Why do you use the PP?

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Pointedstick
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Why do you use the PP?

Post by Pointedstick » Mon Jul 13, 2015 3:43 pm

This came up in another thread and I think it might be interesting to hear the reasons why people choose the PP and stick with it.

I'll start. I didn't have any really bad market experiences; I started investing in 2009. But I didn't really know what I was doing and could never come to a good conclusion as to which asset classes I should invest in. Why not small-cap value stocks? Why not REITs? Foreign stocks? High-yield bonds? Commodities? They all seemed like reasonable choices that had their turns in the sun. But there was no rhyme or reason that anyone could explain to me.

The PP appeals to me because it has a theory behind it. It gives you a reasonable "why" that makes sense to me as well as a "what," and this "why" makes sense to me. For nearly all other portfolios, the "why" seems to be, "because that's what did well historically," which is not a terrible answer, but does nothing to address the uncertainty of the future; they are all basically saying,  "past performance does not guarantee future returns, but you'll probably get good returns anyway." Lots of other countries have experienced very very bad market returns but this point is hand-waved away because the USA is not those other countries, but nothing lasts forever...

In order to ditch the PP, I would need to be convinced that the PP's theory is wrong and that another portfolio has a superior and more correct theory behind it.
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Re: Why do you use the PP?

Post by mathjak107 » Mon Jul 13, 2015 4:48 pm

the pp always appealed to me because it was a simple strategy and  not that volatile .    i just can't do it myself because i  do not like not maximizing my pucker factor potential , i prefer to go right up to the line of what i am comfortable with .  but that does not mean it isn't right for you guys or those who have more money than they want or need .

especially if you are going to make your retirement nest egg from other sources , why not go with it . ,
Last edited by mathjak107 on Mon Jul 13, 2015 5:00 pm, edited 1 time in total.
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Re: Why do you use the PP?

Post by barrett » Mon Jul 13, 2015 5:15 pm

I like the PP because it's not based on hoping or even believing that stocks will continue to do well. That seems to be the primary foundation behind most allocations. If stocks continue to pump out gains, great. A PP investor will reap some of those gains (and with a thriving stock market, much of the time the actual allocation to stocks will be above 25%).

Most likely I'll be retiring within five years or so and the cash component is a beautiful attribute during the withdrawal phase that I didn't fully appreciate before. Ditto for sequence of returns. Fewer down years makes a big difference if you are not lucky enough to have your retirement coincide with boom times.
Pointedstick wrote: In order to ditch the PP, I would need to be convinced that the PP's theory is wrong and that another portfolio has a superior and more correct theory behind it.
Agree with that though I am tempted to fiddle with percentages. But I think that is because I am a relative newcomer to this way of investing. And, back to my point above, it's built into the PP that much of the time one is more heavily invested in assets that are hot.

Though I am not there 100% yet, the idea of being future agnostic towards financial markets really appeals to me. Again, it's not a portfolio based on hope... except that we hope it thrives in a low interest rate environment!
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Re: Why do you use the PP?

Post by Pointedstick » Mon Jul 13, 2015 5:21 pm

I am also tempted to fiddle with the percentages to adjust for the likelihood that certain conditions are more likely than others (e.g. prosperity is more common than catastrophe). But I haven't actually done it, and I like that I can sort of "virtually" do so by simply buying more of a particular asset in my VP.
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Re: Why do you use the PP?

Post by mathjak107 » Mon Jul 13, 2015 5:35 pm

barrett wrote: I like the PP because it's not based on hoping or even believing that stocks will continue to do well. That seems to be the primary foundation behind most allocations. If stocks continue to pump out gains, great. A PP investor will reap some of those gains (and with a thriving stock market, much of the time the actual allocation to stocks will be above 25%).

Most likely I'll be retiring within five years or so and the cash component is a beautiful attribute during the withdrawal phase that I didn't fully appreciate before. Ditto for sequence of returns. Fewer down years makes a big difference if you are not lucky enough to have your retirement coincide with boom times.
Pointedstick wrote: In order to ditch the PP, I would need to be convinced that the PP's theory is wrong and that another portfolio has a superior and more correct theory behind it.
Agree with that though I am tempted to fiddle with percentages. But I think that is because I am a relative newcomer to this way of investing. And, back to my point above, it's built into the PP that much of the time one is more heavily invested in assets that are hot.

Though I am not there 100% yet, the idea of being future agnostic towards financial markets really appeals to me. Again, it's not a portfolio based on hope... except that we hope it thrives in a low interest rate environment!
well you are still betting on hope , because  you hope rates do not rise  and you hope gold  responds or else you have a portfolio that would be dead in the water as it would be hard even in a good market to have decent gains.

no portfolio is without "hope"  the pp has  its needs too.

the only thing it does is trade off potential upside risk for more downside protection but to do well it still hopes for certain conditions to be trends .
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Re: Why do you use the PP?

Post by escafandro » Mon Jul 13, 2015 6:15 pm

wealth preservation, inverse dollar correlation
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Re: Why do you use the PP?

Post by barrett » Mon Jul 13, 2015 6:17 pm

mathjak107 wrote:
barrett wrote: I like the PP because it's not based on hoping or even believing that stocks will continue to do well. That seems to be the primary foundation behind most allocations. If stocks continue to pump out gains, great. A PP investor will reap some of those gains (and with a thriving stock market, much of the time the actual allocation to stocks will be above 25%).

Most likely I'll be retiring within five years or so and the cash component is a beautiful attribute during the withdrawal phase that I didn't fully appreciate before. Ditto for sequence of returns. Fewer down years makes a big difference if you are not lucky enough to have your retirement coincide with boom times.
Pointedstick wrote: In order to ditch the PP, I would need to be convinced that the PP's theory is wrong and that another portfolio has a superior and more correct theory behind it.
Agree with that though I am tempted to fiddle with percentages. But I think that is because I am a relative newcomer to this way of investing. And, back to my point above, it's built into the PP that much of the time one is more heavily invested in assets that are hot.

Though I am not there 100% yet, the idea of being future agnostic towards financial markets really appeals to me. Again, it's not a portfolio based on hope... except that we hope it thrives in a low interest rate environment!
well you are still betting on hope , because  you hope rates do not rise  and you hope gold  responds or else you have a portfolio that would be dead in the water as it would be hard even in a good market to have decent gains.

no portfolio is without "hope"  the pp has  its needs too.

the only thing it does is trade off potential upside risk for more downside protection but to do well it still hopes for certain conditions to be trends .
The thing is that I think the PP will be fine if/when rates rise, whether they do so quickly or slowly. Yeah, bonds will take a hit. Our bet on bonds is risky in isolation but it only represents 1/4 of the portfolio. Again, to PS's point, this portfolio is based on theory. One or more of the assets should do well when rates rise. Whether that actually pans out, well, we will see eventually... unless of course we become Japan.

I think the Japanification of much of the world's economy is actually more likely than continued prosperity (but I am not hoping for that).
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Re: Why do you use the PP?

Post by barrett » Mon Jul 13, 2015 6:27 pm

I have mathjak on the ropes! Almost ten minutes have passed since my last post. I can smell victory! :)
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Re: Why do you use the PP?

Post by barrett » Mon Jul 13, 2015 6:39 pm

Pointedstick wrote: I am also tempted to fiddle with the percentages to adjust for the likelihood that certain conditions are more likely than others (e.g. prosperity is more common than catastrophe). But I haven't actually done it, and I like that I can sort of "virtually" do so by simply buying more of a particular asset in my VP.
PS, Help me understand something. From my point of view, if you buy into PP theory being sound, why even have a VP? Or, put another way, do you really have a PP if your overall allocations are quite different from 4X25? Isn't it then just a portfolio that keeps a bit more cash, gold and LTTs than most people would bother with?
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Re: Why do you use the PP?

Post by Desert » Mon Jul 13, 2015 6:53 pm

barrett wrote: The thing is that I think the PP will be fine if/when rates rise, whether they do so quickly or slowly. Yeah, bonds will take a hit. Our bet on bonds is risky in isolation but it only represents 1/4 of the portfolio. Again, to PS's point, this portfolio is based on theory. One or more of the assets should do well when rates rise. Whether that actually pans out, well, we will see eventually... unless of course we become Japan.

I think the Japanification of much of the world's economy is actually more likely than continued prosperity (but I am not hoping for that).
I agree.  I try not to let that belief completely drive my asset allocation decisions, but I have to admit it's a factor I consider strongly. 
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Re: Why do you use the PP?

Post by Cortopassi » Mon Jul 13, 2015 6:59 pm

I have the PP because in the past I tended to be all in on one asset class or another, and did reasonably well -- until I didn't and ran for the exits.

I like the non-correlated diversification.

And it was supposed to do two major things:

1) Cut my trading way down, to near zero.  Check.  It has.  Stress level is non-existent related to trading, getting in out, stops, etc.  There just isn't any.
2) Make me less emotional about my holdings and the obsession of checking it all the time.  Half check.  I still check too much and am still too emotionally tied to gold, but that is improving.
But what do I know?
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Re: Why do you use the PP?

Post by mathjak107 » Mon Jul 13, 2015 7:04 pm

barrett wrote: I have mathjak on the ropes! Almost ten minutes have passed since my last post. I can smell victory! :)
you already know my feeling . the pp will not be a pleasant place to be if rates continue to rise  as that leveraged bond position will always be behind the curve by a lot no matter how much you rebalance for years after rates stop rising.    that can easily over power the rest unless a strong trend develops and even then it can be painful.

you are playing with fire but time will tell.  personally I think the bond position carry's to much weight at these levels along with to much dead money in gold .

can we make this prediction a sticky ?
Last edited by mathjak107 on Mon Jul 13, 2015 7:12 pm, edited 1 time in total.
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