Is the Permanent Portfolio Broken?

General Discussion on the Permanent Portfolio Strategy

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AdamA
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Re: Is the Permanent Portfolio Broken?

Post by AdamA » Mon Nov 02, 2020 9:42 am

mathjak107 wrote:
Sat Oct 31, 2020 12:40 pm
I am no more confident of the pp than I am in any other diversified portfolio of similar equity weighting
What's the saying..."It's not the investment, it's the investor."

At some point you have to pick a reasonable strategy and just stick to it.

So much is bound to change over a 30-40 year investment period that you could justify bailing on any investment plan multiple times each decade.

At some point you just have to buckle your seatbelt and trust the plan.

If the risks described by Adam Collins or even Ray Dailo were foregone conclusions, the markets would reflect that.
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Re: Is the Permanent Portfolio Broken?

Post by ahhrunforthehills » Mon Nov 02, 2020 12:53 pm

AdamA wrote:
Mon Nov 02, 2020 9:42 am
mathjak107 wrote:
Sat Oct 31, 2020 12:40 pm
I am no more confident of the pp than I am in any other diversified portfolio of similar equity weighting
At some point you have to pick a reasonable strategy and just stick to it.

So much is bound to change over a 30-40 year investment period that you could justify bailing on any investment plan multiple times each decade.

At some point you just have to buckle your seatbelt and trust the plan.
Just to play devil's advocate for the sake of discussion...

So much is bound to change over the next 30-40 year investment period that it could be dangerous to buckle your seatbelt and trust a specific plan.

Unfortunately, as time goes on, the back-tested data we used to form our conclusions start belonging to an outdated world that could have had very different economic forces at play.

With that said, I do think the largest risk to an investor is letting their emotions (usually greed and fear) guide them. I would also argue that maybe the 2nd biggest risk is to stick your head in the sand about current/emerging long-term trends and blindly trust a strategy you setup many years ago.

I don't think that is a problem for 99% of the people reading this. They probably wouldn't be on here if they didn't think it was at least possible for the PP to break... everyone would be too busy living their life knowing that their investments are 100% bulletproof.

A prudent investor just wants clear and compelling evidence if they are going to change course from their current allocation (which is a pro and a con). In one hand, it keeps us from making poorly informed decisions. On the other hand, it keeps us from changing allocations because the information at hand is never going to be 100% concrete.

It is easy to fall back on the ol' "well, that is why the PP exists... cause you never know... blah blah blah". But again, the PP is (was) based on an outdated world that could have had very different economic forces at play.

IMHO the PP is like a condom kept it in your wallet. It should be okay to use. However, you have to realize that your risk is going to go up the longer it was in there without you ever inspecting it. Besides, there might be alternatives now that are more efficient towards your goal.

However, there is one instance where I think a non-changing strategy could be appropriate... mild dementia. Maybe having an ingrained "system" would be enough to protect myself from myself?
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Re: Is the Permanent Portfolio Broken?

Post by AdamA » Mon Nov 02, 2020 1:39 pm

ahhrunforthehills wrote:
Mon Nov 02, 2020 12:53 pm

Unfortunately, as time goes on, the back-tested data we used to form our conclusions start belonging to an outdated world that could have had very different economic forces at play.
What are the different forces at play?

I don't really see what has changed for the world economic system since the inception of the PP.

The dollar is still the world's reserve currency.

The S&P companies still have plenty of business overseas.

Gold is still limited in supply.

We are currently in a period of pandemic-related deflation, and people here are arguing that we should get rid of the asset that provides deflation protection.

It strikes me as an emotional response.

Interest rate ain't nothin but a number. They're low, but they can go lower.

And even if the Treasury Bond portion of the PP lost 50% of its value, it would only be a 12.5% loss for the portfolio.

What am I missing?
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Re: Is the Permanent Portfolio Broken?

Post by mathjak107 » Mon Nov 02, 2020 2:00 pm

What changed is the speed at which enormous volumes of assets trade and cause liquidity issues in price .

the big high speed leveraged selling all unloading leverage at the same time as well as margin calls have changed .

near zero rates has likely given long term bonds a much higher risk then potential reward .

the fact so many more people dabble in gold etf's today has made selling short a big problem .

Computer trading has made it easier for govts buying and selling gold to manipulate market direction

the list can go on and on.

even though economic events are saying an asset should react a certain way , other factors now can make that asset not respond the way it would have to the same event,. we saw that in march when liquidity from high volume selling to meet margin calls created insane pricing on bond yields.

we are seeing TLT basically stall out even though stocks are selling off and the economic conditions look terrible
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Re: Is the Permanent Portfolio Broken?

Post by AdamA » Mon Nov 02, 2020 2:38 pm

mathjak107 wrote:
Mon Nov 02, 2020 2:00 pm
we are seeing TLT basically stall out even though stocks are selling off and the economic conditions look terrible
TLT is up 15% TYD.
S&P is up around 3% I think.

Where is the stall?
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Re: Is the Permanent Portfolio Broken?

Post by ahhrunforthehills » Mon Nov 02, 2020 2:48 pm

What are the different forces at play?

I don't really see what has changed for the world economic system since the inception of the PP.

The dollar is still the world's reserve currency.
US world reserve currency is not a light-switch. It fluctuates. In 1970 it was about 85% of foreign exchange reserves. Last year it was about 60%.
The S&P companies still have plenty of business overseas.
Are you saying that the market is functioning the same way as it did 15 years ago?. Do you not see the wealth trap reflected in the S&P caused by current events? The government mails everyone a check, they spend that check at Amazon and Netflix, this pushes asset prices higher because those that hold assets are the least likely to need the cash. Is MMT not an economic force at play in the S&P? How about the fed's public willingness to purchase corporate bonds (and stocks if need be)?
Gold is still limited in supply.
It is. However, it is in such limited supply that it can be manipulated. This is not that far-fetched as many people think.

For example, there was the wikileak that the U.S. gold futures market was created in December 1974 as a result of collusion between the U.S. government and gold dealers in London to facilitate volatility in gold prices and thereby discourage gold ownership by U.S. citizens (based on a State Department cable written that month):

https://wikileaks.org/plusd/cables/1974 ... 154_b.html

Not to mention that gold doesn't have to be "physical" to be traded anymore. There is very little limit on non-physical gold trading.
We are currently in a period of pandemic-related deflation, and people here are arguing that we should get rid of the asset that provides deflation protection.
Are you saying the odds of inflation are the same as the odds of deflation? More importantly, are you saying that the government would respond with the same amount of strength if it were to encounter inflation as it would to deflation?
It strikes me as an emotional response. Interest rate ain't nothin but a number. They're low, but they can go lower.
Nothing emotional about it. The lower it goes, the harder opposing forces start to push it back up. It is not a 50/50 bet.
And even if the Treasury Bond portion of the PP lost 50% of its value, it would only be a 12.5% loss for the portfolio.

What am I missing?
In your example, 12.5%.
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Re: Is the Permanent Portfolio Broken?

Post by AdamA » Mon Nov 02, 2020 2:56 pm

ahhrunforthehills wrote:
Mon Nov 02, 2020 2:48 pm

And even if the Treasury Bond portion of the PP lost 50% of its value, it would only be a 12.5% loss for the portfolio.

What am I missing?
In your example, 12.5%.
Lol. Touche.
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Re: Is the Permanent Portfolio Broken?

Post by ahhrunforthehills » Mon Nov 02, 2020 3:17 pm

AdamA wrote:
Mon Nov 02, 2020 2:56 pm
ahhrunforthehills wrote:
Mon Nov 02, 2020 2:48 pm

And even if the Treasury Bond portion of the PP lost 50% of its value, it would only be a 12.5% loss for the portfolio.

What am I missing?
In your example, 12.5%.
Lol. Touche.
:) Seriously though, I do think the PP allocation is great. This whole discussion really is splitting hairs.

My bigger point was really just to consider keeping your investments on a short leash (regardless of what some "system" says). Better safe than sorry.
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Re: Is the Permanent Portfolio Broken?

Post by ppnewbie » Sat Nov 28, 2020 1:24 pm

This is a great discussion and like many people reading participating in this thread a concerned about the PP. My vote is that @arunforthehills and @tyler collaborate on some portfolio chart posts or maybe do a podcast. And maybe discuss some of the points on this post. It’s very valuable.
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