I'm Done!

General Discussion on the Permanent Portfolio Strategy

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buddtholomew
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Re: I'm Done!

Post by buddtholomew » Fri Nov 02, 2012 2:57 pm

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.
Are bonds factored into your calculations? A 60/40 portfolio favored a lot better than 38% during that timeframe.
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Re: I'm Done!

Post by hpowders » Fri Nov 02, 2012 3:00 pm

buddtholomew wrote:
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.
Are bonds factored into your calculations? A 60/40 portfolio favored a lot better than 38% during that timeframe.
No, because he was specifically referring to stocks, I believe. Hey, a 57% bonds, 43% stocks did even better in 2008!

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.
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Re: I'm Done!

Post by MediumTex » Fri Nov 02, 2012 3:08 pm

buddtholomew wrote:
MediumTex wrote:
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.
You don't think you might be falling into it now?
Falling into what now?
The trap you described in your post above.
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.
Well, I might put it like this: "I will defend the PP and its philosophy because I don't know what the future holds."

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.
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Re: I'm Done!

Post by MediumTex » Fri Nov 02, 2012 3:13 pm

buddtholomew wrote:
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.
Are bonds factored into your calculations? A 60/40 portfolio favored a lot better than 38% during that timeframe.
Do you mean 60% stocks and 40% bonds or the opposite?

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.
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Re: I'm Done!

Post by buddtholomew » Fri Nov 02, 2012 3:15 pm

MediumTex wrote:
buddtholomew wrote:
MediumTex wrote: You don't think you might be falling into it now?
Falling into what now?
The trap you described in your post above.
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.
Well, I might put it like this: "I will defend the PP and its philosophy because I don't know what the future holds."

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.
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).
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Re: I'm Done!

Post by MediumTex » Fri Nov 02, 2012 3:24 pm

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).
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).

Lots of people like municipal bonds.  It's just a different approach to investing than the Permanent Portfolio.
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Re: I'm Done!

Post by buddtholomew » Fri Nov 02, 2012 3:30 pm

MediumTex wrote:
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).
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).

Lots of people like municipal bonds.  It's just a different approach to investing than the Permanent Portfolio.
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.
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Re: I'm Done!

Post by iwealth » Fri Nov 02, 2012 3:37 pm

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.
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.

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.
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Re: I'm Done!

Post by MediumTex » Fri Nov 02, 2012 3:39 pm

buddtholomew wrote: TE Muni's are not a different approach to investing than the PP.
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.
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Re: I'm Done!

Post by MediumTex » Fri Nov 02, 2012 3:56 pm

iwealth wrote:
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.
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.

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.
Wellesley provides little deflation protection, so it would make sense that it did well during a period where there were no deflationary economic conditions.

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.
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Re: I'm Done!

Post by iwealth » Fri Nov 02, 2012 4:33 pm

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.
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.
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Re: I'm Done!

Post by MediumTex » Fri Nov 02, 2012 4:41 pm

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.
Sorry about that, I was looking at the Vanguard site here and I was looking at the wrong column.  Your numbers are correct.

With the correct returns, I've got VWINX at 6.41% average annual returns over the 2007-2011 period.
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Re: I'm Done!

Post by Alanw » Fri Nov 02, 2012 5:43 pm

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.
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Re: I'm Done!

Post by hpowders » Fri Nov 02, 2012 9:04 pm

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.  :)
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Re: I'm Done!

Post by MachineGhost » Sat Nov 03, 2012 11:42 pm

[align=center]THE S&P 500 IS NOT AN APPROPRIATE BENCHMARK TO COMPARE THE PP TO!!![/align]
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Re: I'm Done!

Post by melveyr » Sat Nov 03, 2012 11:46 pm

MachineGhost wrote: [align=center]THE S&P 500 IS NOT AN APPROPRIATE BENCHMARK TO COMPARE THE PP TO!!![/align]
Amen. It's a component of the PP so making it a benchmark is totally ridiculous!

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.
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Re: I'm Done!

Post by MachineGhost » Sat Nov 03, 2012 11:46 pm

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.
10 years on average.
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Re: I'm Done!

Post by MachineGhost » Sat Nov 03, 2012 11:49 pm

buddtholomew wrote: Are bonds factored into your calculations? A 60/40 portfolio favored a lot better than 38% during that timeframe.
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.

There's many ways to skin a cat.
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Re: I'm Done!

Post by MachineGhost » Sat Nov 03, 2012 11:53 pm

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.
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?
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Re: I'm Done!

Post by murphy_p_t » Sun Nov 04, 2012 12:37 am

MachineGhost wrote:
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.
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?
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?
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Re: I'm Done!

Post by rickb » Sun Nov 04, 2012 1:39 am

murphy_p_t wrote:
MachineGhost wrote:
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.
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?
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?

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). 
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Re: I'm Done!

Post by hpowders » Sun Nov 04, 2012 3:01 pm

MachineGhost wrote:
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.
10 years on average.
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!

Post by Pointedstick » Sun Nov 04, 2012 3:25 pm

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.
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.
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Re: I'm Done!

Post by hpowders » Sun Nov 04, 2012 5:12 pm

Pointedstick wrote:
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.
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.
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!!" ;D

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. ;)
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Re: I'm Done!

Post by MachineGhost » Tue Nov 06, 2012 2:01 am

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.
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.

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".
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