Gyroscopic Investing

An interesting analysis of stock market returns:
http://www.nytimes.com/interactive/2011 ... aphic.html

I'm posting this here because it shows how important reducing volatility is, which the Permanent Portfolio does quite well.

Yes!

Investing with stocks only, or even a portfolio without true diversification (60/40 stock/corp bond), is like putting together a football team made up of a bunch of quarterbacks and receivers.

Reducing volatility through opposing assets makes the portfolio greater than the sum of its parts, not just in volatility, but through overall gains as well.  In fact, it's precisely because of their individual volatility that you can improve returns.

The myth of return having to come at the expense of taking on significantly more risk is exactly that, at least until you are using the Permanent Portfolio as your starting point.  I love the Vanguard 1-dimensional risk/return meter... I wonder where the PP would fall on that meter if it was a Vanguard fund...

Absolutely.  This is such an important point.  High volatility makes it so very easy to screw yourself over for long periods of time without having any idea that this has occurred (or when it may end.)  This is not only potentially expensive but extremely trying on the nerves!

I know that there is no way that I could maintain sufficient "long-term perspective" during the brutality of the Nikkei's last 25 years, for example.

No kidding... the nerves is really 80% of the battle.  People may end up in the same place I did when it's all said and done, but I get to sleep every night knowing that no matter what happens, my portfolio will bend in the ways it needs to to offer me near double-digit return in most cases, and minimal losses in the worst cases.

This is where it breaks my heart to see so many people being lead down the wrong path by people driving BMW's.  A lot of fools are going to be parted with their money that I'm not going to feel bad for, but when you get salt-of-the-earth people HIRING someone to manage activity for them and that person puts them in a position to lose 20-30% of their retirement savings in 2008 in what they thought was a safe portfolio, it pisses me off to no end.

While you couldn't "universalize" the PP... as nobody would loan to corporations then... At least getting people to realize what powerful assets LT Treasuries and gold can be when mixed with stocks, and maybe throw 10.. 20... 30% of their portfolio that way would do wonders to truly save them from the volatility of stocks and inflation exposure of corporate bonds.