Page 1 of 1
How long of an assessment period?
Posted: Mon Jan 28, 2013 11:49 am
by glennds
Hi,
I have read both Harry Browne and Craig Rowland's books. The PP theory is appealing and makes good sense to me for that part of my assets I want to keep safe. So I set up a PP in October, and as of today it is down 1.5%. I realize this is a long term strategy, and I'm not panicking, but I sometimes think about HB's own advice - "The Investment expert with the perfect record up until now will lose his touch as soon as you start acting on his advice"
What is a reasonable assessment period for a Permanent Portfolio? Two quarters, four quarters, eight quarters? Have any of you PP veterans taken losses at inception and later stabilized/performed as expected? Thanks for any feedback.
Re: How long of an assessment period?
Posted: Mon Jan 28, 2013 12:02 pm
by MediumTex
My own metric is 36 months. 36 months of PP performance that diverges from its historical norm would cause me to make a serious reassessment of the strategy.
Over the last 40 years, no PP investor who was patient has been disappointed. I would take that for what it's worth in deciding how patient you should be.
The authors you cite know a lot about the strategy. I think that all of the answers you are looking for are probably somewhere in their writings.
Re: How long of an assessment period?
Posted: Mon Jan 28, 2013 3:39 pm
by modeljc
M.T. Would you define Historical norm for me.
Re: How long of an assessment period?
Posted: Mon Jan 28, 2013 3:44 pm
by MediumTex
modeljc wrote:
M.T. Would you define Historical norm for me.
9% or so average annual returns with no large losses along the way.
One losing year will happen from time to time, but if I saw back to back losing years with what looked like a third losing year unfolding I would probably reassess the strategy. It would, of course, depend on what other strategies were doing at the time as well. Normally, if the PP is doing poorly everything is doing awful.
Re: How long of an assessment period?
Posted: Mon Jan 28, 2013 4:23 pm
by craigr
MediumTex wrote:
Normally, if the PP is doing poorly everything is doing awful.
I think this is an important point. The strategy owns four very different asset classes and it is easy to fall into this mode of thinking that the Permanent Portfolio cannot take a loss. But this is not true. Investing is a game of probabilities at the core. You have probabilities of wins, losses, and draws. In my perspective you need to balance the chances of winning against the odds of taking a very big loss if you are wrong.
So when people assess the Permanent Portfolio it is kind of a trap when they come up with a doomsday scenario because doomsday can happen with any investment. Cash can become worthless, stocks can fall 90% in value like they did in the 1930s, bonds can get hammered with inflation, etc. But you need to look at the total portfolio and asses what the chances are that all four of these assets are taking a beating at once. And if that is the case, then what else is doing any better? If anything, I suspect concentrated portfolio allocations are very likely doing *much* worse in that situation.
I can't imagine a scenario with all four assets losing value and
staying down for very long. But if it were to happen, then something very bad is going on in the economy and I suspect there is nowhere to really hide from it.
Re: How long of an assessment period?
Posted: Mon Jan 28, 2013 5:19 pm
by modeljc
MediumTex wrote:
modeljc wrote:
M.T. Would you define Historical norm for me.
9% or so average annual returns with no large losses along the way.
One losing year will happen from time to time, but if I saw back to back losing years with what looked like a third losing year unfolding I would probably reassess the strategy. It would, of course, depend on what other strategies were doing at the time as well. Normally, if the PP is doing poorly everything is doing awful.
Looking back over 40 years of data there are a number of rolling three year periods that don't do 9%. I would need another bench mark to exit the PP.
Re: How long of an assessment period?
Posted: Mon Jan 28, 2013 6:33 pm
by MachineGhost
glennds wrote:
What is a reasonable assessment period for a Permanent Portfolio? Two quarters, four quarters, eight quarters? Have any of you PP veterans taken losses at inception and later stabilized/performed as expected? Thanks for any feedback.
I think it will have to be over a decade because of whats coming, i.e. a gold bubble, stock collapse and bond collapse (or flatline zombie). Basically, the 70's all over again but amped up several times. Yet today, we're still currently off in lunacy land of stock overvalution and bonds are at historically low yields just begging to be taken out to the woodshed if the Fed ever stops QEternity.
Basically, we have two future choices... The Fed can either reign in all the QEternity liquidity or the general price level will double or triple. Gentlemen, place your bets and act accordingly!
Re: How long of an assessment period?
Posted: Mon Jan 28, 2013 8:10 pm
by Pointedstick
MachineGhost wrote:
I think it will have to be over a decade because of whats coming, i.e. a gold bubble, stock collapse and bond collapse. Basically, the 70's all over again but amped up several times. Yet today, we're still currently off in lunacy land of stock overvalution and bonds are at historically low yields just begging to be taken out to the woodshed if the Fed ever stops QEternity.
I dunno, once rates rise and we get some real inflation, I expect gold to positively explode,
especially if those higher rates are still negative in real terms. And cash will keep up as T-bill yields rise. IMHO, stocks are the real wild card.
Re: How long of an assessment period?
Posted: Mon Jan 28, 2013 11:51 pm
by MachineGhost
Pointedstick wrote:
I dunno, once rates rise and we get some real inflation, I expect gold to positively explode, especially if those higher rates are still negative in real terms. And cash will keep up as T-bill yields rise. IMHO, stocks are the real wild card.
If we are showing real tentative signs of a recovery vs an oncoming recession, its quite possible the next three years will see that scenario, but I still think its later off. With no mechanism to transmit inflation via wage contracts, it seems to me it will require a strong inflationary economy and the Fed eventually killing the goose. All of this will take years to play out as people and politics screwup and adjust.
I suppose I shouldn't discount another 1990's style bubble in stocks. That could also happen if the economy does pick up.
The beauty of the PP is you just don't have to figure this stuff out because, if you load the boat wrong, you are much better protected than swimming naked.
Re: How long of an assessment period?
Posted: Tue Jan 29, 2013 12:57 am
by MediumTex
modeljc wrote:
MediumTex wrote:
modeljc wrote:
M.T. Would you define Historical norm for me.
9% or so average annual returns with no large losses along the way.
One losing year will happen from time to time, but if I saw back to back losing years with what looked like a third losing year unfolding I would probably reassess the strategy. It would, of course, depend on what other strategies were doing at the time as well. Normally, if the PP is doing poorly everything is doing awful.
Looking back over 40 years of data there are a number of rolling three year periods that don't do 9%. I would need another bench mark to exit the PP.
I'm not talking about rolling three year average returns of 9%. I'm talking about a rolling three year period of 0% returns. That's what would give me pause.
Re: How long of an assessment period?
Posted: Tue Jan 29, 2013 6:13 am
by MomTo2Boys
glennds wrote:
So I set up a PP in October, and as of today it is down 1.5%.
Just want you to know that you're not alone in this.
I set up my PP initially last September. I'd been dollar cost averaging in monthly through about November/December. I haven't added any new money lately because there are some other things in my family's life that feel somewhat unsure so I've paused adding new money to the PP pot. (Translation: We may need some of the money sooner than I thought, so I'm keeping more in cash until plans are more certain.) I had initially planned on putting all of a certain amount of money into the PP and DCAing monthly until it was all in there, but somehow I hadn't internalized the idea that
Oh, yeah, the PP can, like, lose money, until I watched it lose money every month. So now I'm being a bit more cautious and holding more than I had originally planned in cash.
But between the money I started up last September and the money I added last October, November and December, I'm down almost 2% in the PP. I'm not complaining - I'm assuming it will recover at some point - but watching it lose and lose and lose did make me decide to keep more money on the sidelines (in cash) than I had originally planned when I mapped my PP plan out last September.
I do have to say that the PP is the first thing that got me to put anything at all into something other than cash, and for that, I'm grateful, because I feel like holding 100% cash is pretty dumb long term. But yeah, it has lost money, and that's no fun, and I just wanted to say that you're not alone.
Re: How long of an assessment period?
Posted: Tue Jan 29, 2013 12:09 pm
by buddtholomew
MediumTex wrote:
My own metric is 36 months. 36 months of PP performance that diverges from its historical norm would cause me to make a serious reassessment of the strategy.
If you are committed to the PP strategy, why do you require a plan B?
Re: How long of an assessment period?
Posted: Tue Jan 29, 2013 2:50 pm
by MediumTex
buddtholomew wrote:
MediumTex wrote:
My own metric is 36 months. 36 months of PP performance that diverges from its historical norm would cause me to make a serious reassessment of the strategy.
If you are committed to the PP strategy, why do you require a plan B?
I am only committed to it to the extent that my underlying assumptions about it remain valid.
Underperformance would make me reassess those assumptions.
Re: How long of an assessment period?
Posted: Tue Jan 29, 2013 4:27 pm
by frugal
MomTo2Boys wrote:
glennds wrote:
So I set up a PP in October, and as of today it is down 1.5%.
Just want you to know that you're not alone in this.
I set up my PP initially last September. I'd been dollar cost averaging in monthly through about November/December. I haven't added any new money lately because there are some other things in my family's life that feel somewhat unsure so I've paused adding new money to the PP pot. (Translation: We may need some of the money sooner than I thought, so I'm keeping more in cash until plans are more certain.) I had initially planned on putting all of a certain amount of money into the PP and DCAing monthly until it was all in there, but somehow I hadn't internalized the idea that
Oh, yeah, the PP can, like, lose money, until I watched it lose money every month. So now I'm being a bit more cautious and holding more than I had originally planned in cash.
But between the money I started up last September and the money I added last October, November and December, I'm down almost 2% in the PP. I'm not complaining - I'm assuming it will recover at some point - but watching it lose and lose and lose did make me decide to keep more money on the sidelines (in cash) than I had originally planned when I mapped my PP plan out last September.
I do have to say that the PP is the first thing that got me to put anything at all into something other than cash, and for that, I'm grateful, because I feel like holding 100% cash is pretty dumb long term. But yeah, it has lost money, and that's no fun, and I just wanted to say that you're not alone.
I understand the feelings...
Re: How long of an assessment period?
Posted: Wed Jan 30, 2013 12:27 pm
by murphy_p_t
buddtholomew wrote:
MediumTex wrote:
My own metric is 36 months. 36 months of PP performance that diverges from its historical norm would cause me to make a serious reassessment of the strategy.
If you are committed to the PP strategy, why do you require a plan B?
PP is an investing strategy, not a religion.