Why do you use the PP?

General Discussion on the Permanent Portfolio Strategy

Moderator: Global Moderator

User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Why do you use the PP?

Post by mathjak107 » Sun Jul 26, 2015 6:14 am

buddtholomew wrote:
LC475 wrote:
buddtholomew wrote: That aside, the only other difference between the portfolios is the amount allocated to equities. It is 100% in the BH portfolio and split 25% equities, 25% gold in the PP.
What do you mean?  Are you counting gold as a kind of equity?

I see gold as more of an alternative type of cash.  US dollars are cash for the short term, gold is cash for the long term.  Thus you have a portfolio that's 50% cash and 50% income-generating, and the income-generating is further split 50-50 between the two main ways to structure income-generating assets: debt and ownership.  At least, that's one way to look at it.
Total Bond Market Index has a duration of 5.6 years. The fund holds a variety of bonds including corporates and treasuries. LT treasuries in combination with cash can replicate 5.6 years in duration and eliminate default risk. To me, these are similar enough approaches to consider the two options a wash over time (barbell vs. bullet strategy).

Now each portfolio has 50% remaining to allocate. BH will allocate the entire amount to equities and the PP splits 25% in Gold and 25% in equities. That is the major distinction between the two portfolios. BH investors may choose to hold REITs, INT or SC, but it is still considered equities.

Hope this clarifies.
the intent of cash in the pp is to be neutral . it isn't there to pretend it is part of the bond fund to make it appear less volatile or to be part of stocks to make their beta appear lower or any other asset.

each asset is what it is without being combined with anything else to disguise it.

if stocks fell then the cash works with the portfolio as a whole .  if it is stocks and bonds then it mitigates both . but trying to pretend if you combine cash and long term bonds  like they exclusively are one and the same asset class  and  you really have an equal to an intermediate bond fund is not correct .

all that counts at the end of the day is that balance you have from the pp and not how you try to disguise the assets from what they are .

for all purposes long term treasury's are exactly what they are , stocks and gold are what they are and cash stands ready to do its part for the portfolio as a whole .
Last edited by mathjak107 on Sun Jul 26, 2015 8:55 am, edited 1 time in total.
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8864
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: Why do you use the PP?

Post by Pointedstick » Sun Jul 26, 2015 8:22 am

mathjak107 wrote: you really can' look at cash in that manner  in my opinion .  your treasury position in long term treasury's will fully act as such the way it functions in the pp.  the cash is acting at the same time with other asset classes  taking part of its weight away from acting on the long term bonds  exclusively .

if bonds fell 15% and gold fell 15% with stocks flat the cash has not cut the duration in bonds to 5.6 years . the cash gets spread out over the effects of all assets .
That sounds like mental masturbation to me; your money doesn't care about such distinctions. ;D History shows that overall effect to your bottom line is indeed more or less the same for barbell and bullet strategies with the same duration.

Blue portfolio 100% 5-9 year treasuries; red portfolio 50% 30-year treasuries + 50% 2-year treasuries:

[img width=600]http://i.imgur.com/WsQSqxR.png[/img]
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Why do you use the PP?

Post by mathjak107 » Sun Jul 26, 2015 8:32 am

re-read what i wrote , i didn't word it exactly  they way i wanted it to mean.

correct as you said everything works together , cash is not part of the bond allocation and works with all parts equally .
Last edited by mathjak107 on Sun Jul 26, 2015 8:39 am, edited 1 time in total.
LC475
Executive Member
Executive Member
Posts: 427
Joined: Tue Oct 08, 2013 4:23 pm

Re: Why do you use the PP?

Post by LC475 » Mon Jul 27, 2015 9:46 am

buddtholomew wrote: Hope this clarifies.
Yes, that does clarify.

You are lumping the cash with the bonds and saying all together it's a bunch of 5 or 6 year duration bonds, and that's 50%.

It's a perfectly valid and correct way of looking at it.

However, I do not think it is the ideal way to be looking at it and thinking about it, for you, most of the time.  Thinking about it my way is going to help you feel better about holding the HBPP, if holding it and feeling better about it is your goal.

You have split the pie in half vertically: left half bonds, right half gold and stocks.  I would say split the pie in half horizontally instead: bottom half cash, top half income production.  The cash is your foundation, your bedrock of safety.  There's two kinds of cash in the bottom half: US Dollars and gold.  They are both great for different reasons.  They provide you with safety, stability, and peace of mind.  You might say "Aack! No!  Gold provides me anything but stability!"  But actually, it really does.  It's an old goldbug saw, but it's true: The cost of a good man's suit in 1800 was about an ounce of gold, the cost today is about an ounce of gold, the cost in 1600 was about an ounce of gold, and even back in Roman times the cost of a good toga and sash was, again, about an ounce.  Gold has been a reliable way to store wealth for over 2000 years.  That's a good track record, I don't care how much you hate the stuff.  You just can't argue with that track record.  Gold is the best long-term cash available.  Gold is not going anywhere.  Gold will ride out the storms.  Gold is money, and the US dollar is money (both in very different ways!) and, as Harry Browne once wrote: that's what you need right now. (Money, that is).

You are a conservative investor.  Cash is a conservative investment.  And gold is an uber-conservative cash.
Last edited by LC475 on Mon Jul 27, 2015 9:49 am, edited 1 time in total.
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8864
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: Why do you use the PP?

Post by Pointedstick » Mon Jul 27, 2015 9:54 am

Mandatory devil's advocacy: the USD price of a good men's suit was $250 in 2000 and $1800 in 2011?
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
User avatar
Mark Leavy
Executive Member
Executive Member
Posts: 1950
Joined: Thu Mar 01, 2012 10:20 pm
Location: US Citizen, Permanent Traveler

Re: Why do you use the PP?

Post by Mark Leavy » Mon Jul 27, 2015 10:08 am

Pointedstick wrote: Mandatory devil's advocacy: the USD price of a good men's suit was $250 in 2000 and $1800 in 2011?
Maybe not an exact correlation, but...

Here's the 15 year chart for Merino wool :

[img width=800]http://i62.tinypic.com/2lncrxl.png[/img]
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8864
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: Why do you use the PP?

Post by Pointedstick » Mon Jul 27, 2015 10:09 am

Whoa, that is spooky.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
User avatar
lordmetroid
Executive Member
Executive Member
Posts: 200
Joined: Wed Nov 26, 2014 3:53 pm

Re: Why do you use the PP?

Post by lordmetroid » Tue Jul 28, 2015 3:14 am

Not spooky but an effect of the end of the 15 year commodity super cycle of which Jim Rogers usually speaks of.
Capital has been invested in order to secure commodities. Now this has been achieved and the next phas in the economic cycle can begin.
Last edited by lordmetroid on Tue Jul 28, 2015 3:26 am, edited 1 time in total.
portart
Executive Member
Executive Member
Posts: 278
Joined: Mon Feb 11, 2013 8:20 am

Re: Why do you use the PP?

Post by portart » Wed Jul 29, 2015 9:58 am

I have used PP for ten years. This is the first time I some level of fear with the potential bottom dropping out of gold. I like Pointedstick's idea of a second more aggressive portfolio (same as a pp if you rolled into one with less gold and treasuries changing the percentages so it's how you want to look at it.) Of course trying to time when to sell some gold and move it around is tricky with it close to losing support and having another waterfall drop begin.  It's hard to change your philosphy...
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8864
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: Why do you use the PP?

Post by Pointedstick » Wed Jul 29, 2015 10:04 am

If there was ever a good time to underweight gold, it was 2 or 3 years ago, not right now. As icky as this drop is, I'm not selling because that would be buying high and selling low. Same reason I'm not loading up on more stocks. I'm just letting the PP do its thing. If the stock market flames out and gold surges, that will be the time to transition into a portfolio with more stocks and less gold if that's what you want.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Why do you use the PP?

Post by buddtholomew » Wed Jul 29, 2015 10:17 am

Pointedstick wrote: If there was ever a good time to underweight gold, it was 2 or 3 years ago, not right now. As icky as this drop is, I'm not selling because that would be buying high and selling low. Same reason I'm not loading up on more stocks. I'm just letting the PP do its thing. If the stock market flames out and gold surges, that will be the time to transition into a portfolio with more stocks and less gold if that's what you want.
Trapped in the PP...it's funny how ridiculed I was when I saw this playing out. Stuck in gold until it eventually restores my losses which are now approaching 25%
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
User avatar
Pointedstick
Executive Member
Executive Member
Posts: 8864
Joined: Tue Apr 17, 2012 9:21 pm
Contact:

Re: Why do you use the PP?

Post by Pointedstick » Wed Jul 29, 2015 10:21 am

buddtholomew wrote:
Pointedstick wrote: If there was ever a good time to underweight gold, it was 2 or 3 years ago, not right now. As icky as this drop is, I'm not selling because that would be buying high and selling low. Same reason I'm not loading up on more stocks. I'm just letting the PP do its thing. If the stock market flames out and gold surges, that will be the time to transition into a portfolio with more stocks and less gold if that's what you want.
Trapped in the PP...it's funny how ridiculed I was when I saw this playing out. Stuck in gold until it eventually restores my losses which are now approaching 25%
The thing is… this is just how the PP is. Something is always gonna be a stinker. It stinks the worst when the stinker is the thing you hate most, and when it starts to stink when you're just starting out.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
- CEO Nwabudike Morgan
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Why do you use the PP?

Post by buddtholomew » Wed Jul 29, 2015 10:30 am

Pointedstick wrote:
buddtholomew wrote:
Pointedstick wrote: If there was ever a good time to underweight gold, it was 2 or 3 years ago, not right now. As icky as this drop is, I'm not selling because that would be buying high and selling low. Same reason I'm not loading up on more stocks. I'm just letting the PP do its thing. If the stock market flames out and gold surges, that will be the time to transition into a portfolio with more stocks and less gold if that's what you want.
Trapped in the PP...it's funny how ridiculed I was when I saw this playing out. Stuck in gold until it eventually restores my losses which are now approaching 25%
The thing is… this is just how the PP is. Something is always gonna be a stinker. It stinks the worst when the stinker is the thing you hate most, and when it starts to stink when you're just starting out.
So true...
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
User avatar
Cortopassi
Executive Member
Executive Member
Posts: 3338
Joined: Mon Feb 24, 2014 2:28 pm
Location: https://www.jwst.nasa.gov/content/webbL ... sWebb.html

Re: Why do you use the PP?

Post by Cortopassi » Wed Aug 19, 2015 3:15 pm

Why do I use the PP...  1 month chart below.  Gold is not $650 yet, bonds are still kicking and stocks have dropped.  And I don't care!

Boy, it's been nice to be diversified for the past year and a half.

Image
Test of the signature line
User avatar
blackomen
Executive Member
Executive Member
Posts: 211
Joined: Wed Nov 23, 2011 5:41 pm
Location: Dallas
Contact:

Re: Why do you use the PP?

Post by blackomen » Tue Aug 25, 2015 9:54 am

IMO, the PP is the closest allocation I've seen to casting a completely neutral view on the economy. 

It sounds counter-intuitive but even going 100%, which seems like the default state for many people, is NOT a neutral view.  In that case, you're betting that your cash will outperform all assets and inflation.  Next time you panic sell a stock or index, ask yourself if you honestly believe cash will outperform what you just sold at the bottom.

Whether or not you choose to consciously invest, you're participating in the financial markets by virtue of earning money, depositing it in a bank, and using it to put a roof over your head and food on the table.

No matter how great you are at economic forecasting, there will always be times when your forecasts will be off.  And with the way the markets work, you're very likely to lose a ton of money if you made the wrong bet (i.e. stocks in 2008, gold in 2013, etc.)  It's hard to explain why in a short post but assets tend to exacerbate its losses when tons of investors end up fleeing it in a short period of time like in those two years.  And it only takes a bad year or two to effectively erase all of the gains you've worked so hard for and spent so many sleepless nights hoping for in the past.  So why not do it the easy way and take a neutral position instead of speculating?
User avatar
vnatale
Executive Member
Executive Member
Posts: 9422
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: Why do you use the PP?

Post by vnatale » Sat Jan 18, 2020 9:08 pm

mathjak107 wrote:
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 ?
4 1/2 years later.....the VERDICT on this prediction?

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
User avatar
vnatale
Executive Member
Executive Member
Posts: 9422
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Re: Why do you use the PP?

Post by vnatale » Sat Jan 18, 2020 9:14 pm

ochotona wrote:
Tue Jul 14, 2015 10:45 am
Having a PP and a VP is like being a devout Christian with a mistress on the side!!!  ;D

FYI, the fall in long term bonds and risk of further declines, and the astounding deadness of gold, has stopped me out of the HBPP totally. When gold was non-responsive to Grexit, I knew all of the goldbuggery was false and a lie. I'm in the same camp as mathjak107.  I'm now in a 60% / 20% intermediate bonds / 20% cash portfolio with 11 years left to go to retirement. I am waiting until this old bull runs out of steam and falls over, then I will redeploy the piles of cash, like I did in the 2009 slump. Also will put aside some funds to buy gold when it's 20-50% off from where it is now.

I put a reminder event to remind myself to look on 1/1/2020 to see how the past five years have been for the HBPP. I'll be that much closer to retiring, I will re-consider it as a distribution-stage allocation.

mathjak107 wrote: your best bet is to do exactly what pointed stick did if you run a variable.

no matter how you try to disguise your re-weighting things with a vp and calling it a separate portfolio your money has no memory as to  which gang it belongs too.

it is like buying a target fund then buying all kinds of other investments  un-doing what the target fund is trying to do .

if you have a vp look at it all together or you are fooling yourself but not your money .

as a true pp'er you have to live with the thought any moment can be the moment you have been waiting for , ( otherwise why hold so much gold  when conditions are so far off for it ?) and to be weighted the wrong way can undo years of waiting for this moment .

so you should look at your total portfolio as just that instead of a part time pp'er with a side bet . . .
And??????????????????

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Why do you use the PP?

Post by ochotona » Sat Jan 18, 2020 9:58 pm

And... I'm glad not to have been in the PP over the last five years. On the other hand, I have missed out on the pure US market buy-and-hold gains because I've been doing momentum investing, first GEM then Investingforaliving.us, but I'm glad I did what I did. I managed my downside risk, and captured a large part of the upside. What more could you want?

Having said that, the PP looms large in my future as a retirement allocation. I've said that many times, and I still believe it. I expect to inherit some money within the next decade, and it will go as a lump into the PP. I for sure don't want to be trading in a taxable account.

I am quite glad the discussions motivated me to put 10% of the portfolio into gold when it was priced low, it's now 13%.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Why do you use the PP?

Post by mathjak107 » Sun Jan 19, 2020 3:49 am

taxes are taxes and one way or another we get taxed unless we die with equities in a taxable account . so i never let the tax tail wag the tax dog .

i do what is best financially and never not because i may be taxed.
User avatar
Smith1776
Executive Member
Executive Member
Posts: 3501
Joined: Fri Apr 21, 2017 6:01 pm

Re: Why do you use the PP?

Post by Smith1776 » Sun Jan 19, 2020 4:05 pm

I know the discussion has veered off from the OP, but I never answered this question. This thread was started before I became a member.

Tex enunciated it best in the original BH HBPP thread: the PP is designed to allow you to read the newspaper with total equanimity and without stress. That's why I use it.

There's really no other portfolio approach that gives me the same degree of peace of mind.

And if you want to goose up the potential return profile you can still maintain 4x25 by tilting. SCV Emerging markets anyone?
I still find the James Rickards portfolio fascinating.
boglerdude
Executive Member
Executive Member
Posts: 1313
Joined: Wed Aug 10, 2016 1:40 am
Contact:

Re: Why do you use the PP?

Post by boglerdude » Sun Jan 19, 2020 10:44 pm

> maintain 4x25 by tilting

Are the assets supposed to be volatility matched? If gov issues 1,000 year bond with huge volatility, should you only hold enough of that to offset the volatility of the other assets?
User avatar
Smith1776
Executive Member
Executive Member
Posts: 3501
Joined: Fri Apr 21, 2017 6:01 pm

Re: Why do you use the PP?

Post by Smith1776 » Mon Jan 20, 2020 8:07 pm

boglerdude wrote:
Sun Jan 19, 2020 10:44 pm
> maintain 4x25 by tilting

Are the assets supposed to be volatility matched? If gov issues 1,000 year bond with huge volatility, should you only hold enough of that to offset the volatility of the other assets?
Personally, I'm less concerned about that than I used to be. The volatility of the underlying assets doesn't even stay constant. After I realized that, I just shrugged and said "good enough".

For instance, as interest rates go down the duration of the LT bonds goes up. I believe there are some funds out there with "dynamic" asset allocation strategies that account for this and have constantly shifting proportions. I'm not smart enough for that. I'll just keep 4x25.
I still find the James Rickards portfolio fascinating.
Post Reply