Gyroscopic Investing

Well 2011 was an interesting year. New gold highs and bond yield lows. The year was very volatile overall, but the Permanent Portfolio built with ETFs managed to pull in +11% and change. Full breakdown is here:

https://web.archive.org/web/20160324133 ... 1-results/

Have a great new year everyone!

Nice job, Craig, and Happy New Year to all.

I keep hearing, every year, that the Permanent Portfolio is all about recency.  Then, I think 40 years of this sort of recency ain't too bad.  But the last few years, in the face of such turmoil, has really been instructive. 

However, I keep hearing that backtesting is irrelevant (and 2011 is gone), though always from the same folks who rely on backtested data or past fund performance to sell AUM packages or books, or I read posts from ordinary investors, trying to figure things out, who do the same.

On a related note, in the sideways-market 2011, there was a large difference between the Permanent Portfolio and PRPFX, which holds more hand-picked equities and fewer long Treasuries and all at greater cost.  PRPFX:  2.13%.

Maybe it is all just four decades of recency.  But it's been something to see.

I didn't even look at what PRPFX did. I didn't realize it was that far from the other portfolio. The fund however tends to focus on inflation as a problem and underweights other assets in proportion. So this was a bad year for that approach. The markets still think deflation is the ongoing threat it seems.

If you took MT's advice and added a 10% stake in EDV to augment the PRPFX you ended up with a much healthier return for the year of 7.39%. Not so bad!

Happy New Year!  Best wishes for a prosperous 2012...

Thanks for the recap.  Love the graphs, especially the one showing all four PP asset classes. 

Mad Money Machine has a great recap of 2011.

http://madmoneymachine.com/

One other result I don't think anyone has mentioned.

Total Stock/Total Bond mix (50/50%) returned about 4.4% according to ETF replay, using VTI and BND.  Volatility was 10.5%. 

Thanks for the great post, Craig!

Happy New Year and congratulations to all on another excellent year for the PP.

AdamA wrote: One other result I don't think anyone has mentioned.
Total Stock/Total Bond mix (50/50%) returned about 4.4% according to ETF replay, using VTI and BND.  Volatility was 10.5%. 

Ah, I was just looking at the research on that mix the other day.
https://personal.vanguard.com/pdf/icrrbp.pdf

PRPFX returned 2.1%.

I think it worth mentioning that the ever safe and sound Vanguard Wellesley Income Fund (VWINX) with 60% fixed and 40% income stocks (more or less) did 10% on the year.

Hi,

I run a European version of the PP, whilst based in the Netherlands.

My PP consists off the following components:
Equity; DXET - db-X trackers Euro Stoxx 50 (Acc) - 2011 result: -15,2%
Gold; PHAU - ETFS Physical Gold - 2011 result: 14,7%
Bond; EXX6 - IShares EbRexx Gov Ger 10,5+ - 2011 result: 18,5%
Cash; Kept on a savings account @ 3,0 percent for higher return but I have used the following before:
EXHB - Ishares EbRexx Gov Ger 1,5-2,5 - 2011 result: 2,5%

This brings the result of above EFT-based European portfolio to 5,14%
Now, my personal result for the PP was 4,4%. Difference caused mainly due to onging portfolio deposits during the year.

Oh- and this is my first post here. I have been a long term lurker of the forum here and on bogleheads, back since the days of the massive thread there.

regards,
Sandoor

Anyone tracking the UK PP willing to share results for 2011?
What are good trackers for UK PP? Thanks.

CA PP wrote: Anyone tracking the UK PP willing to share results for 2011?
What are good trackers for UK PP? Thanks.

Back of an envelope calculation = 10.7%.
Inflation at about 5%

LTT = 29% + 4.3% interest (based on 2060 maturity gilt)
FTSE All Share (inc. dividends) = - 2.9% (based on typical acc. index tracker)
GOLD = 10.46%
CASH = 0.5% base rate (typically 2% in a savings account)

Calculation is a little arbitrary, I've no idea what my actual return is as I fiddled with the implementation a few times as I learnt more about tax efficiency and risk.

[Edit: Updated LTT from source rather than eyeballing a graph]

Sandoor wrote: I run a European version of the PP, whilst based in the Netherlands.

Thank you Sandoor, always interesting to see how people in Europe implement the PP!

Australia PP:

ASX : -15%
Cash: +5.63%
Bonds: +11.63%
Gold: +9.3

25% in each of the above would yield: +2.9%

Exocet wrote: Australia PP:

ASX : -15%
Cash: +5.63%
Bonds: +11.63%
Gold: +9.3

25% in each of the above would yield: +2.9%

Are those Australian long term bonds? What funds do you use to get the above?

craigr wrote:

Exocet wrote: Australia PP:

ASX : -15%
Cash: +5.63%
Bonds: +11.63%
Gold: +9.3

25% in each of the above would yield: +2.9%

Are those Australian long term bonds? What funds do you use to get the above?

The bond component represents the performance of a wholesale Vanguard Australia fund, which mixes 5 to 10 year bonds and treasuries.  It is the closest vehicle I've found, apart from buying 10-year bonds directly.  Bonds are not traded in an exchange but bought and sold directly from and to the Reserve Bank of Australia.  I don't like the transaction process, i.e., having to fill in forms, etc. so I can only resort to the Vanguard fund, albeit far from ideal.

How does this:
25% stocks -11%
25% gold +10.7%
50% 10 year T +18.8%

Turn into this:
PP +9.31%

Don't stocks and gold (roughly) cancel each other out, so then bonds raise the portfolio +18% - even with an inflation rate of, say, 5% (higher than I'd expect) that's still a "real" gain of 13%.

What am I missing?

I'm definitely surprised by Exocert's results, but as I've mentioned before, I really struggle (still) to understand the bond component (mainly who buys the bonds back).

Clive wrote: I'm seeing vastly different figures for an Australian PP over 2011 ? ? ?

Clive

The Pert Mint performance you quote relate to the spot price.  This is technically correct - however, I used bullion price, which is what I hold and that gives me an accurate representation of portfolio performance (for Perth Mint, this includes fabrication price plus a wider buy/sell spread).

I think that the performance of Australian stocks can be misleading - it could represent the performance of the All Ordinaries or the ASX200.  It depends what we take into account.

Australian bonds are a real headache.  Bloomberg appears to show a 15-year bond but I have never been able to obtain a source for such quotes or even whether the bonds are sold to the public.  The Reserve Bank of Australia sells up to 10 year bonds.  For an individual investor, there is nothing accessible as far as long term bonds are concerned.  The Vanguard fund I quoted is the best I've been able to find.  Like HB, I always try to look at liquidity, and the current buy/sell arrangement with the RBA is far from what I would consider 'liquid' hence my reluctance to buy from them.

see how hedge funds compared to the HBPP

http://www.zerohedge.com/news/2011s-hed ... and-losers

wonder how many hedge fund managers think they earned their keep?

Canadian PP (CAD) results 2011

Stocks (XIC):      -8.93%
Bonds (CA 2041):  26.22%
Cash (XSB):         4.42%
Gold (IGT):          12.45%
TOTAL:                 8.54%

Exocet wrote:This is technically correct - however, I used bullion price, which is what I hold and that gives me an accurate representation of portfolio performance (for Perth Mint, this includes fabrication price plus a wider buy/sell spread).

Why do you use bullion?

I think that the performance of Australian stocks can be misleading - it could represent the performance of the All Ordinaries or the ASX200.  It depends what we take into account.

Which do you use?

Australian bonds are a real headache.  Bloomberg appears to show a 15-year bond but I have never been able to obtain a source for such quotes or even whether the bonds are sold to the public.  The Reserve Bank of Australia sells up to 10 year bonds.   For an individual investor, there is nothing accessible as far as long term bonds are concerned.  The Vanguard fund I quoted is the best I've been able to find.  Like HB, I always try to look at liquidity, and the current buy/sell arrangement with the RBA is far from what I would consider 'liquid' hence my reluctance to buy from them.

What is the current buy/sell arrangement?

The bond section is really discouraging me - I thought about just using short term bonds for some strategies, or just holding until maturity (but this essentially eliminates the increases and decreases a sale provides) - I don't really want to go with a fund, but you're right that might be the best compromise.
[/quote]

So are you saying that Australian stock brokers won't buy or sell Australian government bonds? In the UK, I use a no-frills execution only stock broker to buy and sell UK government bonds.

TennPaGa,

That's a terrific post above.

Lots of great information and data.

Thanks for putting all of that together.

stone wrote: So are you saying that Australian stock brokers won't buy or sell Australian government bonds? In the UK, I use a no-frills execution only stock broker to buy and sell UK government bonds.

Stone - my answer is that I really don't know. There are brokerages (http://www.fiig.com.au/) that deal specifically with fixed income, so hypothetically I suppose they could buy my bonds (although nothing is specifically mentioned on that website), I've not seen anything clear enough from the private sector.