Difficult Times

General Discussion on the Permanent Portfolio Strategy

Moderator: Global Moderator

User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Difficult Times

Post by buddtholomew » Fri Jan 25, 2013 3:19 pm

Days like today and yesterday prove how challenging it will become for many to invest in the PP during a bull market run in equities. The PP outperforms when equities plunge, but under-performs when equities rise (generally speaking). If you are not a contrarian, then the cognitive dissonance of holding such a portfolio in times of prosperity is overwhelming. In other words, it's tough on the mind when the S&P achieves a 5-year high and your portfolio is down for the day.
Last edited by buddtholomew on Fri Jan 25, 2013 3:22 pm, edited 1 time in total.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
User avatar
rocketdog
Executive Member
Executive Member
Posts: 688
Joined: Fri Dec 07, 2012 3:35 pm

Re: Difficult Times

Post by rocketdog » Fri Jan 25, 2013 3:27 pm

That's why you're only supposed to check your portfolio a few times a year.  Helps you sleep better at night when you're only seeing the "big picture" and not being distracted by the minutiae of the day-to-day market gyrations.
The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.
- H. L. Mencken
User avatar
Gosso
Executive Member
Executive Member
Posts: 1052
Joined: Fri Jan 06, 2012 8:22 am
Location: Canada

Re: Difficult Times

Post by Gosso » Fri Jan 25, 2013 3:38 pm

Budd,

Your expectations for the PP are too high.  It is not supposed to beat a stock heavy portfolio (although it will at times).  The PP is designed to provide a somewhat consistent annual real return of 3-6%.  That's it.  You'll feel much better if you lower your expectations.
clacy
Executive Member
Executive Member
Posts: 1128
Joined: Mon Mar 14, 2011 8:16 pm

Re: Difficult Times

Post by clacy » Fri Jan 25, 2013 5:14 pm

I've always said that a bull market in equities will ensure that a relatively small percentage of people adopt the PP.
User avatar
MediumTex
Administrator
Administrator
Posts: 9096
Joined: Sun Apr 25, 2010 11:47 pm
Contact:

Re: Difficult Times

Post by MediumTex » Fri Jan 25, 2013 5:37 pm

I thought something really bad had happened.

I never would have known what bud is talking about if he hadn't posted.

I've completely stopped looking in on the PP and comparing it to other strategies.  I look in on my hypothetical PP in SmartMoney every couple of days, but I look at it the way I look at sports scores.

My investment ideal is to have almost zero mental friction.  The PP will help you get there if you will let it.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Difficult Times

Post by buddtholomew » Fri Jan 25, 2013 5:40 pm

clacy wrote: I've always said that a bull market in equities will ensure that a relatively small percentage of people adopt the PP.
What, if anything, do you plan to do during a bull market in equities?

I've matured over the last year and plan to stay the course. I was merely making an observation. The PP is up YTD after all
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
User avatar
melveyr
Executive Member
Executive Member
Posts: 971
Joined: Mon Jun 28, 2010 3:30 pm
Location: Seattle, WA
Contact:

Re: Difficult Times

Post by melveyr » Fri Jan 25, 2013 5:49 pm

buddtholomew wrote:
clacy wrote: I've always said that a bull market in equities will ensure that a relatively small percentage of people adopt the PP.
What, if anything, do you plan to do during a bull market in equities?

I've matured over the last year and plan to stay the course. I was merely making an observation. The PP is up YTD after all
Any strategy that is not 100% equities is going to have periods where it underperforms equites, that is almost definitional.

Besides, if 100% equities does not match your risk tolerance than why would you bother comparing the PP to it?
everything comes from somewhere and everything goes somewhere
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Difficult Times

Post by buddtholomew » Fri Jan 25, 2013 5:53 pm

melveyr wrote:
buddtholomew wrote:
clacy wrote: I've always said that a bull market in equities will ensure that a relatively small percentage of people adopt the PP.
What, if anything, do you plan to do during a bull market in equities?

I've matured over the last year and plan to stay the course. I was merely making an observation. The PP is up YTD after all
Any strategy that is not 100% equities is going to have periods where it underperforms equites, that is almost definitional.

Besides, if 100% equities does not match your risk tolerance than why would you bother comparing the PP to it?
Underperforming equities is one thing, but losing .5% when the S&P is up .5% is something completely different.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
User avatar
melveyr
Executive Member
Executive Member
Posts: 971
Joined: Mon Jun 28, 2010 3:30 pm
Location: Seattle, WA
Contact:

Re: Difficult Times

Post by melveyr » Fri Jan 25, 2013 6:20 pm

buddtholomew wrote: Underperforming equities is one thing, but losing .5% when the S&P is up .5% is something completely different.
... Sounds like the exact same thing to me  ???
everything comes from somewhere and everything goes somewhere
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Difficult Times

Post by buddtholomew » Fri Jan 25, 2013 6:22 pm

melveyr wrote:
buddtholomew wrote: Underperforming equities is one thing, but losing .5% when the S&P is up .5% is something completely different.
... Sounds like the exact same thing to me  ???
Here's an example:

Underperforming equities with only a .2% gain versus a .5% loss.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
notsheigetz
Executive Member
Executive Member
Posts: 684
Joined: Mon Aug 06, 2012 5:18 pm

Re: Difficult Times

Post by notsheigetz » Fri Jan 25, 2013 6:47 pm

MediumTex wrote: I thought something really bad had happened.
Ditto. I heard the news that the S&P 500 was approaching an all time record but the fact that this was something bad for the PP escaped me completely and that's just how I like it.

Having said that, the only PP friendly options available in both mine and my wife's 401k plans are low-expense S&P index funds so that's where all of our new money goes. So if I hear the stock market is going up I say this is cool. I just have to check it occasionally to make sure I'm not getting too far out of balance.
This space available for rent.
User avatar
melveyr
Executive Member
Executive Member
Posts: 971
Joined: Mon Jun 28, 2010 3:30 pm
Location: Seattle, WA
Contact:

Re: Difficult Times

Post by melveyr » Fri Jan 25, 2013 8:00 pm

buddtholomew wrote:
melveyr wrote:
buddtholomew wrote: Underperforming equities is one thing, but losing .5% when the S&P is up .5% is something completely different.
... Sounds like the exact same thing to me  ???
Here's an example:

Underperforming equities with only a .2% gain versus a .5% loss.
I guess if relative performance to equities really bothers you should do 40% stocks, 20% bonds, 20% cash, and 20% gold. In real terms it will probably be a bumpier ride though.

I'm not really sure what you are after. Do you want consistent annual real returns, or do you want a portfolio that follows the stock market? You can't have both.
everything comes from somewhere and everything goes somewhere
christina
Full Member
Full Member
Posts: 72
Joined: Fri Oct 07, 2011 9:29 am

Re: Difficult Times

Post by christina » Fri Jan 25, 2013 8:40 pm

I'm always rooting for my stocks.

It actually doesn't bother me to see stocks doing better than the PP, in the same way that it doesn't bother me when I see bonds doing better than the PP, or gold. One of those assets is ALWAYS going to be doing better than the PP :-) so get used to it, Budd!! :-)
User avatar
AgAuMoney
Executive Member
Executive Member
Posts: 823
Joined: Fri Apr 01, 2011 11:24 pm
Location: NW USA

Re: Difficult Times

Post by AgAuMoney » Fri Jan 25, 2013 9:24 pm

melveyr wrote: I guess if relative performance to equities really bothers you should do 40% stocks, 20% bonds, 20% cash, and 20% gold. In real terms it will probably be a bumpier ride though.
These "difficult times" are why I only have about 40% of my investable assets in my PP.

However I won't say that my solution is a panacea!  I'm heavy stocks, but I'm also heavy gold and silver. So days like today are still difficult.
gap
Full Member
Full Member
Posts: 60
Joined: Sat Nov 19, 2011 9:49 am

Re: Difficult Times

Post by gap » Fri Jan 25, 2013 9:38 pm

IMHO, sure you can look at the HBPP portfolio everyday if necessary and you can compare to any benchmark you wish. But in each case look at the long term return of each; let's say the last 5 years or better still 10 years - a rolling window of the last t years. That would be a fair comparison. I can't think of any strategy that will do better every day or week or month or even year.
Actually I would look at the regressed return over the past t years for comparison to avoid any hiccup on any particular day.
User avatar
MediumTex
Administrator
Administrator
Posts: 9096
Joined: Sun Apr 25, 2010 11:47 pm
Contact:

Re: Difficult Times

Post by MediumTex » Fri Jan 25, 2013 11:02 pm

A long term investor who had been in 100% U.S. stocks for the last 13 years would have had a very rough ride for a 0% return.

I'm fine with letting stocks do better than the overall PP on some days.
Last edited by MediumTex on Fri Jan 25, 2013 11:05 pm, edited 1 time in total.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
China Bull
Associate Member
Associate Member
Posts: 26
Joined: Tue Jul 06, 2010 7:51 pm

Re: Difficult Times

Post by China Bull » Sat Jan 26, 2013 6:47 am

budd,

don't worry. bears will have their day, and likely soon. This market has so many things likely to pull it down in the next 3- 6 months.
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8864
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: Difficult Times

Post by Pointedstick » Sat Jan 26, 2013 10:30 am

China Bull wrote: budd,

don't worry. bears will have their day, and likely soon. This market has so many things likely to pull it down in the next 3- 6 months.
Ooh, put it in the prediction thread and let's come back in a few months and see if you were right  ;)

http://gyroscopicinvesting.com/forum/ht ... ic.php?t=3
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
clacy
Executive Member
Executive Member
Posts: 1128
Joined: Mon Mar 14, 2011 8:16 pm

Re: Difficult Times

Post by clacy » Sat Jan 26, 2013 11:27 am

buddtholomew wrote:
clacy wrote: I've always said that a bull market in equities will ensure that a relatively small percentage of people adopt the PP.
What, if anything, do you plan to do during a bull market in equities?

I've matured over the last year and plan to stay the course. I was merely making an observation. The PP is up YTD after all
I'm not planning on doing anything different than I have been.  Budd, you have to ask yourself what you want.  You freak out any time your portfolio loses money, but now your freaking because it didn't keep up with the S&P. 

Which is it?  Do you want low volatility or do you want stock gains. If you value pure performance, then the PP probably isn't for you.  On the other hand, it seems like volatility really bothers you so can you handle an all stock portfolio?
User avatar
melveyr
Executive Member
Executive Member
Posts: 971
Joined: Mon Jun 28, 2010 3:30 pm
Location: Seattle, WA
Contact:

Re: Difficult Times

Post by melveyr » Sat Jan 26, 2013 12:59 pm

I think budd wants a straight line that always goes up and still beats the stock market in the long run.  I think we all want that but unfortunately it doesn't exist.
everything comes from somewhere and everything goes somewhere
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Difficult Times

Post by buddtholomew » Sat Jan 26, 2013 1:24 pm

melveyr wrote: I think budd wants a straight line that always goes up and still beats the stock market in the long run.  I think we all want that but unfortunately it doesn't exist.
That would be delightful  ;D An observation that the PP was down while the S&P500 was up brought out my true emotions about GLD and TLT. These components of the portfolio are the two that I am most fearful of dominating the outcome of the portfolio returns (negatively) in a black swan event. I guess I like only 50% of the portfolio assets  :D
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
Reub
Executive Member
Executive Member
Posts: 3158
Joined: Fri Jan 21, 2011 5:44 pm

Re: Difficult Times

Post by Reub » Sat Jan 26, 2013 2:39 pm

There is no reason that you can't commit, say, 50% to a PP and the rest to a Boglehead-style "age in bonds" portfolio.
User avatar
melveyr
Executive Member
Executive Member
Posts: 971
Joined: Mon Jun 28, 2010 3:30 pm
Location: Seattle, WA
Contact:

Re: Difficult Times

Post by melveyr » Sat Jan 26, 2013 3:01 pm

Reub wrote: There is no reason that you can't commit, say, 50% to a PP and the rest to a Boglehead-style "age in bonds" portfolio.
Another possibility:

Do age in bonds, but your "bonds" are the blend of gold, LTT, and cash. You approach the very safe PP towards the end of your life and if you are lucky you might capture the long term risk premium that equities have provided historically. Of course if you are lucky enough to make it to 75 I wouldn't keep boosting the "bond" portion but just stay at the 4 way split.

Regardless, if underperforming the stock market is seen as a risk in your eyes, the only way to surely mitigate that risk is by holding more equities.
Last edited by melveyr on Sat Jan 26, 2013 3:05 pm, edited 1 time in total.
everything comes from somewhere and everything goes somewhere
User avatar
AgAuMoney
Executive Member
Executive Member
Posts: 823
Joined: Fri Apr 01, 2011 11:24 pm
Location: NW USA

Re: Difficult Times

Post by AgAuMoney » Sat Jan 26, 2013 3:06 pm

melveyr wrote: I think budd wants a straight line that always goes up and still beats the stock market in the long run.  I think we all want that but unfortunately it doesn't exist.
But it will look like it exists if your samples are spaced far enough apart.

In other words, only look every 5 or 10 years.
User avatar
KevinW
Executive Member
Executive Member
Posts: 945
Joined: Sun May 02, 2010 11:01 pm

Re: Difficult Times

Post by KevinW » Sat Jan 26, 2013 3:08 pm

A few days ago we worked out that budd needed to overweight cash to reduce volatility enough to feel comfortable. Now we're working out how much he needs to overweight stock to increase volatility enough to feel comfortable. Is anyone else familiar with the Dr Seuss book "The Sneeches?"    ;D
Post Reply