I'm Done!

[lazyboy]

Where does the money go on a day like this?  

The same place the laughter goes when you are sad. 

Really good answer, brought a smile to my face.

[lazyboy]

In 2008 the market was declining and I think my portfolio was down something like 10+% in November?? Anyway, diversified investing is like a rudder on a ship. It won't turn suddenly. But a little later in the month and into December the long term bonds kicked in and took off so fast that the stock losses were wiped out for the most part. For me it was a moment of faith that the economic forces of deflation would take over and the market would have to move to LT bonds. Economic theory prevailed and it worked out fine.

If the same repeats it may be tempting to bail out, but when the economic forces take effect the correction can be rapid and sharp even if they don't happen immediately.

Ah yes, the reason I was attracted to the PP was how it behaved during the 2008 meltdown. Now, just when I think it's time to jettison LTT, I'm getting curious as to how this year's market drama will unfold. So thank you, craigr and MT, I think I'll stick around for the show.

[moda0306]

Lazyboy,

LTT's have done their best at what appear to be horrible times to own these instruments.  July 2008 and April 2011 were both times where inflation fears were heating up, and LTT's proved their value in very short order.

[HB Reader]

Relax.  Let everything play out.  If you need some cash, draw on your TBills.  Don't be surprised if we see some more pretty big movements in gold, or LTTB or maybe stocks, for all I know.  You have a better strategy than the (money, bond, stock, commodity) markets.

[shoestring]

Therefore I say unto you, Take no thought for your life, what ye shall eat, or what ye shall drink; nor yet for your body, what ye shall put on. Is not the life more than meat, and the body than raiment?

Behold the fowls of the air: for they sow not, neither do they reap, nor gather into barns; yet your heavenly Father feedeth them. Are ye not much better than they?

Which of you by taking thought can add one cubit unto his stature?

http://www.youtube.com/watch?v=d-diB65scQU

All glibness aside, this is why mental accounting is actually very important.  Mental accounting gets a bad rap.

I have a system.  If I anticipate an expense within say 1 or sometimes even 2 years, it generally stays in cash.  Even if I know it's within 5 years it stays in cash, but probably tied up in a CD or something.  I do not count this money toward the PP or VP.  If there's a bad day or month or couple of months, I can shrug it off, the immediate future is taken care of and that's good enough.

Anything in the portfolio is an indeterminate gift to future shoestring from past shoestring.

Where it gets tricky are times where you just don't know when you'll be spending the money.  I tend to keep that invested and just hope for the best if I think it'll be more than 2 years.  I also tend to accumulate cash for months on end and invest in chunks to help mitigate the need to sell securities when they're down, but I'm an accumulator and not actually living on the portfolio so I can get away with that.

I'd think if I was in the withdrawal phase though I'd probably keep a 6 month or 1 year "bucket" o' cash somewhere outside the porfolio and actually draw from that to avoid looking at the portfolio very often.

I don't know what else to say other than playing stupid head games against myself helps me tremendously.

[Gumby]

One very good reason why it makes no sense to look at the daily swings of the PP is that it's very difficult to put those swings into perspective in terms of the value of the Dollar (and Cash). While the US PP appears to have gone down over the past few days, the reality is that the dollar just got stronger.

In fact, if we take a look at the Dollar Index (DXY) — which is widely used as a measure of the relative value of the Dollar, versus other currencies — we see that the short-term swings of PRPFX is inversely correlated with the value of the Dollar. In other words, if the PP is falling in value, it may just be that the value of your dollar-based PP and your Cash is getting stronger and you just can't see it.


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[Lone Wolf]

Today budd was rattled, but tomorrow it might be me or any of you.  Investors who are not humble about these things are usually either inexperienced or dishonest.

That's right.  All I have to do is remember my experiences in 2008 (pre-Permanent Portfolio).  I recall exactly what it feels like to get knocked on my ass.  Losing serious amounts of money sucks so bad.  Not interested in doing that again.

Still, I continue to believe that the PP will shed the greatest number of adherents during another 80s\90s-style long-term bull market.  It will be hard for people to stay with it for years of merely "fine" returns everybody else is enjoying enormous gains.  This is the scenario I try to think through the most because a slow drip of envy seems very likely to induce some form of investing error.

In some ways the PP is sort of like a car that you can feel totally in control of and enjoy driving most of the time, but if you happen to black out while behind the wheel it will still drive you home safely (as long as you don't pull the keys out of the ignition).  After "driving" such a car for a while, one day you might take your hands off the wheel deliberately and be amazed that it will still take you wherever you want to go.

I love that -- an investment strategy that even hedges against the consequences of the leather chaps and magic mushrooms raves that are so popular on this forum. 

[alvinroast]

Budd, you may find it helpful to take a look at your comments the last time you got nervous...

See: Sep 26, 2011: Weather the Storm...
...and: Sep 28, 2011: Hey Look...
...and: Aug 11, 2011: Nauseous

We all remember what happened after August, last year. The PP turned out to be the one of the best portfolios in the market right after you posted that.

It all comes down to the fear/elation factor...

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I really hope you're right. Maybe Budd's bad day is calling a top in the stock market and a bottom for treasuries and gold. I haven't looked today, but after about a week of not looking I made the mistake of checking in yesterday.

In case anyone is wondering, EDV is MUCH more volatile than TLT. Between that and the gold on a flat day for stocks I felt ready to through in the towel. I know myself well enough to not give in at that point, but found myself thinking of Frank Herbert's writing:

    I must not fear. Fear is the mind-killer. Fear is the little-death that brings total obliteration. I will face my fear. I will permit it to pass over me and through me. And when it has gone past I will turn the inner eye to see its path. Where the fear has gone there will be nothing. Only I will remain.
        Bene Gesserit Litany Against Fear.

Seeing what was happening and letting myself feel fear, but then not DOING anything with investments and focusing on being productive was very liberating.

[MediumTex]

In case anyone is wondering, EDV is MUCH more volatile than TLT. Between that and the gold on a flat day for stocks I felt ready to through in the towel. I know myself well enough to not give in at that point, but found myself thinking of Frank Herbert's writing:

    I must not fear. Fear is the mind-killer. Fear is the little-death that brings total obliteration. I will face my fear. I will permit it to pass over me and through me. And when it has gone past I will turn the inner eye to see its path. Where the fear has gone there will be nothing. Only I will remain.
        Bene Gesserit Litany Against Fear.

Seeing what was happening and letting myself feel fear, but then not DOING anything with investments and focusing on being productive was very liberating.

I recognize that from "Dune."

Today was a much better day for the PP.

[Gosso]

I love that -- an investment strategy that even hedges against the consequences of the leather chaps and magic mushrooms raves that are so popular on this forum. 

SShhhhhhhh...you're giving away the secret initiation ceremony to get into the Permanent Portfolio Club.

Before:


After:

[lazyboy]

Therefore I say unto you, Take no thought for your life, what ye shall eat, or what ye shall drink; nor yet for your body, what ye shall put on. Is not the life more than meat, and the body than raiment?

Behold the fowls of the air: for they sow not, neither do they reap, nor gather into barns; yet your heavenly Father feedeth them. Are ye not much better than they?

Which of you by taking thought can add one cubit unto his stature?

http://www.youtube.com/watch?v=d-diB65scQU

All glibness aside, this is why mental accounting is actually very important.  Mental accounting gets a bad rap.

I have a system.  If I anticipate an expense within say 1 or sometimes even 2 years, it generally stays in cash.  Even if I know it's within 5 years it stays in cash, but probably tied up in a CD or something.  I do not count this money toward the PP or VP.  If there's a bad day or month or couple of months, I can shrug it off, the immediate future is taken care of and that's good enough.

Anything in the portfolio is an indeterminate gift to future shoestring from past shoestring.

Where it gets tricky are times where you just don't know when you'll be spending the money.  I tend to keep that invested and just hope for the best if I think it'll be more than 2 years.  I also tend to accumulate cash for months on end and invest in chunks to help mitigate the need to sell securities when they're down, but I'm an accumulator and not actually living on the portfolio so I can get away with that.

I'd think if I was in the withdrawal phase though I'd probably keep a 6 month or 1 year "bucket" o' cash somewhere outside the porfolio and actually draw from that to avoid looking at the portfolio very often.

I don't know what else to say other than playing stupid head games against myself helps me tremendously.

Thanks, shoestring, a retiree in withdrawal phase, it makes much sense for me to have cash outside of the PP for 6 -12 months planned expenses. I'm going to start to implement that. Also, love the Bobby McFerrin "Don't Worry Be Happy" song.

[lazyboy]

Lazyboy,

LTT's have done their best at what appear to be horrible times to own these instruments.  July 2008 and April 2011 were both times where inflation fears were heating up, and LTT's proved their value in very short order.

Thanks, moda, I'm incrementally increasing my understanding on how these damn things work.

[Shadow]

Human emotion is the greatest obstacle to success. It’s easier to scare the crap out of people than inform them. In fact, fear is the greatest single motivator. Not lust, hunger or greed. We’re most driven to take action when we’re scared.

[Jake]

This thread is a great example of why I really enjoy this forum: no escalation, triggering or flaming. Just a lot of patience, understanding, good humour and unwaveringly clear thinking.

[rantsalot]

Over the past several months, I made a decent return on a stock that I'd purchased when it was in the doghouse and its outlook was pretty bleak.  I was then looking for a good place to park the proceeds.  With the DJIA over 13,000, I didn't feel comfortable dumping the proceeds into a stock index fund or another stock.  So on Monday I did what I thought would be the safest thing to do if I still wanted the money to grow faster than the return on money market funds: Set up a permanent portfolio.

Oops.

I'd backtested the allocation to see what it looked like on a chart.  It appeared that the permanent portfolio was on sale.  Great.  A bargain to boot.

Once again, oops.

I would be selling in a panic right now, except for the fact that the last several times I'd added to other permanent portfolios, they always went down right after setting them up, only to come back up and yield a respectable return with very little volatility.  So I was rewarded for being patient.  It's really interesting, though, to see how my emotions are responding to the situation: That was so stupid, I should have waited, etc., etc., etc.  Having held the PP during some breath-taking market drops in the past, I take comfort in the idea that this too shall pass and my patience will be rewarded.

[MediumTex]

This thread is a great example of why I really enjoy this forum: no escalation, triggering or flaming. Just a lot of patience, understanding, good humour and unwaveringly clear thinking.

One of the things the puzzles me is why there is not more of this kind of discourse on the internet, given that everyone seems to like it.

In general, I think that people prefer courteous and respectful interactions with others, and when people are rude and abusive to others I think that they often regret it when they calm down from whatever they may have been upset about.

I think that some people like the thrill of being able to act crazy in an anonymous environment, though this seems like a sort of pointless activity to me.  Happily, the PP has this amazing quality of attracting the kind of person that in general seems to be able to add to the discussion rather than subtract from it.

I have had countless conversations with others about all sorts of controversial topics and I have learned that, for me, I take no pleasure whatsoeve in making the other person feel threatened, insecure, attacked, ignorant or not as smart as me.  Part of it is because I have been the one who was being attacked enough times to know that it is an unpleasant experience for me emotionally, plus it makes it impossible to make whatever point I am trying to make if I don't feel the other party is participating in the discussion in good faith.  Another truth that I have learned is that discussions of abstract ideas that don't have any immediate bearing on you personally should not be used to create a lot of tension in a relationship with someone you care about.

I am also a firm believer that staring at your computer screen should not raise your blood pressure.

[Snowman9000]

I take it the PP went down this week?  I hadn't noticed.


I do imagine it is easier to weather the downturns in a more conventional portfolio like 60/40 than in something offbeat like the PP.  The comfort of being part of the herd, I suppose.  I don't mean that sarcastically.  It's probably deep in our DNA somewhere. 

I agree with the advice not to watch the investometer that closely.  If you can't weather a few down days, just wait till the PP sucks dust in a raging bull market.  That'll really try your will power.  As MT says, greed and fear.  Also in our DNA.

[lazyboy]

I take it the PP went down this week?  I hadn't noticed.


I do imagine it is easier to weather the downturns in a more conventional portfolio like 60/40 than in something offbeat like the PP.  The comfort of being part of the herd, I suppose.  I don't mean that sarcastically.  It's probably deep in our DNA somewhere.   

I agree with the advice not to watch the investometer that closely.   If you can't weather a few down days, just wait till the PP sucks dust in a raging bull market.  That'll really try your will power.  As MT says, greed and fear.  Also in our DNA.

I do believe that you have hit upon something important for me at least, Snowman, about the comfort of being part of the herd. Thanks for that.   

[lazyboy]

This thread is a great example of why I really enjoy this forum: no escalation, triggering or flaming. Just a lot of patience, understanding, good humour and unwaveringly clear thinking.

One of the things the puzzles me is why there is not more of this kind of discourse on the internet, given that everyone seems to like it.

In general, I think that people prefer courteous and respectful interactions with others, and when people are rude and abusive to others I think that they often regret it when they calm down from whatever they may have been upset about.

I think that some people like the thrill of being able to act crazy in an anonymous environment, though this seems like a sort of pointless activity to me.  Happily, the PP has this amazing quality of attracting the kind of person that in general seems to be able to add to the discussion rather than subtract from it.

I have had countless conversations with others about all sorts of controversial topics and I have learned that, for me, I take no pleasure whatsoeve in making the other person feel threatened, insecure, attacked, ignorant or not as smart as me.  Part of it is because I have been the one who was being attacked enough times to know that it is an unpleasant experience for me emotionally, plus it makes it impossible to make whatever point I am trying to make if I don't feel the other party is participating in the discussion in good faith.  Another truth that I have learned is that discussions of abstract ideas that don't have any immediate bearing on you personally should not be used to create a lot of tension in a relationship with someone you care about.

I am also a firm believer that staring at your computer screen should not raise your blood pressure.

Thanks, MT, for all the honesty, humor and wisdom you bring to this forum.

[TripleB]

My individual portfolio is down 1% this week. Not a big deal either way.

[steve]

I do imagine it is easier to weather the downturns in a more conventional portfolio like 60/40 than in something offbeat like the PP.  The comfort of being part of the herd, I suppose.  I don't mean that sarcastically.  It's probably deep in our DNA somewhere.   

It seemed to me that it was not so easy for people with the conventional portfolio like 60/40 to weather the downturn in 2008. On the Boglehead forum at the time gurus there were saying "stay the course" trying to encourage people not to panic. When risk tolerance is tested for real there is quite a bit of panic. Just like the Boglehead forum this forum helps because you feel like you are part of a group (herd) and the gurus here can help you avoid panic. I appreciate this forum and give thanks to Craigr, MediumTex and everyone else who contributes. I also think that as a group most of us here are closer to accepting our real risk tolerance which is low and at times when it is tested it is still emotionally hard.

[jackely]

It seemed to me that it was not so easy for people with the conventional portfolio like 60/40 to weather the downturn in 2008. On the Boglehead forum at the time gurus there were saying "stay the course" trying to encourage people not to panic.

I was a "stay the course" kind of investor for all of my investing life until the fiasco in 2008. Actually, I did stay the course long enough to see almost a full recovery but it wasn't due to inner fortitude. When you are down 40 percent the idea of getting out is not very appealing. I only switched to the PP when I decided I didn't have the stomach for the roller coaster any more. 

[dualstow]

Remember when someone posted excitedly about how they had just set up a pp and its value had gone up 3 days in a row.
Medium Tex's response was that the true test would be holding the pp while it falls.

Michael Cuggino, quoted in various articles, said that yes, the fund is very popular right now, but there are huge outflows during "lean years." Huge numbers invariably fly to tech stocks when non-stock investments start falling while the NASDAQ soars.

And who's to say they're wrong? What Budd is feeling is totally normal, natural and human. When the pp really starts to fall, there will be great numbers of people who feel the same.

I remember ridiculing someone on a local city-centric forum (nothing to do w/ investing) in late 2007 or early 2008 who had just sold all her stocks and gone 100% into gold. Along with others, I said something snide like, "Congratulations. You're getting into gold at the top." At the same time, when a friend asked me what I thought of gold, I told him how I thought it was a poor investment. I was a boglehead and unaware of the pp. The woman on the forum and my friend both did very well for themselves by making their own decisions. I was proud of myself for staying the course...until I wasn't.

But, the stock market recovered and the value of my stocks has come back. I have also done extraordinarily well with the pp since I got in, in 2010. I guess there's more than one road to Dublin.

Sure, it's not fun to watch those beautiful 50+% gains in treasuries and 30+% gains in gold both shrink. And sure, I'm tempted to sell it all and wait for the DOW to go to 14,000. But I won't. I'm staying the course with the pp. I guess I'll never learn. ;-)

[Storm]

I'm really interested if you feel the same way now that you did when you first started this thread.  It's funny how the market can turn on a dime.  Treasuries have fallen, but recently the stock market just gave up much of it's recent gains, and gold this morning is around $1665 an ounce.

Also, I think Bernanke and the Fed are looking on in horror as yields rise and mortgage rates inevitably rise.  Can you imagine the damage done to the already fragile housing market if rates rise 100-200 basis points?  I think even a 50 basis point rise in the 10 year yields will force Bernanke to unleash the firehose of QE3 to prevent it, which is only bullish for gold.

Of course, nothing can be predicted, but since I'm making predictions, I believe the Fed will do everything in it's power to keep rates as low as possible.  They've already said that they want rates to remain low until 2014 at least.  Nothing would be more devastating to the already fragile economy than $5 a gallon gas prices combined with 6-7% mortgage rates. 

[buddtholomew]

I'm really interested if you feel the same way now that you did when you first started this thread.  It's funny how the market can turn on a dime.  Treasuries have fallen, but recently the stock market just gave up much of it's recent gains, and gold this morning is around $1665 an ounce.

Also, I think Bernanke and the Fed are looking on in horror as yields rise and mortgage rates inevitably rise.  Can you imagine the damage done to the already fragile housing market if rates rise 100-200 basis points?  I think even a 50 basis point rise in the 10 year yields will force Bernanke to unleash the firehose of QE3 to prevent it, which is only bullish for gold.

Of course, nothing can be predicted, but since I'm making predictions, I believe the Fed will do everything in it's power to keep rates as low as possible.  They've already said that they want rates to remain low until 2014 at least.  Nothing would be more devastating to the already fragile economy than $5 a gallon gas prices combined with 6-7% mortgage rates. 

There is definitely a sense of relief when the portfolio responds as advertised.