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General Discussion on the Permanent Portfolio Strategy

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Pfanni
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Re: No where to hide

Post by Pfanni » Sun May 03, 2015 2:44 am

If you want to read up on this whole third world-deflation theme, I highly recommend this blog:

http://ponziworld.blogspot.ca/2013/03/t ... virus.html

As long as there is a differential in cost/price between the two markets, then the arbitrage makes money. In the context of global trade, the transaction requires buying labour only in the lowest price locales, and selling the finished product to the developed economies, capturing the spread between the standard of living between these two worlds.
Of course, however, all arbitrage strategies are self-destructing, because the act of systematically buying in one market and selling in the another market converges prices such that the arbitrage is no longer profitable.


(the writer deserves a Pulitzer!!!)


Be careful, the blog is oozed with (vested) pessimism - nevertheless this blogger hits the nail on the head.
I don't know why that blogger isn't more popular. One of the very best around IMO.
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Re: No where to hide

Post by barrett » Tue May 05, 2015 10:40 am

Mark Leavy wrote: Tracking Error

I define tracking error to be the deviation from a straight line linear growth.  Comparing it to some other index/portfolio doesn't make a lot of sense to me.

[img width=800]http://i62.tinypic.com/9acxao.png[/img]

The above image is a vanilla HBPP from, March 26, 2004 to May 1st, 2015, rebalanced with standard 15/35 bands.

The vertical axis is a log scale.

A linear best fit of the last 11 years of the PP (not corrected for inflation) has a line with:

CAGR of 10.78%
The average deviation from that best fit line is 5.43%
The maximum deviation from that best fit line is 12.74%
The maximum draw down (peak to trough) is 12.67%
The current deviation from that best fit line is 10.84%
The current actual CAGR is 9.83%
The current draw down (peak to trough) is 2.47%

I think this would be a better graph if I added inflation.  I'll probably do that next week sometime.

For those that like to look at your portfolio every day, this is the way to do it.
Update your spreadsheet.  Now look at the graph. (Not the sea of red or green in today's numbers)

Does it look like the underlying model is falling apart? Is something unprecedented happening?

No? Cool. It's all working.

[Edit - Added a linear chart, in case log scales are confusing to anyone]

[img width=800]http://i60.tinypic.com/nef94x.png[/img]
Thought I should link to Ryan Melvey's graph comparing the PP return to a real return of 4.5%. The data only go through 2010 but this is what Mark is talking about. Here is melveyr's article & graph:

http://www.stableinvesting.com/2011/04/ ... hmark.html
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Re: No where to hide

Post by LC475 » Tue May 05, 2015 12:47 pm

buddtholomew wrote: And the rout continues...rationalize all you want, but the bottom line is the portfolio is doing absolutely nothing but racking up losses.
Umm, are you using the same portfolio I am?  Because mine seems to be tooling along steady and boring.  Exactly as designed.  +1% is not thrilling nor even exciting, but if one is looking for excitement, one should look elsewhere.  Don't worry, there'll be +5% years again, too.  There'll even be +10% years.  Maybe next year.  Maybe even this year.  Who can say?  But certainly -- guaranteed -- not every year.  And that's OK!  That needs to be OK for you.  It really does.  Otherwise you are not going to be able to deal.
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Re: No where to hide

Post by Tom » Tue May 05, 2015 5:43 pm

Mine is down -.46% YTD.
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Re: No where to hide

Post by buddtholomew » Tue May 05, 2015 6:08 pm

Of course in isolation the YTD performance is of little concern, but compared to a conservative allocation the portfolio is under-performing again. If money flows from one asset to another, then tell me which asset is the beneficiary of these funds of late?
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Re: No where to hide

Post by Pointedstick » Tue May 05, 2015 6:18 pm

buddtholomew wrote: Of course in isolation the YTD performance is of little concern, but compared to a conservative allocation the portfolio is under-performing again. If money flows from one asset to another, then tell me which asset is the beneficiary of these funds of late?
Well let's see, stocks are up 2.5% while gold is up 0.75% and long bonds down 1.8%. So I'm going to say into stocks and gold to a lesser extent, and out of long bonds.

But how "conservative" is a "conservative allocation" really? If you're talking about a stock/bond mix, that's not even remotely in the realm of what I would call conservative. Relative to 100% stocks, maybe. In an absolute sense, no. A graph of the performance will basically look like a smoother version of the stock market. If that's what you want, you should just have that. But just remember that a smoother version of way down is still way down.
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Re: No where to hide

Post by ochotona » Tue May 05, 2015 6:21 pm

buddtholomew wrote: Of course in isolation the YTD performance is of little concern, but compared to a conservative allocation the portfolio is under-performing again. If money flows from one asset to another, then tell me which asset is the beneficiary of these funds of late?
A 50% S&P500 and 50% 30 year T-bond portfolio is -0.79% YTD
A 50% S&P500 and 50% 10 year T-bond portfolio is +1.12% YTD

What conservative allocation are we doing so badly against?
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Re: No where to hide

Post by buddtholomew » Tue May 05, 2015 6:29 pm

Not everyone is only invested in the US S&P500 fund. I personally hold investments in INT LC, SC and Emerging Markets which are positive approximately 9% YTD. So...the point is money does not have to flow into one of the other PP assets. The recent inflows to international are a prime example.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Re: No where to hide

Post by Pointedstick » Tue May 05, 2015 6:37 pm

buddtholomew wrote: Not everyone is only invested in the US S&P500 fund. I personally hold investments in INT LC, SC and Emerging Markets which are positive approximately 9% YTD.
…Which in no way should be confused with a "conservative allocation." Comparing the PP to a stock-heavy portfolio that's invested in emerging markets is like judging a battle tank by the standards of a fighter jet. If you want to be disappointed that the TRULY conservative PP is underperforming a bunch of stocks, then maybe you should exit the PP and own more stocks.
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Re: No where to hide

Post by buddtholomew » Tue May 05, 2015 6:50 pm

Pointedstick wrote:
buddtholomew wrote: Not everyone is only invested in the US S&P500 fund. I personally hold investments in INT LC, SC and Emerging Markets which are positive approximately 9% YTD.
…Which in no way should be confused with a "conservative allocation." Comparing the PP to a stock-heavy portfolio that's invested in emerging markets is like judging a battle tank by the standards of a fighter jet. If you want to be disappointed that the TRULY conservative PP is underperforming a bunch of stocks, then maybe you should exit the PP and own more stocks.
Oh I see..so emerging markets is "too risky" but gold and long-term treasuries are "conservative". Do you feel the same way about INT LC and SC stocks? How are they more risky than the S&P500?

I feel the PP does not hold enough stock exposure to counterbalance declines in gold and/or long-term treasuries. I don't know how others hold the PP knowing that they have lost out on substantial gains since 2009. Just saying...
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Re: No where to hide

Post by sixdollars » Tue May 05, 2015 7:09 pm

buddtholomew wrote:
Pointedstick wrote:
buddtholomew wrote: Not everyone is only invested in the US S&P500 fund. I personally hold investments in INT LC, SC and Emerging Markets which are positive approximately 9% YTD.
…Which in no way should be confused with a "conservative allocation." Comparing the PP to a stock-heavy portfolio that's invested in emerging markets is like judging a battle tank by the standards of a fighter jet. If you want to be disappointed that the TRULY conservative PP is underperforming a bunch of stocks, then maybe you should exit the PP and own more stocks.


Oh I see..so emerging markets is "too risky" but gold and long-term treasuries are "conservative". Do you feel the same way about INT LC and SC stocks? How are they more risky than the S&P500?

I feel the PP does not hold enough stock exposure to counterbalance declines in gold and/or long-term treasuries. I don't know how others hold the PP knowing that they have lost out on substantial gains since 2009. Just saying...
If you're going to constantly compare yourself to a conventional bogleheads portfolio, maybe that's the one you should hold - at least then you won't feel like you're missing out all the time. 

But why do I get the feeling - if you switched - that during the next stock bear market you'd be complaining in the bogleheads' forums that the PP is doing so much better and that there's too much risk in stock heavy portfolios.  :-\

I think there's a lot to be said with being content and not comparing yourself to others.  There's always going to be someone with a higher yearly return than you - deal with it.  Find a portfolio that matches your personality and then stick with it - otherwise I don't know what all this stress is going to do to your health :P
Last edited by sixdollars on Tue May 05, 2015 7:12 pm, edited 1 time in total.
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Re: No where to hide

Post by dutchtraffic » Tue May 05, 2015 8:23 pm

I'm down nearly 5% since i bought my eu PP just a few weeks ago.... bad timing i guess :)
Not so low volatility when all 3 assetclasses decide to drop together  :P
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Re: No where to hide

Post by Pointedstick » Tue May 05, 2015 8:47 pm

buddtholomew wrote: I don't know how others hold the PP knowing that they have lost out on substantial gains since 2009. Just saying...
Wishing you'd acted in the past with the knowledge you have now can only end in disappointment. Seriously. Yes, I missed out on a lot of stock gains by not being 100% stocks. But I also missed out on a lot of gold gains all throughout the prior decade by not being 100% gold. What's the point in wishing you could go back in time and make the perfect decision that nobody at the time (yourself included) could possible have known was the perfect decision? Torturing yourself like that is madness.
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Re: No where to hide

Post by ochotona » Wed May 06, 2015 6:58 am

buddtholomew wrote: Not everyone is only invested in the US S&P500 fund. I personally hold investments in INT LC, SC and Emerging Markets which are positive approximately 9% YTD. So...the point is money does not have to flow into one of the other PP assets. The recent inflows to international are a prime example.
There's a place for this type of portfolio, and I do own one, it comprises 25% of my assets and it is actively managed. There is so much happening on the international scene, what with currencies and QE and all, there is no way I could keep up with it and still have a job and a life if I were trying to do it myself. If you try to do-it-yourself, you're going to get your head handed to you eventually. The PP can serve as the boring core, and you can do exotic things around the margins, but if you make exotic things the core, there will be tears.

Everyone needs a boring core, especially as you get into middle age and older, even if it doesn't have as much gold and cash as the PP has, like if it's a 50-50 Couch Potato portfolio.
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Re: No where to hide

Post by sophie » Wed May 06, 2015 7:58 am

Mark - thanks for posting those graphs!  It really helps to look at that rather than just the latest numbers.  Regarding the PP trailing the mean return line for an extended period, that kind of comes with the territory.  It's happened before, e.g. in the early 80s there was a 2-3 year period where the portfolio stayed sideways while stocks were taking off.

I don't have a graph like this in my spreadsheet, but I do keep track of side by side monthly returns for a hypothetical $10,000 for the PP, the "couch potato" Boglehead portfolio in my active retirement account, and my tiny VP.  It's kind of fun to watch, because even though the PP is trailing the others it's not by much.  It's hard to see overall performance when all you see is the numbers for today or last month.

I think people are worried that the PP may be headed lower for fundamental reasons:  bond yields have to go up because they've been artificially depressed for years, gold is in the tank with no sign of recovering anytime soon, stocks are overvalued etc.  Sometimes I worry about those things too, but I keep telling myself that there is still money and productivity in the world, and it all has to go somewhere.  Money going into international stocks is eventually going to filter back to the US - as many companies in the S&P 500 are globally based.
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Re: No where to hide

Post by buddtholomew » Wed May 06, 2015 9:25 am

Here we are again...another beat down. What a surprise...all that hard earned money down the drain. The news is terrible yet gold and treasuries continue to decline. What the fuck is going on?
Last edited by buddtholomew on Wed May 06, 2015 9:29 am, edited 1 time in total.
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Re: No where to hide

Post by ochotona » Wed May 06, 2015 9:39 am

buddtholomew wrote: Here we are again...another beat down. What a surprise...all that hard earned money down the drain. The news is terrible yet gold and treasuries continue to decline. What the **** is going on?
It's just the market. I've been doing this for 35 years. Nothing unusual going on here. This is nothing. How long have you been investing? Seriously, if you don't like it, go all cash.
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Re: No where to hide

Post by buddtholomew » Wed May 06, 2015 9:43 am

ochotona wrote:
buddtholomew wrote: Here we are again...another beat down. What a surprise...all that hard earned money down the drain. The news is terrible yet gold and treasuries continue to decline. What the **** is going on?
It's just the market. I've been doing this for 35 years. Nothing unusual going on here. This is nothing. How long have you been investing? Seriously, if you don't like it, go all cash.
Shut up...you're the noob here and your advice is horrible.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Re: No where to hide

Post by Cortopassi » Wed May 06, 2015 9:45 am

The news is terrible, from a US centric dollar flight to safety view which may finally not be the go to safety play?

If the news is terrible in Greece, or some other non reserve currency country, bond yields rise because of more risk, but that hasn't seemed to be the case for the US.  Maybe that is changing?  Maybe more and more eyes are opening up to that?

As for gold, regardless of the tin foil hat I may wear at times, I do believe that is manipulated to make it relatively unattractive for money to flow into.  Maybe I am crazy.  At least it is relatively flatline today.
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Re: No where to hide

Post by ochotona » Wed May 06, 2015 9:48 am

buddtholomew wrote: Shut up...you're the noob here and your advice is horrible.
This makes me laugh for so many reasons.
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Re: No where to hide

Post by moda0306 » Wed May 06, 2015 9:50 am

buddtholomew wrote:
ochotona wrote:
buddtholomew wrote: Here we are again...another beat down. What a surprise...all that hard earned money down the drain. The news is terrible yet gold and treasuries continue to decline. What the **** is going on?
It's just the market. I've been doing this for 35 years. Nothing unusual going on here. This is nothing. How long have you been investing? Seriously, if you don't like it, go all cash.
Shut up...you're the noob here and your advice is horrible.
No need to tell people to shut up.  He raises a great point.  This is nothing new.  And even if he was NOT making a great point, asking someone trying to make a rational point to "shut up" is just rude.

So far this year, if I glance at the standard PP ETF's and assume a 4x25 split, I get an average loss of -.3325% ((-3.66% + 1.94% + .26% + .13%)/4).

That does not even include dividends and interest.  We're 1/3 of the way through the year after a phenomenal year (9.1% last year).  This is not surprising at all to me.

Seriously, budd, this is nothing.  Absolutely nothing to be afraid of in and of itself.  If this upsets you, as we've said before, you have to significantly increase your cash position.
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Re: No where to hide

Post by buddtholomew » Wed May 06, 2015 9:59 am

moda0306 wrote:
buddtholomew wrote:
ochotona wrote: It's just the market. I've been doing this for 35 years. Nothing unusual going on here. This is nothing. How long have you been investing? Seriously, if you don't like it, go all cash.
Shut up...you're the noob here and your advice is horrible.
No need to tell people to shut up.  He raises a great point.  This is nothing new.  And even if he was NOT making a great point, asking someone trying to make a rational point to "shut up" is just rude.

So far this year, if I glance at the standard PP ETF's and assume a 4x25 split, I get an average loss of -.3325% ((-3.66% + 1.94% + .26% + .13%)/4).

That does not even include dividends and interest.  We're 1/3 of the way through the year after a phenomenal year (9.1% last year).  This is not surprising at all to me.

Seriously, budd, this is nothing.  Absolutely nothing to be afraid of in and of itself.  If this upsets you, as we've said before, you have to significantly increase your cash position.
I don't see the good point and I stand by my comment that the advice is terrible. No need to apologize for my comment since he finds it funny on so many levels. His own words.
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Re: No where to hide

Post by Pointedstick » Wed May 06, 2015 10:05 am

Budd, you should probably just stop investing. Your instincts are all wrong. When the stock market rises, you're upset that you don't have more stocks. You believe that you can predict how assets should move based on the daily news. When your extremely conservative portfolio is flat for a 4-month period, you freak out. You're just making yourself miserable. Normal market movements make you react with dismay and hostility. I recommend a portfolio of 100% IEI or something. Seriously. Life's too short to freak out about nothing like this.
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Re: No where to hide

Post by moda0306 » Wed May 06, 2015 10:13 am

I'm not asking you to apologize.  I'm suggesting that you simply don't use harsh demands of people on an online forum as abrasive and insulting as "shut up," when this place is usually quite useful for people to share ideas on.

You may think his idea is a bit extreme.  But how about mine?  This has happened before, is not a big swing (in the context of the last few months of performance (I wasn't cherry-picking timeframes.  I just went with YTD since it's easy.  You seem to get upset anytime something like this happens, and then when I go to run the numbers, it's obvious that in the context of this portfolio's history (and especially in the context of less diversified portfolios) that these moves are NOT big ones.

What do you think of that -.3325% (not including div/int) return so far this year?  Does that truly disturb you?  If so, why do you invest in a portfolio such as this, that has had TONS of 4 month periods with worse return?  Why does that warrant the phrase "what the f*ck is going on," when it happens quite regularly and to a higher degree?

If you can't take that kind of volatility, why is it "horrible advice" to suggest a far more conservative portfolio?
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Re: No where to hide

Post by moda0306 » Wed May 06, 2015 10:21 am

Pointedstick wrote: Budd, you should probably just stop investing. Your instincts are all wrong. When the stock market rises, you're upset that you don't have more stocks. You believe that you can predict how assets should move based on the daily news. When your extremely conservative portfolio is flat for a 4-month period, you freak out. You're just making yourself miserable. Normal market movements make you react with dismay and hostility. I recommend a portfolio of 100% IEI or something. Seriously. Life's too short to freak out about nothing like this.
I second this motion.  You're simply trying to get your investments to behave in ways in multiple economic scenarios that the market is never going to deliver to you.  We all wish there was a "better PP."  Or something with fat tail risk protection AND uber-stability along the way and 12% rates of return.  There simply is no such thing.  It's like looking for a flying crocodile with the intelligence of a dolphin.  It simply doesn't exist.  Your search will only bring you more frustration.
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