Gyroscopic Investing

Permanent Portfolio has performed admirably well in the past few decades. I cannot put my finger exactly to why it works so well. One way to understand would be to ask under what circumstances would Permanent Portfolio do poorly? Is it a crazy notion to imagine that the 4 components - cash, gold, bonds, stocks would just go down at the same time?

Unless the currency collapses, cash won't go down, but it does pay zero. Interest rates being at historic lows means that bond valuations face headwinds. As I mentioned before, IMHO gold is taking a long time (years) to decide if it's going to stop falling. The stock market has gone for years without a meaningful correction, it is fully valued, and corrections can happen in those cases.

There is a risk, not a certainty, but a risk that returns for all financial portfolios will be low for some years into the future, and the PP doesn't escape that. It's not magic in that sense.

The scenario you're envisioning to was referred to as "tight money recession" by Harry Browne. During this time, stocks, bonds, and gold may all simultaneously decline. When this happens, it's not just the PP that suffers: everyone invested in anything not 100% cash gets burned in the short term. How long the short term lasts of course determines the magnitude of the losses. Usually it's pretty short: maybe 1-2 years at most, but there is no guarantee.

The worst situation for the Permanent Portfolio would be a collapse of the dollar, causing both cash and bonds to potentially become absolutely worthless, and also making it very difficult to do business having disastrous effects on the stock market.  In that case, only one of the four assets will hold its value.  That would be gold.

likely not for gold either . who would be buying gold and bidding it up when everything else turned to crap and everyone and every institiution lost everything .  really not likely and in my opinion it would be more depression like globally without the boost to bonds and cash .

mathjak107 wrote: likely not for gold either . who would be buying gold and bidding it up when everything else turned to crap and everyone and every institiution lost everything .

Hm, let me think....everybody with a brain?

dutchtraffic wrote:

mathjak107 wrote: likely not for gold either . who would be buying gold and bidding it up when everything else turned to crap and everyone and every institiution lost everything .

Hm, let me think....everybody with a brain?

+$100 trillion

I think the worst thing about the pp is watching your friends with 100% in equities do well in recent years. Nothing like a 530-pt Dow drop to ease that pain. So perhaps, by limiting one's upside- no, make that merely the *illusion* of of a limited upside, the pp makes it hard to fail long-term.

dualstow wrote: I think the worst thing about the pp is watching your friends with 100% in equities do well in recent years. Nothing like a 530-pt Dow drop to ease that pain. So perhaps, by limiting one's upside- no, make that merely the *illusion* of of a limited upside, the pp makes it hard to fail long-term.

That's pretty sad if it makes you happy to see your "friends" suffer. Some kind of friend you are. But, even in their suffering, they're still doing better if they get out soon, and not wait for a 20% - 40% drop. We;'re not even at -10% on the S&P yet.

Why does it have to be either - or? Use more equities during bull markets, use PP as a way to get through declines. Why does the world have to divide into dueling camps? Such a colossal waste of energy. PP'ers are just too damn orthodox for their own good.

ochotona wrote:

dualstow wrote: I think the worst thing about the pp is watching your friends with 100% in equities do well in recent years. Nothing like a 530-pt Dow drop to ease that pain. So perhaps, by limiting one's upside- no, make that merely the *illusion* of of a limited upside, the pp makes it hard to fail long-term.

That's pretty sad if it makes you happy to see your "friends" suffer.

That would be sad indeed, if that were the case. Except that I didn't say that.

It's painful to miss out on gains, and those elusive gains are all the more real when you personally know those who are invested in the right asset at the right time. When you're in the pp, and when assets inevitably crash, you see how fleeting and ephemeral these wild gains can be. The pp is smoother and steadier.

Pointed is correct Barring a catastrophic event, often referred to as an SHTF scenario, the only serious threat to the PP is the tight money recession. If you look at the 40+ year record the only really big hit the PP has taken was in 1981 when the Federal Reserve severely jacked interest rates to reign in the high inflation of that period.

Yeah, a currency collapse, world war, and/or a giant asteroid strike would also probably do a number on it. But with a quarter of the portfolio in gold, I figure you are better insured against general calamity than 99.9% of the rest of the population. So unless you are prepared to bet the farm on a specific calamity being just around the corner, I'd say the PP is probably the safest portfolio construct that is likely to provide you with a decent return.

i would say a bad deflation would hurt as well as hyper inflation. if company's , institutions and folks lost so much money in other assets the last thing they would be doing is bidding up prices on things or buying investments when they have to eat . .

ochotona wrote: PP'ers are just too orthodox for their own good.

Nah, the system works splendidly.  I'm very happy with it.  Since the orthodoxy is giving me good results, that means I am the just-right amount of orthodox for my own good.

And I look forward to lots of my own good to come. 

Pointedstick wrote: The scenario you're envisioning to was referred to as "tight money recession" by Harry Browne. During this time, stocks, bonds, and gold may all simultaneously decline. When this happens, it's not just the PP that suffers: everyone invested in anything not 100% cash gets burned in the short term. How long the short term lasts of course determines the magnitude of the losses. Usually it's pretty short: maybe 1-2 years at most, but there is no guarantee.

Aside from a collapse of civilization, maybe a tight money recession during a period of close to zero interest rates.

Or maybe stagflation caused by a sharp and unexpected shortage of a key resource (oil, water, food, etc.)