Depressed

General Discussion on the Permanent Portfolio Strategy

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buddtholomew
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Re: Depressed

Post by buddtholomew » Mon Dec 14, 2015 12:42 pm

I have considered options to protect positions, but the other assets in the portfolio should in theory hedge each other. Isn't that the premise of the PP?
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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AdamA
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Re: Depressed

Post by AdamA » Mon Dec 14, 2015 12:56 pm

buddtholomew wrote: Isn't that the premise of the PP?
Yes. 

If you're having a rough time with this year's performance, just keep in mind that every prior down year has been followed by a double-digit (positive) year. 
"All men's miseries derive from not being able to sit in a quiet room alone."

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Re: Depressed

Post by lordmetroid » Mon Dec 14, 2015 1:24 pm

Interest rates hikes on the horizon, I can only see the price in bond market to plummet. Although treasuries will gain more dividend I doubt it will compensate for the forthcoming bond bear market. Stocks seems to also enter a bear market and gold has been sinking ever since 2011. Does this spell doom for the permanency of of the permanent portfolio. Will the PP bear market extend and maybe even accelerate in 2016?

I simply see no opportunity for passive investments at this point in time. I can't even buy bonds because the Swedish bonds are also in a bear market.
A month ago I abandoned the permanent portfolio for a dual momentum strategy but I yesterday I liquidated all my positions. Only problem now is that I have no idea when I shall reenter the market.
Last edited by lordmetroid on Mon Dec 14, 2015 1:28 pm, edited 1 time in total.
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Austen Heller
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Re: Depressed

Post by Austen Heller » Mon Dec 14, 2015 1:37 pm

Perhaps you need to tighten up your rebalance bands.  Stocks were down 10% a few months back, then popped up near the highs.  Did you harvest any of this volatility?  IMO the 15/35 bands are too wide to capture small swings like we saw in the fall.  Using 20/30 or 22.5/27.5 bands would allow you to get some gains, since the overall returns of the 4 asset classes are predicted to be low going forward.
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Mark Leavy
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Re: Depressed

Post by Mark Leavy » Mon Dec 14, 2015 2:05 pm

Cortopassi wrote:
I've always been interested in protecting my holdings by buying married puts at the same time.  If you don't know what that term is, please look it up.

-snip-

Has anyone ever effectively implemented this or have any thoughts?

-snip-
I've thought about this a lot.  It seem like a great strategy on the surface.  But if you look at the details of how the PP works, you see that there are really small moments in time when it rescues all of the losses.

Any sort of option clips the highs and the lows.  In general, if you sell or buy options to hedge the PP, they will generate a small return most of the time.  But what happens is that they clip off the large swings that happen when there is a large economic event.  And these gains are what make the PP sustainable in the long run.

So... long story short, I believe that surrounding the PP with options (and I have thought of every way imaginable...) will end up failing you when you need it the most.

The steady stream of cash in selling puts or calls can be nice - until it is not...
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Tom
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Re: Depressed

Post by Tom » Mon Dec 14, 2015 2:32 pm

AdamA wrote:
buddtholomew wrote: Isn't that the premise of the PP?
Yes. 

If you're having a rough time with this year's performance, just keep in mind that every prior down year has been followed by a double-digit (positive) year.
I second this.  It seems to me that next year could be a volatile one - and that could be good for the overall PP.  It will also remind many of us struggling why we chose this strategy.  It won't always be that we're lagging or slightly down while others are slightly up.  There will be times when people are freaking out and we're making money.  That is a good feeling - I know it from experience through the financial crisis.  I can deal with the currently lag/losses b/c I've seen the protection it can offer first hand.
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Re: Depressed

Post by Fred » Mon Dec 14, 2015 3:39 pm

AdamA wrote:
buddtholomew wrote: Isn't that the premise of the PP?
Yes. 

If you're having a rough time with this year's performance, just keep in mind that every prior down year has been followed by a double-digit (positive) year.
Close but no cigar for 2014, according to PeakToTrough any way. But I'll take 9.76% next year.

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AdamA
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Re: Depressed

Post by AdamA » Mon Dec 14, 2015 3:48 pm

Fred wrote:
Close but no cigar for 2014, according to PeakToTrough any way. But I'll take 9.76% next year.

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Round up.

;)
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Re: Depressed

Post by Libertarian666 » Mon Dec 14, 2015 9:53 pm

Option buyers usually get hosed.

Option sellers are the ones who usually make out.

Of course they get massacred once in awhile, so it sort of evens out.
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buddtholomew
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Re: Depressed

Post by buddtholomew » Thu Dec 17, 2015 11:39 am

Gold neutralized, PP neutralized.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Re: Depressed

Post by Reub » Thu Dec 17, 2015 11:46 am

The sun will come out tomorrow.
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buddtholomew
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Re: Depressed

Post by buddtholomew » Thu Dec 17, 2015 12:27 pm

Is anyone on this board approaching a tolerance band and do you intend to rebalance?
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Re: Depressed

Post by Reub » Thu Dec 17, 2015 1:41 pm

Seriously though, have you considered adding a little more cash to your portfolio to help you sleep better at night?
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buddtholomew
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Re: Depressed

Post by buddtholomew » Thu Dec 17, 2015 1:44 pm

I'm swimming in cash, but have purchased gold over and over and over again. Not buying more.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Re: Depressed

Post by dragoncar » Thu Dec 17, 2015 1:55 pm

buddtholomew wrote: I'm swimming in cash, but have purchased gold over and over and over again. Not buying more.
F'in gold.  Looks like my 2016 nut will be mostly gold.  Not sure if I should let the allocation stay low, but I just know that will be poor market timing
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Re: Depressed

Post by Reub » Thu Dec 17, 2015 2:33 pm

buddtholomew wrote: I'm swimming in cash, but have purchased gold over and over and over again. Not buying more.
budd, are you reaching the band in equities? If you need to rebalance but don't want more gold then you might diversify into a different investment vehicle like Vanguard Wellesley. I am also investing using Hedgeable in their highest risk portfolio and am very happy there because they really manage your risk well while allowing most of the upside gains. Even Vanguard Wellington might work if you seek more equity exposure.
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Re: Depressed

Post by barrett » Thu Dec 17, 2015 3:19 pm

I don't have much new money to throw at the PP so I'll probably just pick up a few gold coins and call it a day.

The bands aren't sacred, budd. If you hate gold, just hold less of it. From what I think I know, you still have lots of good years left and an awesome career.

"Swimming in cash" sounds pretty nice from where I stand. It may yet end up being the least bad asset of 2015!
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Re: Depressed

Post by Reub » Thu Dec 17, 2015 4:09 pm

You can also rebalance but leave whatever funds are designated towards gold in cash and wait for a relative strength buy signal to deploy it.
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Re: Depressed

Post by barrett » Thu Dec 17, 2015 4:17 pm

Reub wrote: You can also rebalance but leave whatever funds are designated towards gold in cash and wait for a relative strength buy signal to deploy it.
This is a really good idea for someone who hates an asset. If it goes up from here and adds some value to your portfolio, you are happy. If it goes down further, you feel smart for having waited.

I would just add that at a certain point owning an asset really can't impact a portfolio if one doesn't hold a high enough percentage. The standard advice that a lot of money people seem to throw out about "5% in gold" just seems too low. Or as my grandmother once said, "If you're going to eat beans, eat beans!"
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Re: Depressed

Post by ochotona » Thu Dec 17, 2015 6:00 pm

The married puts thing is used by Meb Faber's Value and Momentum ETF to protect against market declines. I called up Cambria and talked to the man himself about it!

Just FYI for you people who are getting depressed over gold, I'm now executing a slow buy program for 2016, with an acceleration factor as the price goes lower. Buy 1 oz a quarter based on oversold technicals, if below $900/oz then 2 oz a quarter, if below $800/oz then 3 oz per quarter, etc., until my budget is used up.
Last edited by ochotona on Thu Dec 17, 2015 6:07 pm, edited 1 time in total.
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Re: Depressed

Post by dualstow » Thu Dec 17, 2015 9:56 pm

buddtholomew wrote: Is anyone on this board approaching a tolerance band and do you intend to rebalance?
Things are so zig zaggy that it would be untrue so say I'm approaching a band, really. But, Stocks and Bonds are both at 27%. Gold is at 20%. I thought I could wait for 15%, but if it drops much further, coinciding with new cash coming in this January, I will most definitely be rebalancing.

I would like to do a coin at a time like Ochotona, but I get a much better deal if I buy 10 at a time. That's a lot of money (which is why I almost never buy physical gold!)
Last edited by dualstow on Thu Dec 17, 2015 9:57 pm, edited 1 time in total.
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Re: Depressed

Post by Libertarian666 » Fri Dec 18, 2015 12:50 pm

ochotona wrote: The married puts thing is used by Meb Faber's Value and Momentum ETF to protect against market declines. I called up Cambria and talked to the man himself about it!

Just FYI for you people who are getting depressed over gold, I'm now executing a slow buy program for 2016, with an acceleration factor as the price goes lower. Buy 1 oz a quarter based on oversold technicals, if below $900/oz then 2 oz a quarter, if below $800/oz then 3 oz per quarter, etc., until my budget is used up.
When it gets down to zero, then I'll really load up!
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Re: Depressed

Post by dualstow » Fri Dec 18, 2015 3:15 pm

Feeling better about the pp today, Budd?
I shouldn't even ask, b/c it's so ephemeral, but still.

S&P down 1.78%
Dow down > 2%

TLT up .56%
GTU up 1.12%
RIP Dusty Hill and be well, Bob Odenkirk
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Re: Depressed

Post by Professor Disorientation » Fri Dec 18, 2015 3:52 pm

My PP was up .01 today when the market took a mild beating. I know a lot of people are uncomfortable about gold. But the way I see it is that the asset class that is despised today will be prized tomorrow.

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Re: Depressed

Post by Kbg » Fri Dec 18, 2015 4:22 pm

dualstow wrote: Feeling better about the pp today, Budd?
I shouldn't even ask, b/c it's so ephemeral, but still.

S&P down 1.78%
Dow down > 2%

TLT up .56%
GTU up 1.12%
Budd will only feel half as good about this as he would feel bad about the opposite according to behavioral scientists...he's just screwed both ways going. :-)

On a more serious note, buying puts on a PP makes absolutely no sense to me. If you are truly bearish then just sell outright and don't forget to figure out when you are going to get back in before you get out. What IS a good idea assuming your account is big enough to make it worth it is to rebalance by selling puts (buy rebalance) and calls (sell rebalance). This also assumes you are holding the ETF versions of all this stuff so it is feasible.

The thing to absolutely never forget about options as a hedge is that you have to get both the direction and the timing right or it is almost without fail a money losing adventure.  Selling puts and calls as a way to buy and sell is a very good thing to do. Basically, free money for something you were going to do anyway.
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