative investment that made macro economic sense (+ history to demonstrate the principal behind it) then it would be time to think about switching..   its hard for me to imagine a situation where a few of those events lined up/questions had a answers, much less all of them at once, but those would be some of the things that would get me thinking..

More days like today

If the permanent portfolio starts doing "poorly", it probably means the U.S. dollar (or what ever currency your portfolio is priced in) has gotten stronger.

This type of catastrophic situation would mean that, most likely, the price of food, oil, energy, healthcare, housing, and consumer goods will have become cheaper relative to to the cash you are holding, so your cost of living will have gone down.  Keep in mind that deflation is essentially the value of the cash portion of the portfolio going up.

The only time I would ever change or dump the PP formula would be if:
1) Human beings become completely rational and logical thinkers as a whole, and realize that gold is just a shiny yellow metal with only a few industrial uses.
2) The U.S. dollar is no longer the worlds reserve currency, and U.S. treasuries are no longer the prefered safe haven for investors.  In this case, I would hold long term bonds from what ever country does print the worlds reserve currency.
3) U.S. GDP shrinks significantly.  I would then by a stocks from some other country (which ever has the most private-held businesses making the most cash.)

I would guess that most of these scenarios are unlikely to happen anytime soon.

Something very odd would have to happen to one or more of the asset classes to cause me to abandon the pp.

If scientists found a way to create cheap synthetic gold, rendering gold stocks worthless, I'd probably sell my coins as collectibles and look for another plan. (When, not if, gold comes down for mundane reasons, I'd like to think I would happily scoop up more).

Frankly, if craig and medium tex announced that they were giving up on the pp, I would be hard pressed to stay.

I think as long as we have a world monetary system as it has existed basically since 1971, the PP should work reasonably well.

Two full years of >5% losses would have me watching pretty carefully, however.  

If the losses were due to the stock market falling, I'd probably stick with the PP, no problem.

If the losses were due to gold and LTT's both plummeting over a couple years, I might start to really get angry and doubt the two assets.

I think that a new secular bull market for stocks is probably the most likely cause of someone bailing out of the PP.

Any other scenario where the PP is underperforming would probably mean that everything else was undperforming to an even greater extent.

It's important to remember that stocks really are the source of most new wealth, with gold and LT treasuries merely being volatile alternatives to stocks during periods of economic sickness (though these periods of sickness can continue for a LONG time).