Are bonds factored into your calculations? A 60/40 portfolio favored a lot better than 38% during that timeframe.hpowders wrote: To the person who is bothered by how the PP was flat when the stock market was up, realize that the S&P 500 lost 38% in 2008 compared to maybe 2% for the PP.
I'm Done!
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- buddtholomew
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Re: I'm Done!
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
Re: I'm Done!
No, because he was specifically referring to stocks, I believe. Hey, a 57% bonds, 43% stocks did even better in 2008!buddtholomew wrote:Are bonds factored into your calculations? A 60/40 portfolio favored a lot better than 38% during that timeframe.hpowders wrote: To the person who is bothered by how the PP was flat when the stock market was up, realize that the S&P 500 lost 38% in 2008 compared to maybe 2% for the PP.
Given any day, the grass is always greener. Not easy to think long-term. Folks are so easily distracted. I don't have the answer. Wish I did.
Last edited by hpowders on Fri Nov 02, 2012 3:02 pm, edited 1 time in total.
I expect to move from 1 star adjunct lecturer to 4 star assistant professor on this forum very soon. Already a 3 star adjunct assistant professor.
Re: I'm Done!
The trap you described in your post above.buddtholomew wrote:Falling into what now?MediumTex wrote:You don't think you might be falling into it now?buddtholomew wrote: We all know that individual investors sell at the most in-opportune times (usually at market lows), but these same people state with confidence that they will be able to stick to the plan during a downturn. I prefer to assess my emotions more regularly and allocate investments accordingly to avoid falling into a similar trap.
Well, I might put it like this: "I will defend the PP and its philosophy because I don't know what the future holds."I sincerely doubt that you "want to know"...you are committed to the PP and will defend its philosophy no matter what the future holds. That, to me, should be more scary than diversifying beyond the PP.
Why would that be scary?
I would say I have PP conviction, but that doesn't mean that I don't take other points of view seriously. The fund you mentioned is a municipal bond fund and I don't think that there is anything wrong with municipal bonds (so long as you understand the risks), even though I don't personally care for them.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: I'm Done!
Do you mean 60% stocks and 40% bonds or the opposite?buddtholomew wrote:Are bonds factored into your calculations? A 60/40 portfolio favored a lot better than 38% during that timeframe.hpowders wrote: To the person who is bothered by how the PP was flat when the stock market was up, realize that the S&P 500 lost 38% in 2008 compared to maybe 2% for the PP.
Vanguard Wellington is pretty close to the mix above and it lost about 23% for the year in 2008.
Vanguard Wellesley is close to 60% bonds and 40% stocks and it lost about 10% in 2008.
I just don't like exposure to losses of that size. I can't deal with them. I get too freaked out. I can't think clearly and I start making bad decisions.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
- buddtholomew
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Re: I'm Done!
I've grown tired of this discussion. Of course you don't care for muni bond funds - they aren't part of the 4 x 25 PP. So, if your AA calls for bonds and tax-deferred accounts are maxed with FI, then what would you care for? Let me guess - Treasuries (either short or long-term).MediumTex wrote:The trap you described in your post above.buddtholomew wrote:Falling into what now?MediumTex wrote: You don't think you might be falling into it now?
Well, I might put it like this: "I will defend the PP and its philosophy because I don't know what the future holds."I sincerely doubt that you "want to know"...you are committed to the PP and will defend its philosophy no matter what the future holds. That, to me, should be more scary than diversifying beyond the PP.
Why would that be scary?
I would say I have PP conviction, but that doesn't mean that I don't take other points of view seriously. The fund you mentioned is a municipal bond fund and I don't think that there is anything wrong with municipal bonds (so long as you understand the risks), even though I don't personally care for them.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
Re: I'm Done!
In the situation you describe above, I might say go buy some I-bonds. They going to pay you about what municipal bonds are paying right now (though you will eventually have to pay taxes on I-bond interest).buddtholomew wrote: I've grown tired of this discussion. Of course you don't care for muni bond funds - they aren't part of the 4 x 25 PP. So, if your AA calls for bonds and tax-deferred accounts are maxed with FI, then what would you care for? Let me guess - Treasuries (either short or long-term).
Lots of people like municipal bonds. It's just a different approach to investing than the Permanent Portfolio.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
- buddtholomew
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Re: I'm Done!
You can only purchase a maximum amount of I-bonds per year. TE Muni's are not a different approach to investing than the PP. This is entirely my point - it doesn't have to be all PP or nothing.MediumTex wrote:In the situation you describe above, I might say go buy some I-bonds. They going to pay you about what municipal bonds are paying right now (though you will eventually have to pay taxes on I-bond interest).buddtholomew wrote: I've grown tired of this discussion. Of course you don't care for muni bond funds - they aren't part of the 4 x 25 PP. So, if your AA calls for bonds and tax-deferred accounts are maxed with FI, then what would you care for? Let me guess - Treasuries (either short or long-term).
Lots of people like municipal bonds. It's just a different approach to investing than the Permanent Portfolio.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
Re: I'm Done!
Up to this point the PP has avoided those sized losses, but then again so did Wellesley from 1972-2007 (a 6.5% loss in 1974 was the previous worst), and yet from 1975-2011, Wellesley outperformed the PP with a 10.86% vs. 9.19% CAGR w/ similar standard deviations. I did leave out 1972-1974 because I believe gold needed a few years to settle. So even if you start at 1977 which erases a few fantastic years for Wellesley, it still outperformed 10.34% to 9.19%. Not necessarily throwing these numbers out there to compare the two portfolios, just to point out that before 2008, Wellesley had yet to experience its largest loss.MediumTex wrote: Vanguard Wellesley is close to 60% bonds and 40% stocks and it lost about 10% in 2008.
I just don't like exposure to losses of that size. I can't deal with them. I get too freaked out. I can't think clearly and I start making bad decisions.
I'm no math teacher, but I'll assume it's accurate to say any portfolio's worst performance is always ahead of it, we just don't know when.
Last edited by iwealth on Fri Nov 02, 2012 3:38 pm, edited 1 time in total.
Re: I'm Done!
Municipal bonds have a whole constellation of risks (e.g., credit risk, default risk, call risk, etc.) that are not present with treasuries. It is a different approach to investing than the PP.buddtholomew wrote: TE Muni's are not a different approach to investing than the PP.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: I'm Done!
Wellesley provides little deflation protection, so it would make sense that it did well during a period where there were no deflationary economic conditions.iwealth wrote:Up to this point the PP has avoided those sized losses, but then again so did Wellesley from 1972-2007 (a 6.5% loss in 1974 was the previous worst), and yet from 1975-2011, Wellesley outperformed the PP with a 10.86% vs. 9.19% CAGR w/ similar standard deviations. I did leave out 1972-1974 because I believe gold needed a few years to settle. So even if you start at 1977 which erases a few fantastic years for Wellesley, it still outperformed 10.34% to 9.19%. Not necessarily throwing these numbers out there to compare the two portfolios, just to point out that before 2008, Wellesley had yet to experience its largest loss.MediumTex wrote: Vanguard Wellesley is close to 60% bonds and 40% stocks and it lost about 10% in 2008.
I just don't like exposure to losses of that size. I can't deal with them. I get too freaked out. I can't think clearly and I start making bad decisions.
I'm no math teacher, but I'll assume it's accurate to say any portfolio's worst performance is always ahead of it, we just don't know when.
The PP, OTOH, provides protection in all economic environments.
The U.S. first began experiencing deflationary conditions in 2007 when the housing market started to roll over and the economy went into recession (people didn't see it then, but that's what was happening).
Here is a comparison of Wellesley and the PP over the 2007-2011 timeframe (which has basically been a period of continuous deflationary economic conditions which the Fed has tried to offset through 0% interest rates and QE):
***
Wellesley:
2007: 5.19%
2008: (12.58%)
2009: 14.05%
2010: 10.36%
2011: 8.94%
Avg. for 2007-2011 timeframe: 5.19%
***
Permanent Portfolio:
2007: 13.3%
2008: (.7%)
2009: 10.5%
2010: 14.5%
2011: 10.5%
Avg. for 2007-2011 timeframe: 9.62%
***
Wellesley is a great fund, but it's not built for all economic conditions. I don't mind slightly lower returns in exchange for the all-weather protection that the PP provides.
JMHO, of course.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: I'm Done!
Agreed, the PP is the only popular "lazy" portfolio I've seen that intentionally provides some protection against deflation. Out of curiosity, where are you getting those Wellesley returns? Per Simba's spreadsheet, I'm seeing these returns for Wellesley over that time period:MediumTex wrote:
Wellesley:
2007: 5.19%
2008: (12.58%)
2009: 14.05%
2010: 10.36%
2011: 8.94%
Avg. for 2007-2011 timeframe: 5.19%
***
Permanent Portfolio:
2007: 13.3%
2008: (.7%)
2009: 10.5%
2010: 14.5%
2011: 10.5%
Avg. for 2007-2011 timeframe: 9.62%
***
Wellesley is a great fund, but it's not built for all economic conditions. I don't mind slightly lower returns in exchange for the all-weather protection that the PP provides.
JMHO, of course.
2007: 5.61%
2008: -9.84%
2009: 16.02%
2010: 10.65%
2011: 9.63%
But I do get the same return for the PP as you listed.
Re: I'm Done!
Sorry about that, I was looking at the Vanguard site here and I was looking at the wrong column. Your numbers are correct.iwealth wrote: Agreed, the PP is the only popular "lazy" portfolio I've seen that intentionally provides some protection against deflation. Out of curiosity, where are you getting those Wellesley returns? Per Simba's spreadsheet, I'm seeing these returns for Wellesley over that time period:
2007: 5.61%
2008: -9.84%
2009: 16.02%
2010: 10.65%
2011: 9.63%
But I do get the same return for the PP as you listed.
With the correct returns, I've got VWINX at 6.41% average annual returns over the 2007-2011 period.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: I'm Done!
If you hold an ETF PP consisting of: VTI, GLD, TLT, and SHY you would have found your portfolio down .8% for the day and one of those rare days when all parts of the PP were down. I'm done. Well, not exactly. After further checking, the PP is still up nearly 7% YTD. Unfortunately, I still check the PP way too often but am starting to move away from the constant checking. One thing that is certain, down days like today sure prompt a lot of interesting posts on this forum. All are quite educational. I guess it just goes to show the benefits of using the PP even on the days it drops in valuel. I've learned a lot. Thank You.
Re: I'm Done!
I hold VTI, IAU, TLT and SHV instead of SHY. I was down 0.639% today, but who's counting? Meanwhile 2 high flying stock mutual funds I follow were down 1.4% and 1.8%. Even PRPFX was down 1.18% today. I'm happy. :)
Last edited by hpowders on Sat Nov 03, 2012 3:35 pm, edited 1 time in total.
I expect to move from 1 star adjunct lecturer to 4 star assistant professor on this forum very soon. Already a 3 star adjunct assistant professor.
- MachineGhost
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Re: I'm Done!
[align=center]THE S&P 500 IS NOT AN APPROPRIATE BENCHMARK TO COMPARE THE PP TO!!![/align]
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Re: I'm Done!
Amen. It's a component of the PP so making it a benchmark is totally ridiculous!MachineGhost wrote: [align=center]THE S&P 500 IS NOT AN APPROPRIATE BENCHMARK TO COMPARE THE PP TO!!![/align]
For me the appropriate benchmark is the CPI + 4%. If it is beating the CPI by 4% then I am a very happy camper. If it fluctuates around that level year to year that is okay with me too, but that is my long run benchmark.
everything comes from somewhere and everything goes somewhere
- MachineGhost
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Re: I'm Done!
10 years on average.hpowders wrote: If it wasn't for emotions, we'd all be multi-millionaires. Buying high and selling low is no joke and is all too common, I bet. William Bernstein states that it takes years to train oneself into being a successful investor. I don't doubt it.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
- MachineGhost
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Re: I'm Done!
If you like the risk characteristics of that kind of porfolio -- which is 10% volatility -- then rebalance the PP to maintain a consistent 10% volatility.buddtholomew wrote: Are bonds factored into your calculations? A 60/40 portfolio favored a lot better than 38% during that timeframe.
There's many ways to skin a cat.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
- MachineGhost
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Re: I'm Done!
Are you being facetious? How are you going to deal with the PP's exposure to drawdowns of similar magnitude in another 1981 or 2008 style environment? Just not look at the portfolio?MediumTex wrote: Vanguard Wellington is pretty close to the mix above and it lost about 23% for the year in 2008.
Vanguard Wellesley is close to 60% bonds and 40% stocks and it lost about 10% in 2008.
I just don't like exposure to losses of that size. I can't deal with them. I get too freaked out. I can't think clearly and I start making bad decisions.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
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Re: I'm Done!
I thought that the whole point of the PP is that you DON'T experience 10% drawdowns, at least at year end?! Even when the stock market is down 50%. Are you referring to intra-year performance?MachineGhost wrote:Are you being facetious? How are you going to deal with the PP's exposure to drawdowns of similar magnitude in another 1981 or 2008 style environment? Just not look at the portfolio?MediumTex wrote: Vanguard Wellington is pretty close to the mix above and it lost about 23% for the year in 2008.
Vanguard Wellesley is close to 60% bonds and 40% stocks and it lost about 10% in 2008.
I just don't like exposure to losses of that size. I can't deal with them. I get too freaked out. I can't think clearly and I start making bad decisions.
Re: I'm Done!
Daily peak to daily trough the PP has experienced 20% drawdowns. The chances that a daily peak or daily trough coincide with the end of a year are very low - assuming random chance, each is about 1/260 so the combination is 1/67600 (and even this assumes no rebalancing event occurs between the run-up to the peak and the fall-off to the trough). The year end standard deviation is about 8.5%. Deviations of twice this (+/- 17%) from the average return (about 10%) shouldn't be terribly unexpected (95% of year end returns should be in this interval), so a -7% year end result wouldn't be too surprising. The max actual drop over the last 40 years is about -4.1% (in 1981).murphy_p_t wrote:I thought that the whole point of the PP is that you DON'T experience 10% drawdowns, at least at year end?! Even when the stock market is down 50%. Are you referring to intra-year performance?MachineGhost wrote:Are you being facetious? How are you going to deal with the PP's exposure to drawdowns of similar magnitude in another 1981 or 2008 style environment? Just not look at the portfolio?MediumTex wrote: Vanguard Wellington is pretty close to the mix above and it lost about 23% for the year in 2008.
Vanguard Wellesley is close to 60% bonds and 40% stocks and it lost about 10% in 2008.
I just don't like exposure to losses of that size. I can't deal with them. I get too freaked out. I can't think clearly and I start making bad decisions.
Re: I'm Done!
I've been investing since 1982 and I'm still nowhere close to where I want to be as a "successful investor." Jack Bogle writes of an investor of modest means, never earning more than $25k a year, who began investing in 1974 with $500 here and there, who kept accumulating stocks and funds and NEVER sold. He followed Mr Bogle's advice to "stay the course". In 2004, his accumulated assets were worth $1,391,407. There's the role model.MachineGhost wrote:10 years on average.hpowders wrote: If it wasn't for emotions, we'd all be multi-millionaires. Buying high and selling low is no joke and is all too common, I bet. William Bernstein states that it takes years to train oneself into being a successful investor. I don't doubt it.
I expect to move from 1 star adjunct lecturer to 4 star assistant professor on this forum very soon. Already a 3 star adjunct assistant professor.
- Pointedstick
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Re: I'm Done!
To be fair, 1974-2004 lets you take advantage of the biggest sustained stock market boom in U.S. history. An investor starting in 1950 and ending in 1980 would not have done nearly as well.hpowders wrote: I've been investing since 1982 and I'm still nowhere close to where I want to be as a "successful investor." Jack Bogle writes of an investor of modest means, never earning more than $25k a year, who began investing in 1974 with $500 here and there, who kept accumulating stocks and funds and NEVER sold. He followed Mr Bogle's advice to "stay the course". In 2004, his accumulated assets were worth $1,391,407. There's the role model.
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Re: I'm Done!
Yes, but there were many scary little dips along the way screaming "SELL!!". In 1973 the S&P 500 was down 14.6% and in 1974, -23.9%. So if he began investing toward the end of 1974, it was a great time to start. However if he began investing toward the beginning of 1974, he could have easily been shaken out. In 1975, the S&P 500 was up 37.2% and in 1976, +23.84%; enough gains to fool one into thinking "Holy S___T, I must be an investing genius!!"Pointedstick wrote:To be fair, 1974-2004 lets you take advantage of the biggest sustained stock market boom in U.S. history. An investor starting in 1950 and ending in 1980 would not have done nearly as well.hpowders wrote: I've been investing since 1982 and I'm still nowhere close to where I want to be as a "successful investor." Jack Bogle writes of an investor of modest means, never earning more than $25k a year, who began investing in 1974 with $500 here and there, who kept accumulating stocks and funds and NEVER sold. He followed Mr Bogle's advice to "stay the course". In 2004, his accumulated assets were worth $1,391,407. There's the role model.
Wish I could have started going all in on March 10, 2009, the mother of all great buying opportunities after the Great Depression, but nobody in my neighborhood rang the bell.
Last edited by hpowders on Sun Nov 04, 2012 5:36 pm, edited 1 time in total.
I expect to move from 1 star adjunct lecturer to 4 star assistant professor on this forum very soon. Already a 3 star adjunct assistant professor.
- MachineGhost
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Re: I'm Done!
I'm sorry. I should have said 10-years on average to become a successful trader. A hobbyist investor is unlikely to ever grok it without sustained and serious overeffort.hpowders wrote: I've been investing since 1982 and I'm still nowhere close to where I want to be as a "successful investor." Jack Bogle writes of an investor of modest means, never earning more than $25k a year, who began investing in 1974 with $500 here and there, who kept accumulating stocks and funds and NEVER sold. He followed Mr Bogle's advice to "stay the course". In 2004, his accumulated assets were worth $1,391,407. There's the role model.
For me, $1.3 million after 30 years is woefully insufficient. After adjusting for inflation, that is worth only
$364,314.43 in 2004 dollars. But then I have higher ambitions than to be "an investor of modest means".
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!