Gyroscopic Investing

I really have to let some steam out.

US dollar weakened vs my local currency at a rate of 1% since I started the PP.

Gold - down 14% since purchased. I bought ZGLD so I paid with USD.

Stocks - 15% of my portion is VT. Up nearly 1.5% since I purchased but weak USD kills it.
            10% of my portion is Israeli stock market. down -1%.

Local LT Bond - slightly up

Local Cash - very slightly up

Been reading this forum for more than a year, bought and read the book, made the move and started my PP as my first ever investment.

I really wanted to like the PP strategy but sadly I'm no longer certain about the validity of the theory, at least with regards to smaller countries or dual-currency portfolios.

Honestly I did not expect this. Its one thing not to look at assets in isolation; its another when the assets do not offset each other as expected.

If the PP is down 3% in 2 months, who knows how worse could it do in the future. On a personal/emotional note, it really hurts to see thousands of the "money you can't afford to lose" get wiped to thin air.  I'm a young guy (28), the PP is just like 25% of everything I own, but I still feel bad and lose sleep over this investment. 

I didn't quit yet - but I'm resolved to do so in the next week. With my local currency getting stronger and stronger and gold looking bad, I don't know if the PP is a good position to be in.

Currently I'm considering some more solid investments like 10% stocks / 90% AAA bonds local mutual funds.

I hate to say this, but people getting the kind of fatigue you are describing often signals that an asset, portfolio or strategy is nearing its bottom.  It seems sort of silly to talk about a portfolio reaching a bottom based on a 3% decline in value, but from a historical perspective, the PP rarely drifts for too long either down or sideways before resuming its upward trajectory.  Perhaps something has changed with the strategy, but a 3% decline is not anything that concerns me.

"On a personal/emotional note, it really hurts to see thousands of the "money you can't afford to lose" get wiped to thin air."

This part of Harry's advice is probably misleading.
Money you can't afford to lose shouldn't be in the PP. It should be in bills, saving accounts and moneymarket funds.

The PP has had pretty low volatility historically but it's possible that had nothing to do with the PP's strategy. The PP is potentially very, very risky with three extremely volatile asset classes.
It's unlikely all three of them go down together but to quote Harry: Anything can happen, nothing has to happen.

Many people jumped aboard the PP after a period of high returns. And high returns are the best indicator for lower future returns.

I'm sorry to say Catacomb, but you probably picked the wrong investment strategy. If you lose sleep over a small loss of a small part of your portfolio then the PP just isn't for you.

Currently I'm considering some more solid investments like 10% stocks / 90% AAA bonds local mutual funds.

This might be better plan for you. If you still want some of the PP-protection, you could add some gold. So 85/10/5 bonds/stocks/gold will be very stable and it will offer some protection. When this portfolio is down, at least you know that it can't go much lower except in case of a government default. It's up to you to decide how likely that is.

Good luck!

Catacomb, did you not think that your Permanent Portfolio could ever decrease in value? 

Here are the monthly nominal returns for my PP, along with the emotional reaction to the moves.
As you can see there is quite a bit of volatility in the monthly returns. But over the course of the year it typically balances out.

Gosso wrote: As you can see there is quite a bit of volatility in the monthly returns. But over the course of the year it typically balances out.

Indeed.  Here are several years of monthly and rolling 12-month returns for an idealized PP consisting of 25% each TLT, GLD, SHY, and VTI (rebalanced monthly, dividends included, no tax and no fees)


          Month  Previous 12 months
Jul-2010  +0.30%    +12.03%
Aug-2010  +2.39%    +13.15%
Sep-2010  +2.95%    +12.98%
Oct-2010  +0.87%    +14.46%
Nov-2010  +0.18%      +9.16%
Dec-2010  +1.28%    +14.36%
Jan-2011  -1.71%    +12.19%
Feb-2011  +2.80%    +14.02%
Mar-2011  +0.48%    +13.51%
Apr-2011  +3.67%    +14.46%
May-2011  +0.13%    +14.53%
Jun-2011  -1.54%    +12.46%
Jul-2011  +2.71%    +15.18%
Aug-2011  +4.03%    +17.19%
Sep-2011  -1.39%    +11.04%
Oct-2011  +3.37%    +13.59%
Nov-2011  +0.83%    +14.36%
Dec-2011  -1.50%    +11.32%
Jan-2012  +3.99%    +17.97%
Feb-2012  -0.31%    +14.04%
Mar-2012  -0.64%    +12.53%
Apr-2012  +1.06%      +9.87%
May-2012  -0.88%      +9.07%
Jun-2012  +1.15%    +11.83%
Jul-2012  +1.43%    +10.60%
Aug-2012  +1.58%      +8.05%
Sep-2012  +1.16%    +11.17%
Oct-2012  -1.92%      +5.41%
Nov-2012  +1.00%      +5.58%
Dec-2012  -0.89%      +6.34%
Jan-2013  +0.41%      +2.90%
Feb-2013  -0.54%      +1.08%
Mar-2013  +1.08%      +4.34%
Apr-2013  -0.62%      +2.79%
May-2013  -2.30%      +1.97%

[Edit: Include the data]

rickb wrote:

Gosso wrote: Here are the monthly nominal returns for my PP, along with the emotional reaction to the moves.

Code: Select all

30-Apr-11	1.1%	So far so good.
31-May-11	0.4%	So far so good.
30-Jun-11	-1.6%	OH NO!  I have made a terrible mistake.
31-Jul-11	2.9%	Okay maybe I'll give this another chance.
31-Aug-11	4.2%	I am a f***ing genius.
30-Sep-11	-1.9%	Okay, it should cool off a bit.
31-Oct-11	0.7%	Meh.
30-Nov-11	2.2%	Oh yeah!
31-Dec-11	-2.3%	OH NO!
31-Jan-12	3.5%	Sweet.  What the heck was I so worried about.
29-Feb-12	-0.9%	Meh.
31-Mar-12	-0.7%	Meh.
30-Apr-12	-0.6%	Ouch.
31-May-12	-0.8%	Okay, this is not fun.
30-Jun-12	1.2%	etc.
31-Jul-12	0.4%	
31-Aug-12	1.6%	
30-Sep-12	2.4%	
31-Oct-12	-1.3%	
30-Nov-12	1.1%	
31-Dec-12	-0.7%	
31-Jan-13	0.6%	
28-Feb-13	-0.3%	
31-Mar-13	-0.1%	
30-Apr-13	-2.1%	
31-May-13	-0.8%		

As you can see there is quite a bit of volatility in the monthly returns. But over the course of the year it typically balances out.

Indeed.  Here are several years of monthly and rolling 12-month returns for an idealized PP consisting of 25% each TLT, GLD, SHY, and VTI (rebalanced monthly, dividends included, no tax and no fees)

Code: Select all

Jul-2010

Could you try posting that again, rickb?  It didn't take.

cATACOMB

what is your country?

frugal wrote: cATACOMB

what is your country?

Catacomb is from Israel - based on this (and previous) posts.

catacomb wrote: Stocks - 15% of my portion is VT. Up nearly 1.5% since I purchased but weak USD kills it.
            10% of my portion is Israeli stock market. down -1%.

koekebakker wrote: "On a personal/emotional note, it really hurts to see thousands of the "money you can't afford to lose" get wiped to thin air."

This part of Harry's advice is probably misleading.
Money you can't afford to lose shouldn't be in the PP. It should be in bills, saving accounts and moneymarket funds.

I think you are missing a very important point: THERE IS NO SUCH THING AS A RISKLESS INVESTMENT!!!!!!!!
Cash is certainly not riskless; in fact, it is all but guaranteed to lose value as central banks print it with greater and greater abandon.
So there is no way to guarantee that you won't lose money, regardless of whether it is "money you can't afford to lose".

catacomb wrote: Currently I'm considering some more solid investments like 10% stocks / 90% AAA bonds local mutual funds.

90% bonds? Unless they're all ultra short-term, you'll get crushed when interest rates normalize, which they will.  If you're smarter and faster than all the professional bond traders, financial "insiders," FED, ECB, etc, then....

Libertarian666 wrote:

koekebakker wrote: "On a personal/emotional note, it really hurts to see thousands of the "money you can't afford to lose" get wiped to thin air."

This part of Harry's advice is probably misleading.
Money you can't afford to lose shouldn't be in the PP. It should be in bills, saving accounts and moneymarket funds.

I think you are missing a very important point: THERE IS NO SUCH THING AS A RISKLESS INVESTMENT!!!!!!!!
Cash is certainly not riskless; in fact, it is all but guaranteed to lose value as central banks print it with greater and greater abandon.
So there is no way to guarantee that you won't lose money, regardless of whether it is "money you can't afford to lose".

I agree with you, cash has it's own risks. But treasury bills are a reasonable substitute for the PP as Harry said himself.
There are so many people who just can't handle short term fluctuations and the OP seems to be one of them. Those people shouldn't invest in the PP (yet), they should read and learn about investing, risks etc.

If you worry at night about a 3% loss of your portfolio, you're doing something wrong.

Another thing to consider is that the 4x25 might not be conservative enough for some people. Unless you think there is something magical about 25% in each class, it's very easy to adjust the PP a bit so it won't fluctuate as much short-term. 50% bills or short-term bonds and 16,6% in the rest for example will have much lower volatility while still offering decent protection. For investors just starting out this might be a better option than going all-in on the more extreme 4x25.

I can relate to catacomb somewhat. When I started my PP in March/April last year 2012, portfolio had max -3% drawdown for 1st 3 months - I was quite anxious about the initial loss until long bond suddenly popup in late June 2012. Finally ended 2012 with few percent gains. Right now my portfolio is about -3% down again, but this time I feel quite calm.

I guess it may be usual to feel anxious with initial paper losses in the first few months, until perhaps one gets to experience some gain at end of year.

In my initial month by month backtest before I started, I observed that it normally takes at least 3 months before profits starts to show in PP. I think someone mentioned that it could take as long as 15months for positive profit to show in certain case.

Here's some of my current thoughts, about why I am calm now:
I am thinking that if I cannot take a single digit paper loss, then I should not be investing in first place.
I took a -21% loss in gold in my local currency, but overall portfolio was still -3% loss only, goes to show the lower volatility of the strategy is there.
I am investing for long run, so current negative returns is but a small obstacle.

I am from a small (and overcrowded) country (Singapore) with 5 mil population, fully invested in local currency PP. I don't think foreign currency exposure is a good idea for my local PP given that gold takes care of currency issues.

On a side note, I don't expect inflation to rear its ugly head in near future, so I don't expect gold to be performing well anytime soon, due to global over capacity and lower consumer demand.

Coearth wrote: I am thinking that if I cannot take a single digit paper loss, then I should not be investing in first place.

That psychology is why inflation has been such an effective scam throughout history: People watch paper (nominal) losses like hawks, but they are surprisingly tolerant of purchasing power (real) losses from inflation. A real loss is not as in-your-face as a paper loss and is therefore overlooked far more easily.

The reality is that there are always single-digit movements in a portfolio's value, even a portfolio of pure cash. It's just a question of whether those single-digit movements are nominal or real.

At least with a diversified portfolio, some of the movements are upward. With cash, the movements are virtually always downward.

I have been in the Permanent Portfolio fund for about ten years. I help me survive the major downturn, both financially and psychologically. After a long run in gold and when it topped out, it was possible and likely the fund would not do well and the high average returns would even out to a lower gain or small loss percentage. I guess looking back on it, that was the time to sell and invest in beat up sectors and stocks. I decided to stay where I am and underperform for a few years for a few reasons. 1) I would rather miss a run up then lose a lot. Since PRPFX rebalances, there is little to no chance of a major drop and thereby locking in some of the gains in gold and other areas 2) I don't feel I have to time the market which is a tough deal to pull off 3) I am happy with a long term 6 to 9% percent gain on my money 4) the future is unknowable and there are many potential black swans which can wipe out a large part of your money if your caught with most of your money in the wrong area at the wrong time. Stocks fall far faster then they go up. Just about the time when everyone thinks the market is comfortable and safe is usually a good time to be out of it. This FEELS close to that time. The market keeps going up until everyone feels forced to go back in. The most stubborn and last to give in and buy is usually just before the wall street thieves lock the gate and then burn up the barn with all the horses inside taking all your money along with them.

Now that being said, if I just adopted this investing philosophy right before the run up in stocks, no doubt I would be red faced and feeling like I made a bad choice. Three percent down sounds horrible when everyone is making much more. If everyone was getting wiped like in 08' and PP was down more then that, you felt fantastic. So its by comparison you feel like you made a mistake. As Harry said, most people do not make fortunes investing, they make it by hard work, saving and investing conservatively looking to avoid major losses. Looking for the stock market to save you and make your life isn't realistic and is a recipe for greed and losses. I still like PRPFX despite it's cost, fund manager picking and choices of investments. I believe, for me, it's the place to be. Past gains do not guarantee future gains but the long term record on this fund is just my cup of tea.

I definitely feel forced back into the "market.". Ive kept a chart of my actual net worth vs if I had bought and held S&P500 for the last three years.  It's not pretty. 

I have to say that I don't mind losing money when spy drops more.  I don't mind underperforming when the PP goes up.  But when the PP is down and spy is up, it gives me the jiblies.

10% stocks 90% Bonds has had a -3.53% draw-down in the last 3 months as well...

Another thing to consider is that someone just starting a new portfolio is probably more sensitive to drawdowns than someone with an existing portfolio they're already got some confidence in. Putting your money into something new only to see it immediately fall--even by a relatively small amount--can make you question the wisdom of your choice.

It's important to try to push past this mental barrier and realize that a 3% paper loss over a few months is basically a rounding error in the scheme of things when you're talking about the universe of possible investments.

Pointedstick wrote: Another thing to consider is that someone just starting a new portfolio is probably more sensitive to drawdowns than someone with an existing portfolio they're already got some confidence in. Putting your money into something new only to see it immediately fall--even by a relatively small amount--can make you question the wisdom of your choice.

It's important to try to push past this mental barrier and realize that a 3% paper loss over a few months is basically a rounding error in the scheme of things when you're talking about the universe of possible investments.

lets believe that is noise or VOLATILITY and that the 4 assets will together be UP again :-)

yes for one person that starts one year wining 10% in the next year easily supports a DD of 5%...

Pointedstick wrote: Another thing to consider is that someone just starting a new portfolio is probably more sensitive to drawdowns than someone with an existing portfolio they're already got some confidence in. Putting your money into something new only to see it immediately fall--even by a relatively small amount--can make you question the wisdom of your choice.

It's important to try to push past this mental barrier and realize that a 3% paper loss over a few months is basically a rounding error in the scheme of things when you're talking about the universe of possible investments.

That's why you should gradually move your assets to your desired allocation. If you start with 100% cash, move to 70/10/10/10. Then when you feel more comfortable ("Hey, this works!", or "I can handle this drawdown") you can go 55/15/15/15. And so on.

Just sold my entire gold portion.
bought a hefty dose of ZGLD for 1580$ a couple of month ago.
Sold all of it for 1277$ now.

Sorry, this sh*t is not for me, I'd rather bet on soccer and at least have some fun losing

Funny how our words and actions never match.

We all admit that predicting the markets movements is impossible....yet somehow we always think that we can do the impossible.

If you look at a chart and see that everything is pointing down,you can say I'll just wait until there
is at least an indication things are turning.

Where is MG when we need him?

catacomb wrote: Just sold my entire gold portion.
bought a hefty dose of ZGLD for 1580$ a couple of month ago.
Sold all of it for 1277$ now.

Sorry, this sh*t is not for me, I'd rather bet on soccer and at least have some fun losing

Really? 

Is your investment strategy: Buy high, sell low?