Forget the numbers: why I know the PP is right for me

[Smith1776]

One of the things that has struck me about the Permanent Portfolio since adopting it, is that the sleep factor is insanely good. Ultimately, I think this is, in many ways, far more important than any specific number regarding standard deviations, sharpe ratios, or weightings.

I had been either working or studying in the arena of finance for about 10 years before my career change. So, I've spent plenty of time looking at investment strategies. The PP is pretty much the only strategy where I've been able to put all my money into it and not worry one iota about the broad economy and markets; or reading balance sheets; or looking at the current CAPE.

With the exception of my recent Bitcoin post -- which was really just water cooler talk, I just don't get any nagging feeling about changes or tilts.

It is often hard to tear ourselves away from numbers when it comes to investing. That data is just there, and ready to be consumed. However, numbers in investing are not like numbers in Newtonian physics. The system is not deterministic, and a lot of "art" goes into the process of deciding on an allocation. The obsession with numeracy in the field leads to all sorts of tortured discussions about tilting slightly this way or that way. And this comment is coming from someone who likes working with numbers.

I think it's okay to dump numbers to a certain extent, and recognize that the PP gives something more important: peace of mind. I'm thinking that a lot of other members here were drawn to the PP for similar reasons.

[dualstow]

Good post!
I think severe stock market crashes draw people to the pp. Ironically, that’s a good time to load up on stocks but for the long term, the pp is a great sleep well at night portfolio.

We’re still well in the minority. Many people will do fine with 60/40. Of course, many people will never experience a house fire or other disaster. I like owning home insurance, and I like holding the pp.

[europeanwizard]

Oh yeah, this is a big one for me. I've seen my dad go in and out of stocks, because he started to feel unhappy about his investment. Later he'd say "it was the right time", and he'd buy back into the market without any particular strategy.

The buffer of cash makes me feel secure. I know that any losses are temporary, and that I never have to worry about not being able to care for my family. And most importantly, stick to the strategy and keep that money in the market.

What's funny is that on several boards, putting these points forward will earn you derision. The fact is that on a downturn, huge numbers of people stop buying or leave the market. Just stating this fact has garnered discussion on forums in my native language. Continuing to say that buy & hold can actually be a difficult strategy in a recession, oooh boy.

[Smith1776]

Great points, guys.

One thing that has troubled me about the field of investment is something that seems to apply to economics more broadly. That is, economists and financiers always want to assign numbers to things -- particularly dollar values when possible. However, some things are not easily quantifiable.

For instance, portfolios that are less balanced than the PP, such as the traditional 60/40, can see big drawdowns in bear markets. Can one really quantify how difficult and painful it is to white knuckle it through a drastic bear market? Even if you make it through without selling, the emotional anguish that the episode can cause has to be considered as a "cost" of sorts. Because in getting potentially higher returns with more aggressive allocations, your quality of life in the interim may have diminished.

And what about those who didn't even manage to navigate the bear market without capitulating?

[Pet Hog]

Smith1776, I feel exactly the same way. Before I adopted the PP, every day there would be more than a tinge of anxiety as I opened up Yahoo Finance first thing to see what the stock market was doing. And if it was up or down that would affect my mood. Now, I open up my browser and don't even check for a few hours, but if I see some news headlines saying "Markets in turmoil" or "Dow drops 300 points" or "Rollercoater ride on Wall Street," then all I think is, "hmm, interesting, I might be having a good day." And if the headlines read "Markets soar" or "Dow gains 300 points" then I think, "great, a quarter of my portfolio is going to be up handsomely; I'm probably doing well today." It's such a relief. I'm so happy I discovered this forum and this way of investing. Thanks to all who post here.

[Cortopassi]

Smith1776, I feel exactly the same way. Before I adopted the PP, every day there would be more than a tinge of anxiety as I opened up Yahoo Finance first thing to see what the stock market was doing. And if it was up or down that would affect my mood. Now, I open up my browser and don't even check for a few hours, but if I see some news headlines saying "Markets in turmoil" or "Dow drops 300 points" or "Rollercoater ride on Wall Street," then all I think is, "hmm, interesting, I might be having a good day." And if the headlines read "Markets soar" or "Dow gains 300 points" then I think, "great, a quarter of my portfolio is going to be up handsomely; I'm probably doing well today." It's such a relief. I'm so happy I discovered this forum and this way of investing. Thanks to all who post here.

+1e99!!

[Smith1776]

Smith1776, I feel exactly the same way. Before I adopted the PP, every day there would be more than a tinge of anxiety as I opened up Yahoo Finance first thing to see what the stock market was doing. And if it was up or down that would affect my mood. Now, I open up my browser and don't even check for a few hours, but if I see some news headlines saying "Markets in turmoil" or "Dow drops 300 points" or "Rollercoater ride on Wall Street," then all I think is, "hmm, interesting, I might be having a good day." And if the headlines read "Markets soar" or "Dow gains 300 points" then I think, "great, a quarter of my portfolio is going to be up handsomely; I'm probably doing well today." It's such a relief. I'm so happy I discovered this forum and this way of investing. Thanks to all who post here.

Ah yes, I believe Browne phrased it as being able to read the news with "detached curiosity". It's a very nice feeling.

[Smith1776]

I often run into proponents of more traditional portfolios reiterating the point about time horizon dictating your portfolio.

"You're young! You should be investing more aggressively. The PP is only good for retirement!"

There may be some truth in the concept, but I strongly disagree for the most part.

The economic future is unknowable, even for individuals -- nevermind the macro picture. And I would argue that youngsters actually have shorter time horizons than older folks.

When you're 20 you have all of these big life events that you need to pay for likely in the next decade or so. College, the wedding, the first house, the first kid, the first car, etc. That doesn't sound like the time to take risk to me.

Besides, do you really ever know what your time horizon is? Do you know you're not going to have a change of heart and need to drawdown on your portfolio to go back to college for a second degree? What if you meet an amazing person and you end up wanting to get married in a few years? What about that down payment on a house? What if you get injured and can't work? What if a child comes along unexpectedly? What if you need to drawdown to execute on a business plan because you invented a widget? The future is always cloudy.

It's PP fo' life for me. Glidepaths be damned.