http://www.efficientfrontier.com/ef/0adhoc/harry.htm
Bernstein seems to like the PP, but believes that most people who switch to it now won't have the guts to maintain it when the market starts booming again.
Can't argue much with that, but people with conventional portfolios have the same problem during non-prosperous times, just ask those who sold their stocks in 2008.
He also thinks this isn't a good time to buy long treasuries and gold, because they've already gone up so much. But I suppose that this shouldn't be a problem because when they come down other assets are likely to have compensated for that. So even if you drop the PP when good times return, you probably won't have lost much if anything at all. Right?
William Bernstein: Wild About Harry
Moderator: Global Moderator
William Bernstein: Wild About Harry
Last edited by Pres on Sun Aug 29, 2010 12:17 pm, edited 1 time in total.
Re: William Bernstein: Wild About Harry
This was discussed here with input from Dr. Bernstein as well:
http://www.bogleheads.org/forum/viewtop ... 1282945518
His point about people not sticking to an investment plan is well taken, but hardly unique to the Permanent Portfolio. As for whether gold or LT bonds are a good buy now. Well I learned a long time ago that whenever I think I know what the markets are going to do I'm usually surprised later. I read articles back in 2007 saying how expensive gold was when it was $600 an ounce and would crash any day now. I read articles from, literally, over a decade ago about avoiding LT bonds because of the inevitable rise in interest rates. In fact, I've read investment books going back probably over 20 years saying the exact same thing. They've all been dead wrong. LT bonds have been very good investments in a diversified portfolio.
Browne actually got this type of question about avoiding this or that asset over the years and I made this audio clip of him answering it:
https://web.archive.org/web/20160324133 ... DoBest.mp3
My commentary:
https://web.archive.org/web/20160324133 ... l-do-best/
Now this clip was made in 2004. So even six years ago these same types arguments about avoiding this asset and buying this other one were still going on. And, six years later, the prognosticators were all proven wrong with the events that happened since.
My point is not that these things will continue to do well (we don't know). It's just that we can't predict the future and the reason we own many different assets in the portfolio is to provide protection against the unknown.
Further, I think his article is looking at asset classes in isolation and this is an error when evaluating a diversified portfolio. Theoretical returns for gold are 0% (matching inflation) historically and better for long bonds. But in a diversified portfolio the empirical evidence shows that an allocation to gold and long bonds is not hurting performance and provides powerful counterbalances to the volatility of stocks. These assets have done well in smoothing out the bumps in the market and it is a bad idea to abandon them as the portfolio strategy relies on their presence to work.
It may be that some people adopting the portfolio now will abandon it later when stocks get red hot again. I guess my response is: "What else is new?" People chase performance all the time and will continue to do so. They are sold this idea that the way to get rich is to just pick the right investment at the right time and pull down that easy 20% a year CAGR. But reality is much different. Browne was very wise in pointing out that it's better to have a stable portfolio to protect your career earnings than putting your life savings in various risky investment schemes.
The Permanent Portfolio provides moderate growth with very wide diversification. It has historically had low draw downs and survived some very bad markets that were horrible for stock and bond only investors. For people looking for those attributes, it will be a good strategy for them to follow into the future regardless of stock market performance. But for those looking to chase after double digit returns it's not a portfolio for them. I think chasing after such returns is a fantasy, but this is what Wall St. sells and people seem to be buying it.
http://www.bogleheads.org/forum/viewtop ... 1282945518
His point about people not sticking to an investment plan is well taken, but hardly unique to the Permanent Portfolio. As for whether gold or LT bonds are a good buy now. Well I learned a long time ago that whenever I think I know what the markets are going to do I'm usually surprised later. I read articles back in 2007 saying how expensive gold was when it was $600 an ounce and would crash any day now. I read articles from, literally, over a decade ago about avoiding LT bonds because of the inevitable rise in interest rates. In fact, I've read investment books going back probably over 20 years saying the exact same thing. They've all been dead wrong. LT bonds have been very good investments in a diversified portfolio.
Browne actually got this type of question about avoiding this or that asset over the years and I made this audio clip of him answering it:
https://web.archive.org/web/20160324133 ... DoBest.mp3
My commentary:
https://web.archive.org/web/20160324133 ... l-do-best/
Now this clip was made in 2004. So even six years ago these same types arguments about avoiding this asset and buying this other one were still going on. And, six years later, the prognosticators were all proven wrong with the events that happened since.
My point is not that these things will continue to do well (we don't know). It's just that we can't predict the future and the reason we own many different assets in the portfolio is to provide protection against the unknown.
Actually the secret is to just own everything at once because we have no way of knowing what is going to do best going forward. You rebalance assets when needed. What he is implying above is that you need to use market timing to get good diversification by buying assets when you think they are the right price I suppose. I don't think this is a very good idea.William Bernstein wrote:Diversifying asset classes, as Harry Browne knew well, can benefit a portfolio. The secret is deploying them before those diversifying assets shoot the lights out.
Further, I think his article is looking at asset classes in isolation and this is an error when evaluating a diversified portfolio. Theoretical returns for gold are 0% (matching inflation) historically and better for long bonds. But in a diversified portfolio the empirical evidence shows that an allocation to gold and long bonds is not hurting performance and provides powerful counterbalances to the volatility of stocks. These assets have done well in smoothing out the bumps in the market and it is a bad idea to abandon them as the portfolio strategy relies on their presence to work.
It may be that some people adopting the portfolio now will abandon it later when stocks get red hot again. I guess my response is: "What else is new?" People chase performance all the time and will continue to do so. They are sold this idea that the way to get rich is to just pick the right investment at the right time and pull down that easy 20% a year CAGR. But reality is much different. Browne was very wise in pointing out that it's better to have a stable portfolio to protect your career earnings than putting your life savings in various risky investment schemes.
The Permanent Portfolio provides moderate growth with very wide diversification. It has historically had low draw downs and survived some very bad markets that were horrible for stock and bond only investors. For people looking for those attributes, it will be a good strategy for them to follow into the future regardless of stock market performance. But for those looking to chase after double digit returns it's not a portfolio for them. I think chasing after such returns is a fantasy, but this is what Wall St. sells and people seem to be buying it.
Last edited by craigr on Sun Aug 29, 2010 11:20 pm, edited 1 time in total.
Re: William Bernstein: Wild About Harry
Goes to show to what extent I'm out of the loop!craigr wrote: This was discussed here with input from Dr. Bernstein as well:
Thanks craigr, I've read it all now!
Re: William Bernstein: Wild About Harry
I put up a blog post about the article as well:
https://web.archive.org/web/20160324133 ... out-harry/
In summary:
1) Stay diversified.
2) Don't time the market.
3) Don't chase performance.
https://web.archive.org/web/20160324133 ... out-harry/
In summary:
1) Stay diversified.
2) Don't time the market.
3) Don't chase performance.
Last edited by craigr on Sun Aug 29, 2010 11:49 pm, edited 1 time in total.
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PP4me
Re: William Bernstein: Wild About Harry
You can't judge a book by its cover . . .
William Bernstein wrote "The Investor's Manifesto Preparing For Prosperity Armageddon And Everything In Between" that I read before finding Harry Browne's "Fail Safe Investing". I was very disappointed with Bernstein's book because its contents did not do justice to its title. Now if you wrapped "Fail Safe Investing" inside of Bernstein's cover, you would have a properly matched title and book!
William Bernstein wrote "The Investor's Manifesto Preparing For Prosperity Armageddon And Everything In Between" that I read before finding Harry Browne's "Fail Safe Investing". I was very disappointed with Bernstein's book because its contents did not do justice to its title. Now if you wrapped "Fail Safe Investing" inside of Bernstein's cover, you would have a properly matched title and book!