PP/VP Strategy Sanity Check

General Discussion on the Permanent Portfolio Strategy

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sophie
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Re: PP/VP Strategy Sanity Check

Post by sophie » Thu Feb 07, 2019 10:57 am

You can thank me in any way you like :-) It's because I just bought stock after making a nice fat cash contribution.
pmward
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Re: PP/VP Strategy Sanity Check

Post by pmward » Thu Feb 07, 2019 10:58 am

Haha, thanks Sophie!
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Kriegsspiel
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Re: PP/VP Strategy Sanity Check

Post by Kriegsspiel » Thu Feb 07, 2019 12:22 pm

Sweet. I just sold some stocks when I switched from VTI to VTSAX, looks like I got a few extra dollars out of the timing. :D
To die, to sleep;
To sleep: perchance to dream: ay, there's the rub;
For in that sleep of death what dreams may come
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Kbg
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Re: PP/VP Strategy Sanity Check

Post by Kbg » Thu Feb 07, 2019 1:55 pm

pmward wrote:
Sun Feb 03, 2019 11:31 am
Also, before everything is set in stone next week, I would love to hear any counter arguments as to why small cap value would be a better pick than just the plain S&P 600. I'm just not seeing anything compelling in the data in the last 20 years to really make a case for SCV, it has basically performed inline with the S&P 600. Any difference has been so small in this timeframe that it's basically just noise. SCV also costs more, as I either have to pay commissions or a .25% ER vs .07% ER. But I could be missing something?
There has been a fairly significant debate on this very issue academically. I think it a no-brainer to go with the S6 over the R2K as having a "crap filter" clearly helps. How the two indexes are managed also helps, but the S6 is active/quantish as all S&P indexes are.

It's debatable SCV provides any extra return. One always has to take small cap studies with a grain of salt as they are highly influenced by trading/spread and liquidity assumptions. Something you might be able to not be penalized too much by when investing in small caps as an individual, definitely not the case for large funds.

In short, you are not missing anything. What you know categorically as fact (unless fees change), is that between the two the regular S6 fund has a .18% advantage every year.

Final note: Be careful when looking at market stats from 2009 on in the US market. These things have a way of changing. I learned an interesting thing on a podcast driving to work this morning. Before the global financial crisis it was pretty much a toss up between US and foreign market annual returns. Now the US leads by a long way looking at the full historical record...and all of that delta has been in the last 10 years.
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Re: PP/VP Strategy Sanity Check

Post by pmward » Thu Feb 07, 2019 2:53 pm

Kbg wrote:
Thu Feb 07, 2019 1:55 pm
There has been a fairly significant debate on this very issue academically. I think it a no-brainer to go with the S6 over the R2K as having a "crap filter" clearly helps. How the two indexes are managed also helps, but the S6 is active/quantish as all S&P indexes are.

It's debatable SCV provides any extra return. One always has to take small cap studies with a grain of salt as they are highly influenced by trading/spread and liquidity assumptions. Something you might be able to not be penalized too much by when investing in small caps as an individual, definitely not the case for large funds.

In short, you are not missing anything. What you know categorically as fact (unless fees change), is that between the two the regular S6 fund has a .18% advantage every year.

Final note: Be careful when looking at market stats from 2009 on in the US market. These things have a way of changing. I learned an interesting thing on a podcast driving to work this morning. Before the global financial crisis it was pretty much a toss up between US and foreign market annual returns. Now the US leads by a long way looking at the full historical record...and all of that delta has been in the last 10 years.
Yeah I decided to stick with my plan of going straight for S&P 600, so in the rebalancing into my GB that I did this week I went all into IJR for the small cap allocation. I just don't fully buy into the "value premium" in this day and age, and if I don't fully buy into it then I can't really justify allocating 20% of my portfolio to it.

I think that Charlie Munger is right when he says that value investing doesn't work like it did in his and Warren Buffets day because the waters are simply over fished. I think that "value" companies are cheap these days for a reason, that hidden gems no can no longer exist in a time with computer algorithms searching for and arbitraging away any hidden value they can find. Not to mention factor ETF's and index funds making it all too easy to invest in value companies.

As controversial as Jack Bogle's claim that growth and value will trade turns and equal out in the end, I just can't picture a world where that is not true. I think that when the economy is booming that growth will lead. And when things are questionable, value will lead. So, by holding a small cap blend fund I will get the best of both worlds. And as you mentioned, the quality and liquidity screening on the S&P 600 does help a lot. I'm ok having the active quant oversight in the S&P 600 since I'm using total stock market for half of my stock holdings. So how I am looking at it is I have half my equities essentially concentrated in small cap quality as opposed to small cap value.

The international vs U.S. thing is another point of interest. In my GB I decided to go full on U.S. simply because I'm using gold as a U.S. economy and currency hedge. But in my 401k where I am doing a 60/40 3 fund portfolio I went with 33% of my stock holdings (20% of total assets) as international. I can't help but feel that international is set for a big reversion to the mean one way or another. That can either be through them increasing to catch up to us, or us decreasing to catch up to them. It's just very hard to believe that most of these countries who's GDP growth is faster than ours can permanently diverge from us to this great of a degree. At some point something will have to give. But who knows when? These things can diverge for decades before finally evening back out. I think this is a similar debate to the growth vs value debate. If you look at different time frames you see different things, but over the longest time frames they are likely to even out.
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Re: PP/VP Strategy Sanity Check

Post by ppnewbie » Fri May 17, 2019 2:24 pm

Very helpful post. I am pretty much trying to figure out the exact process that pmward navigated as well as deal with similar events and different accounts.
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