Gyroscopic Investing

In discussing how to deal with a lump sum of cash, "The Permanent Portforlio" appears to advocate "going all in" when starting a Permanent Portfolio. Given current asset valuations and interest rates, I'm wondering if this course of action is wise, even for someone with a 10-20 year horizon. I seems like a "garden variety" reversion toward the mean in cyclically adjusted P/E and interest rates would devastate the stock and long bond sleeves, and it's hard to believe that gains in gold and short bonds could really come close to offsetting the losses.  Comments?

Only do as much as you feel comfortable with.  You could start with 25% allocated to the PP and 75% in 5-year bond ladder.  Then as your bonds mature, allocate more towards the PP if you feel comfortable.

cnh wrote: In discussing how to deal with a lump sum of cash, "The Permanent Portforlio" appears to advocate "going all in" when starting a Permanent Portfolio. Given current asset valuations and interest rates, I'm wondering if this course of action is wise, even for someone with a 10-20 year horizon. I seems like a "garden variety" reversion toward the mean in cyclically adjusted P/E and interest rates would devastate the stock and long bond sleeves, and it's hard to believe that gains in gold and short bonds could really come close to offsetting the losses.  Comments?

There are definitely negative consequences in lump sum investing to not buying near a relative bottom.  But if you are fully committed to a strategy, then you will reap the rewards only through a full trough-peak-trough cycle.

cnh wrote: In discussing how to deal with a lump sum of cash, "The Permanent Portforlio" appears to advocate "going all in" when starting a Permanent Portfolio. Given current asset valuations and interest rates, I'm wondering if this course of action is wise, even for someone with a 10-20 year horizon. I seems like a "garden variety" reversion toward the mean in cyclically adjusted P/E and interest rates would devastate the stock and long bond sleeves, and it's hard to believe that gains in gold and short bonds could really come close to offsetting the losses.  Comments?

I felt the same way when I first encountered the PP.

Everyone seems to feel this way during the PP tire kicking stage.  It doesn't matter what the markets are doing.

MangoMan wrote: That sounds like Hussman-speak.

Maybe, but say you go all in 1/3rd of the way from a top, then you have a lot less downside room after the market finally gets past your breakeven point years later.  If you expect another top thereabouts, you might as well have bought at the top!  So in other words, lump sum investing only works if you're in a continual bull market hitting new highs instead of dollar cost averaging on the way down, so the price you paid to get in is not as important.  While you can't know this going forward in hindsight, you can certainly know if you're buying an over or undervalued market.  Even pre-2007, it was clear stocks were overvalued.  Would you have rather bought in 2006 or 2009?

I feel Hussman's track record leaves a lot to be desired.  But the realities of institutional investing doesn't allow swinging in and out billions of dollars of capital on short-term market gyrations, so by default the outlook is going to be the long-term 8.6 year business cycle.  A lot of pain in the interim it seems.

I'm stuck with this same issue.  I keep telling myself that I'm young(ish) and that when I'm 40 my contribution now will be relatively meager even if I invested at a peak and take a major hit in the next 3 years or so.

It is pretty tough though.  I work in industry, so I look at the DOW setting records and then I look at the global economy, the U.S. industrial markets and wonder, what the hell is going on that we are setting records when every where I look everything is still so shitty.

I don't know a single person who's optimistic about 2013.  Trying to get spun up into a new investment strategy in this climate is discouraging.

RuralEngineer wrote: I'm stuck with this same issue.  I keep telling myself that I'm young(ish) and that when I'm 40 my contribution now will be relatively meager even if I invested at a peak and take a major hit in the next 3 years or so.

The PP is designed to keep your portfolio from taking a major hit.  Over the past 40 years the PP has had only 3 negative ones with the worse  being 4 - 5%.  By not going all in like HB recommended, you are still market timing to a degree.  Using the PP strategy greatly diminishes the possibility of the major hit.  Will this continue?  We don't know.