Permanent Portfolio

[buddtholomew]

Do you Plan to Stay the Course?

[dualstow]

I guess this is bound to come up when stocks are rising big-time.
I'm staying the course b/c the pp is the core of my holdings. 1/2 of my pp+pp is in stocks, the Vp portion of which I will continue to trim.

When the pp is truly unloved and abandoned, I hope to rebalance into bonds and gold.

[PP67]

I voted to absolutely stay the course but that doesn't stop me for feeling uncomfortable about the PP's current performance...  but like Peter said in John 6:68, "Where else are we to go?..."

[MediumTex]

Why wouldn't someone want to stay the course?

I guess I don't follow the fundamental premise of all of these PP angst threads.

Are we really that rattled over a 2% or so fluctuation in value when the only way to have avoided it would have been to have magical powers that none of us has?

The basic appeal of the PP should be that, from a historical perspective, it allows investors to avoid large losses while also enjoying nice inflation-adjusted gains as well.  Few strategies can offer this mix of benefits, but that's not to say that the strategy doesn't occasionally have down years or extended periods of essentially flat performance.

It's critical that any investor understand exactly what he his getting into before he invests in the strategy.  It is a long-term strategy and these minute-to-minute analyses are IMHO completely pointless for someone who has accepted the PP's premises and used them as a basis for investing in the strategy.

You don't plant a seed for an oak tree and then dig it up every three days to see how it's doing.

Honestly, in some of these discussions I feel like I am listening to the life story of a fruit fly.

I hate to be indelicate about what are sincerely held concerns, but it's painful for me to watch such discomfort when it is totally self-inflicted and unnecessary.

My suggestion for anyone who finds the PP stressful over an extended period would be to find another strategy that provides more peace of mind.  Life is too short to spend that much time worrying about your investments.

[buddtholomew]

Why wouldn't someone want to stay the course?

I guess I don't follow the fundamental premise of all of these PP angst threads.

Are we really that rattled over a 2% or so fluctuation in value when the only way to have avoided it would have been to have magical powers that none of us has?

The basic appeal of the PP should be that, from a historical perspective, it allows investors to avoid large losses while also enjoying nice inflation-adjusted gains as well.  Few strategies can offer this mix of benefits, but that's not to say that the strategy doesn't occasionally have down years or extended periods of essentially flat performance.

It's critical that any investor understand exactly what he his getting into before he invests in the strategy.  It is a long-term strategy and these minute-to-minute analyses are IMHO completely pointless for someone who has accepted the PP's premises and used them as a basis for investing in the strategy.

You don't plant a seed for an oak tree and then dig it up every three days to see how it's doing.

Honestly, in some of these discussions I feel like I am listening to the life story of a fruit fly.

I hate to be indelicate about what are sincerely held concerns, but it's painful for me to watch such discomfort when it is totally self-inflicted and unnecessary.

My suggestion for anyone who finds the PP stressful over an extended period would be to find another strategy that provides more peace of mind.  Life is too short to spend that much time worrying about your investments.

This site has countless posts discussing inflation, deflation and recessionary economic climates and the impact on the PP. Seems to me that prosperity is the Achilles heal and not enough time has been spent on the impact of this economic climate on investors emotional fortitude to stay the course. We can certainly tune out the noise and stick our head in the sand during this period of under-performance, but I believe we should face the fact that the portfolio is performing sub-par.

[melveyr]

Budd,

You are the master of your portfolio. If you want more equities than there is nothing stopping you. In the past I have toyed around with the idea of...

20% US stocks
20% Int stocks
20% LTT
20% T-Bills
20% Gold

However, don't you have a stock heavy VP? I am not sure why you are even upset right now. Your net worth is growing.

[MediumTex]

I believe we should face the fact that the portfolio is performing sub-par.

But it's NOT performing sub-par.

It's just that the stock market is currently performing better, just like gold and bonds have sometimes performed better than the overall PP in recent years.

If the PP went up every single day and every single year everyone would use it.

[Khisanth]

There will always be angst. But we aim to be supportive, thus we will advise staying the course. Psychologically the worse time to change investments is when you are in a heightened emotional state.

If you are considering jumping out of the PP, consider why. Because of its sub-par performance compared to other stock-weighted portfolios?

Bernstein also warned us years ago ( http://www.efficientfrontier.com/ef/0adhoc/harry.htm ) of this potential underperformance and the mentality that brought some of us here in the first place.

[buddtholomew]

I believe we should face the fact that the portfolio is performing sub-par.

But it's NOT performing sub-par.

It's just that the stock market is currently performing better, just like gold and bonds have sometimes performed better than the overall PP in recent years.

If the PP went up every single day and every single year everyone would use it.

Perhaps we have a different perspective, but a negative YTD return when a 60/40 allocation is up 8%+ over the same time frame is "sub-par" in my book.

I too am tired of complaining about the performance of the PP, but I am still not comfortable turning a blind eye. How much can I expect to lose in a bull market? WOW, never thought that would come out of my mouth...

[Pointedstick]

I believe we should face the fact that the portfolio is performing sub-par.

But it's NOT performing sub-par.

It's just that the stock market is currently performing better, just like gold and bonds have sometimes performed better than the overall PP in recent years.

If the PP went up every single day and every single year everyone would use it.

Perhaps we have a different perspective, but a negative YTD return when a 60/40 allocation is up 8%+ over the same time frame is "sub-par" in my book.

I too am tired of complaining about the performance of the PP, but I am still not comfortable turning a blind eye. How much can I expect to lose in a bull market? WOW, never thought that would come out of my mouth...

If you're uncomfortable with the PP being outperformed by stocks, then you could adopt a more stock-heavy portfolio... but then you need to be prepared to accept larger and faster losses when the stock market inevitably crashes again.

If you're uncomfortable with the PP exhibiting a 2% nominal decline over some period of time, then you could adopt a portfolio of mostly short-term bonds... but then you need to be prepared for virtually everything else to outperform you most of the time.

There's nothing wrong with the PP or either of these alternative approaches. You just need to pick the one that matches your risk tolerance. But you're never going to find a passive portfolio with the upside volatility of stocks and the downside volatility of T-bills. It doesn't exist. If it did, every investor would be in it.

[iwealth]

If the "Permanent Portfolio" had some sort of diversifier based on age, risk tolerance, etc., it'd be a lot more palatable to those who like to believe they are adhering to the "system" and staying within the rules. (insert VP here) The best possible portfolio doesn't need a fancy name like the "PP" or the "Boglehead" - it just needs to be diversified, historically proven, and make you comfortable. An unlimited number of asset allocations meet that criteria.

[dualstow]

Perhaps we have a different perspective, but a negative YTD return when a 60/40 allocation is up 8%+ over the same time frame is "sub-par" in my book.

Haven't we been over this a thousand times? You need to consider dropping your 60/40 set-up, because in light of SNTS's steady climb over the past few months, the 60/40 allocation has had a sub-par performance.

[MediumTex]

budd,

Why does it matter what any other portfolio is doing?

Shouldn't the PP be judged based upon its own objectives (i.e., low drawdowns and positive inflation-adjusted long term returns)?

There is a difference between turning a blind eye and not looking at your portfolio dozens of times a day.  For example, you could look at your portfolio once a week--it's hard to imagine anyone considering weekly reviews to be turning a blind eye to portfolio performance.

With most long term investments, sometimes you just have to give them time.  That has certainly been true of stocks over the last 15 years or so. 

I still don't understand such stress over a 1-2% decline in value for a portfolio that has had double digit returns more often than not in recent years.  A mean reversion to historical performance levels for the PP would probably involve a year or two of flat returns, but such a situation would hardly mean that the strategy was no longer working as expected.  Honestly, I would say that if the strategy never had a mean reverting year of small or no gains, I would say that THAT would be evidence that it was no longer working properly. 

With the PP, I just want that average 4%+ inflation adjusted return.  It's okay with me if it happens in the form of one year of 8% inflation adjusted returns and another year of 0% inflation adjusted returns.  What's NOT okay with me is having one year of 40% gains and the next year 35% losses in my portfolio.  That's what I can't cope with.

[buddtholomew]

budd,

Why does it matter what any other portfolio is doing?

Shouldn't the PP be judged based upon its own objectives (i.e., low drawdowns and positive inflation-adjusted long term returns)?

There is a difference between turning a blind eye and not looking at your portfolio dozens of times a day.  For example, you could look at your portfolio once a week--it's hard to imagine anyone considering weekly reviews to be turning a blind eye to portfolio performance.

With most long term investments, sometimes you just have to give them time.  That has certainly been true of stocks over the last 15 years or so. 

I still don't understand such stress over a 1-2% decline in value for a portfolio that has had double digit returns more often than not in recent years.  A mean reversion to historical performance levels for the PP would probably involve a year or two of flat returns, but such a situation would hardly mean that the strategy was no longer working as expected.  Honestly, I would say that if the strategy never had a mean reverting year of small or no gains, I would say that THAT would be evidence that it was no longer working properly. 

With the PP, I just want that average 4%+ inflation adjusted return.  It's okay with me if it happens in the form of one year of 8% inflation adjusted returns and another year of 0% inflation adjusted returns.  What's NOT okay with me is having one year of 40% gains and the next year 35% losses in my portfolio.  That's what I can't cope with.

With a 25-30 year investment horizon, there is still time to select and maintain an appropriate asset allocation for the long-term. In response to your question, I compare PP performance to a BH 60/40 allocation as I consider this a viable alternative for my taxable investments as well. I have been a member of the Bogleheads.org site since 2007 and have NEVER voiced any concern over a buy, hold and re-balance strategy. Something about the PP and its unpredictable behavior has me question whether this strategy can perform as well as it has historically. When equity markets are on the rise, the PP is either up, down or treading water (flip a coin...). With a 60/40, you know where you stand. Also, my tax-deferred investments are for retirement purposes. Taxable PP investments make up the second tier of an emergency fund.

I still don't understand the benefit of looking at the portfolio less frequently. If I only looked at it once every 6 months, I would still see that the PP is under-performing a 60/40 allocation. If I didn't have an opportunity to digest the losses over a period of time, then seeing a 5 figure decline would feel even more disturbing. I may end up selling to avoid any further declines.

If I am becoming a broken record on this forum and other do not feel that I add any value, please let me know. I will keep my emotions to myself.

[MediumTex]

If I am becoming a broken record on this forum and other do not feel that I add any value, please let me know. I will keep my emotions to myself.

It's not that you are becoming a broken record so much as I don't understand why you don't just move to a 60/40 allocation if you think it would allow you to sleep better at night.

At the risk of me sounding like a broken record I will say again that the PP shouldn't give you heartburn, and it sounds like that's what it's doing to you.

In your post above you talk about the PP and its "unpredictable behavior."  Can you tell me what has been unpredictable about the PP's recent behavior?  If you look at the last 40 years of data you will almost always see a flat year after several double digit return years.  The portfolio has been where it's at now several times.

[iwealth]

Something about the PP and its unpredictable behavior has me question whether this strategy can perform as well as it has historically. When equity markets are on the rise, the PP is either up, down or treading water (flip a coin...). With a 60/40, you know where you stand.

Depends on your benchmark though doesn't it? You know where you stand in relation to equities since the 60/40 has a very strong correlation to equities. Interestingly what seems most distasteful about the PP (in comparison to the 60/40) is what the PP sets out to accomplish - a low correlation to any single asset class.

That said, I think some here have proven it tracks gold a bit too strongly.

[buddtholomew]

If I am becoming a broken record on this forum and other do not feel that I add any value, please let me know. I will keep my emotions to myself.

It's not that you are becoming a broken record so much as I don't understand why you don't just move to a 60/40 allocation if you think it would allow you to sleep better at night.

At the risk of me sounding like a broken record I will say again that the PP shouldn't give you heartburn, and it sounds like that's what it's doing to you.

In your post above you talk about the PP and its "unpredictable behavior."  Can you tell me what has been unpredictable about the PP's recent behavior?  If you look at the last 40 years of data you will almost always see a flat year after several double digit return years.  The portfolio has been where it's at now several times.

60/40 is attractive, but so is the PP. I want to ensure that recency bias is not persuading me to make any hasty changes. I will admit however, that under-performing when equities are on the rise is difficult to digest. The PP is "unpredictable" in that when the S&P 500 is up 200 points, the portfolio is either up, down or flat. A 60/40 allocation is generally in the positive by a healthy margin.

[MediumTex]

If I am becoming a broken record on this forum and other do not feel that I add any value, please let me know. I will keep my emotions to myself.

It's not that you are becoming a broken record so much as I don't understand why you don't just move to a 60/40 allocation if you think it would allow you to sleep better at night.

At the risk of me sounding like a broken record I will say again that the PP shouldn't give you heartburn, and it sounds like that's what it's doing to you.

In your post above you talk about the PP and its "unpredictable behavior."  Can you tell me what has been unpredictable about the PP's recent behavior?  If you look at the last 40 years of data you will almost always see a flat year after several double digit return years.  The portfolio has been where it's at now several times.

60/40 is attractive, but so is the PP. I want to ensure that recency bias is not persuading me to make any hasty changes. I will admit however, that under-performing when equities are on the rise is difficult to digest. The PP is "unpredictable" in that when the S&P 500 is up 200 points, the portfolio is either up, down or flat. A 60/40 allocation is generally in the positive by a healthy margin.

Why do you think it wasn't as hard for you when the portfolio was under-performing relative to gold and bonds at various points in recent years?

What is it about under-performance relative to stocks that is especially unsettling?

Note that at least one of the PP assets will always be outperforming the portfolio as a whole.  That's part of what makes it work.

[smurff]

There will always be angst. But we aim to be supportive, thus we will advise staying the course. Psychologically the worse time to change investments is when you are in a heightened emotional state.

If you are considering jumping out of the PP, consider why. Because of its sub-par performance compared to other stock-weighted portfolios?

Bernstein also warned us years ago ( http://www.efficientfrontier.com/ef/0adhoc/harry.htm ) of this potential underperformance and the mentality that brought some of us here in the first place.

+10.

Harry Browne designed the system to include a variable portfolio, for those who want to try their luck at getting greater returns with whatever assets strike their fancy, for however long.

Gold price may be down sharply and bond prices off, but the Permanent Portfolio is behaving as it should.

[buddtholomew]

It's not that you are becoming a broken record so much as I don't understand why you don't just move to a 60/40 allocation if you think it would allow you to sleep better at night.

At the risk of me sounding like a broken record I will say again that the PP shouldn't give you heartburn, and it sounds like that's what it's doing to you.

In your post above you talk about the PP and its "unpredictable behavior."  Can you tell me what has been unpredictable about the PP's recent behavior?  If you look at the last 40 years of data you will almost always see a flat year after several double digit return years.  The portfolio has been where it's at now several times.

60/40 is attractive, but so is the PP. I want to ensure that recency bias is not persuading me to make any hasty changes. I will admit however, that under-performing when equities are on the rise is difficult to digest. The PP is "unpredictable" in that when the S&P 500 is up 200 points, the portfolio is either up, down or flat. A 60/40 allocation is generally in the positive by a healthy margin.

Why do you think it wasn't as hard for you when the portfolio was under-performing relative to gold and bonds at various points in recent years?

What is it about under-performance relative to stocks that is especially unsettling?

Note that at least one of the PP assets will always be outperforming the portfolio as a whole.  That's part of what makes it work.

I understand that the PP could have negative days, months or even years, but the under-performance of the portfolio when equities are on the rise is unsettling. It is awkward not to participate in global market strengthening and only earn positive returns when the economy is struggling or on unsure footing. 

[AdamA]

I understand that the PP could have negative days, months or even years, but the under-performance of the portfolio when equities are on the rise is unsettling. It is awkward not to participate in global market strengthening and only earn positive returns when the economy is struggling or on unsure footing.

Wouldn't you be a bit unsettled to hold an equity heavy portfolio right now?  Stocks are at an all time high!

I'd be losing sleep at night wondering whether or not to sell.

[iwealth]

Why do you think it wasn't as hard for you when the portfolio was under-performing relative to gold and bonds at various points in recent years?

What is it about under-performance relative to stocks that is especially unsettling?

Note that at least one of the PP assets will always be outperforming the portfolio as a whole.  That's part of what makes it work.

I understand that the PP could have negative days, months or even years, but the under-performance of the portfolio when equities are on the rise is unsettling. It is awkward not to participate in global market strengthening and only earn positive returns when the economy is struggling or on unsure footing.

This recent extreme divergence has really only been prominent since November 2012.

[Kriegsspiel]

Why do you think it wasn't as hard for you when the portfolio was under-performing relative to gold and bonds at various points in recent years?

What is it about under-performance relative to stocks that is especially unsettling?

Note that at least one of the PP assets will always be outperforming the portfolio as a whole.  That's part of what makes it work.

I understand that the PP could have negative days, months or even years, but the under-performance of the portfolio when equities are on the rise is unsettling. It is awkward not to participate in global market strengthening and only earn positive returns when the economy is struggling or on unsure footing.

This recent extreme divergence has really only been prominent since November 2012.

Just when I started PPing   I'm planning on sticking with it.  Right now I'm at about 75% PP.  I'm looking to increase the size of my VP right now though (mostly stocks) and rebalance when I hit a band.

[Reub]

I think that what some  people need is a reiteration of the basic strength and soundness of the PP strategy. Almost like a rehashing of the original Boglehead thread where we can illucidate the benefits and help overcome doubts using facts, charts, and graphs.

[melveyr]

I think that what some  people need is a reiteration of the basic strength and soundness of the PP strategy. Almost like a rehashing of the original Boglehead thread where we can illucidate the benefits and help overcome doubts using facts, charts, and graphs.

I can start with the charts 
http://www.stableinvesting.com/p/long-t ... mance.html

The PP has seen far darker days than this. Also, when looking at the trailing 5 year returns it is a bit on its higher end. The PP taking a breather for a bit wouldn't be that surprising.

The funny thing about leaving the PP for something else is that it is likely involves sticking your neck out with regards to either inflation/deflation or growth/recession because the PP is decently balanced along those axes.