Permanent Portfolio in an overvalued economy

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Mark Leavy
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Permanent Portfolio in an overvalued economy

Post by Mark Leavy » Sat Jul 25, 2020 6:39 pm

Here's a note that I just sent to a long time investment parter (in ref to tech being overvalued)
I agree. But I don’t have any confidence as to which way it will go. It does feel very much like the run up to the dot com bubble. But we are in uncharted waters here. The money supply is being messed with like crazy and and it may take a while to return to sanity.

My main holdings are still on a bet that I don’t know what will happen. Equal exposure to stock indices, long bonds, gold and cash. I am a bit biased towards tech stocks (Nasdaq100) in my indices. Even with the extreme overvaluation, I can’t help but feel that we are on the cusp of a generational change and that technology will be the winner - for good or for bad. 5g alone has the potential to be a game changer. Factory automation. Face recognition everywhere, every time. Nuclear power. The removal of cash from the economy. Replacing personal car ownership. Replacing restaurants. Automated transportation for farm goods and industrial materials. The list goes on and on. The space race looks real and will have repercussions that ripple through the tech industry. And the advantage will go to the Amazon’s and Apple’s and Tesla’s of the world. No way to make a bet on how soon, though. And a high probability of a huge tech crash in the interim. I’m going to ride it out and hope gold and bonds keep me afloat. My guess on the currently overly inflated tech stock pricing is that it is half clueless robinhooders and half long term smart money making a bet on a novus ordo seclorum.
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blue_ruin17
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Re: Permanent Portfolio in an overvalued economy

Post by blue_ruin17 » Sun Jul 26, 2020 12:16 am

A very subtle, sly approach to planting the 'seed' of the Permanent Portfolio concept in someone's mind. The best advice is often that which is only alluded to.

No one knows the future, yet it is entirely natural to nonetheless harbour our own beliefs and inclinations regarding what we consider to be the most likely outcomes.

I find it interesting that despite your optimism regarding the future, you remain conservative with your investments. I represent the other side of that coin: despite my pessimism, I continue to invest in such a manner that I give optimism and prosperity the benefit of the doubt. But that doesn't mean that I trust in progress as an inevitability. Hence: the Permanent Portfolio.
STAT PERPETUS PORTFOLIO DUM VOLVITUR ORBIS

Amazon: Investing Equanimity: The Logic & Wisdom of the Permanent Portfolio
pmward
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Re: Permanent Portfolio in an overvalued economy

Post by pmward » Mon Jul 27, 2020 2:24 pm

I still think from a high level perspective that we are still only in the 3rd or 4th inning of the tech revolution. I think tech as a whole will continue to out perform on the whole for decades to come. There is literally infinite innovation that can happen, and just like in the industrial revolution a lot of old paradigm businesses (*cough cough* value) will stagnate and eventually go under while companies that are able to adapt and thrive in the new paradigm will grow to dizzying heights and change the entire world in the process. Owning those companies that innovate the best is a good generational bet, imo. That being said, there's going to be bumps along the way. I mean the Nasdaq dropped 78% in the Dotcom bust alone, which is scary and all, but think about this, that was only the end of the 1st inning of the tech revolution... This kind of thing could certainly happen again. But just like then, I suspect if we have a tech centered bear market it would race off the bottom and out perform for many years just like it did from the early 2000's until today. If the Nasdaq were down 78% next year, I would be throwing every dollar I could muster into it.
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Mark Leavy
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Re: Permanent Portfolio in an overvalued economy

Post by Mark Leavy » Mon Jul 27, 2020 6:00 pm

I appreciate your thoughts pmward. That's where I am. I don't think it is a sure thing, but it seems to me like one hell of an upside. The way we imagine the world could change drastically in the next couple of decades. The key is to position yourself to gain if it happens, but not take too much of a loss if it doesn't.
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Re: Permanent Portfolio in an overvalued economy

Post by pmward » Mon Jul 27, 2020 6:38 pm

Mark Leavy wrote:
Mon Jul 27, 2020 6:00 pm
I appreciate your thoughts pmward. That's where I am. I don't think it is a sure thing, but it seems to me like one hell of an upside. The way we imagine the world could change drastically in the next couple of decades. The key is to position yourself to gain if it happens, but not take too much of a loss if it doesn't.
Exactly. Especially for someone like me that is still in accumulations and holds a diversified portfolio, the risk is more than worth the reward in tilting towards tech. People focus too much on P/E. P/E does not take growth, much less potential growth, into the equation. A company that has proven their ability to grow fast and consistently, to innovate and bring new successful products to market, and to compete with competitors innovations is a company that deserves a high valuation. We are not talking about super risky non-profitable hope & dream 1999 Dotcom companies here. The companies we are talking about are proven to be successful over multiple decades. They've proven the ability to grow during a time when growth on the whole has been scarce. The S&P 500 profits in aggregate peaked back in 2012. But these companies have still found ways to grow steadily and quickly, while all the other S&P companies languish. Being an industry insider, I don't see the growth in technological innovation slowing anytime in the near future. When we have real life Star Trek, then we can talk about peak tech. Until then, I just don't see it. The ceiling is still so incredibly high. The industrial revolution lasted almost 100 years. Why would the tech revolution only last 20? These major shifts tend to be multi-generational. It takes decades for these trends to fully play out and for the potential to be fully tapped out. It's still very early, there's still a long way to go over the next few decades (of course, with bumps along the way).
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Mark Leavy
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Re: Permanent Portfolio in an overvalued economy

Post by Mark Leavy » Mon Jul 27, 2020 7:14 pm

Airbus' self-flying plane just completed successful taxi, take-off, and landing tests, opening the door for fully autonomous flight

I expect to see more and more of this in the future. I think self-driving cars are a ways away, but autonomous freight transport will be the standard very soon.

This is just exhibit A.
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Re: Permanent Portfolio in an overvalued economy

Post by Kriegsspiel » Mon Jul 27, 2020 7:48 pm

I hope they have strong security procedures in those things.
You there, Ephialtes. May you live forever.
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Mark Leavy
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Re: Permanent Portfolio in an overvalued economy

Post by Mark Leavy » Mon Jul 27, 2020 8:13 pm

Kriegsspiel wrote:
Mon Jul 27, 2020 7:48 pm
I hope they have strong security procedures in those things.
Yea, I don't see all of these developments as positive. But I think they are unstoppable.

I would love to get the contract to secure those planes, though. Flood the cabins with nitrogen. Inverted flight. Any sign of interference, accidentally crash land into the highest value target of the highest probability attacker. Not all of my ideas are ready for prime time...
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