Why the PP is better in accumulation than you think

General Discussion on the Permanent Portfolio Strategy

Moderator: Global Moderator

User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: Why the PP is better in accumulation than you think

Post by MachineGhost » Sun Nov 01, 2015 1:06 pm

I don't see any realistic alternative but to think outside the box.

Either we go the way of the high inflation 1970's and a dollar crisis all over again where real assets shine, including the gold heavy PP.

Or we we got the way of Japan where everything sucks, including the PP, but it eeks out a meager miserable existence.  I think the latter is more likely due to the operational reality of the world we live in.  At least for a while.  Eventually we'll shift to the former.

The bigger question is, where will substantial portfolio growth come from?  I need growth and I'm having trouble seeing it coming from anywhere but startup investing, real estate and P2P lending.  And that may be less true growth than a bubble, but I can't afford to be picky.

If the PP had a downside risk more in line with its meager expected returns, it would be academic in worrying about it.  Even mathjak realizes this since he gave up after just a week.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
User avatar
mathjak107
Executive Member
Executive Member
Posts: 2369
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Why the PP is better in accumulation than you think

Post by mathjak107 » Sun Nov 01, 2015 1:44 pm

My portfolios are never static forever so wherever the longer term trends go the portfolio adapts just as it always has.
Even in poor markets there are funds that bet against the markets .

I never believed in trying to make something work forever
User avatar
Cortopassi
Executive Member
Executive Member
Posts: 1509
Joined: Mon Feb 24, 2014 2:28 pm
Location: Illinois

Re: Why the PP is better in accumulation than you think

Post by Cortopassi » Sun Nov 01, 2015 4:40 pm

mathjak107 wrote: except as as always , things not even on the radar totally alter what we think is a given when it comes to doom and gloom
I hope you are correct!
But what do I know?
User avatar
mathjak107
Executive Member
Executive Member
Posts: 2369
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Why the PP is better in accumulation than you think

Post by mathjak107 » Sun Nov 01, 2015 4:41 pm

So do all of us
User avatar
ochotona
Executive Member
Executive Member
Posts: 2929
Joined: Fri Jan 30, 2015 5:54 am

Re: Why the PP is better in accumulation than you think

Post by ochotona » Sun Nov 01, 2015 9:41 pm

Maybe we have to go global and emerging for growth, after some of this current severe decline abates.

Maybe the 21st Century PP is 50% US stocks, 50% non-US, and a big slice of those Emerging markets.20% REIT, 20% Gold, 20% US Treasuries... ooops, that's Meb Faber's Ivy-5 portfolio. The backtesting shows Faber's has almost 3% more CAGR for similar Sharpe ratio. MAXDD is large but isn't terrible at 21.64%.
Last edited by ochotona on Sun Nov 01, 2015 9:46 pm, edited 1 time in total.
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: Why the PP is better in accumulation than you think

Post by MachineGhost » Sun Nov 01, 2015 11:00 pm

ochotona wrote: Maybe the 21st Century PP is 50% US stocks, 50% non-US, and a big slice of those Emerging markets.20% REIT, 20% Gold, 20% US Treasuries... ooops, that's Meb Faber's Ivy-5 portfolio. The backtesting shows Faber's has almost 3% more CAGR for similar Sharpe ratio. MAXDD is large but isn't terrible at 21.64%.
I don't like unbalanced risk like that.  They don't consider that equal weight diversification into a similar asset class is not real diversification.  You ultimately need to decide on your top level strategic allocation and then fit everything equally into those three quadrants as the PP does.  The Volatility PP Sr is a good start, but the equity exposure is rather low.  I think the only guideline we really have is the safe withdrawal rates chart otherwise it seems like a crapshoot to decide what to use for strategic.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
User avatar
mathjak107
Executive Member
Executive Member
Posts: 2369
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Why the PP is better in accumulation than you think

Post by mathjak107 » Mon Nov 02, 2015 3:08 am

ochotona wrote: Maybe we have to go global and emerging for growth, after some of this current severe decline abates.

Maybe the 21st Century PP is 50% US stocks, 50% non-US, and a big slice of those Emerging markets.20% REIT, 20% Gold, 20% US Treasuries... ooops, that's Meb Faber's Ivy-5 portfolio. The backtesting shows Faber's has almost 3% more CAGR for similar Sharpe ratio. MAXDD is large but isn't terrible at 21.64%.
at some point europe and emerging markets will be where the action is again but still to early .  i don't subscribe to  that buy low sell high crap . i don't want to fight a trend or try to catch a  falling a  knife . i want to buy high and sell higher .

which is why my plan has always been dynamic  just nudging things slightly towards the longer term trends with the best possibility of playing out , but even if wrong the effect of being wrong is tiny .

just picking up an extra 1% over 30 years is a big difference in performance and balance .
Last edited by mathjak107 on Mon Nov 02, 2015 3:50 am, edited 1 time in total.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 2369
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Why the PP is better in accumulation than you think

Post by mathjak107 » Mon Nov 02, 2015 3:16 am

MachineGhost wrote:
ochotona wrote: Maybe the 21st Century PP is 50% US stocks, 50% non-US, and a big slice of those Emerging markets.20% REIT, 20% Gold, 20% US Treasuries... ooops, that's Meb Faber's Ivy-5 portfolio. The backtesting shows Faber's has almost 3% more CAGR for similar Sharpe ratio. MAXDD is large but isn't terrible at 21.64%.
I don't like unbalanced risk like that.  They don't consider that equal weight diversification into a similar asset class is not real diversification.  You ultimately need to decide on your top level strategic allocation and then fit everything equally into those three quadrants as the PP does.  The Volatility PP Sr is a good start, but the equity exposure is rather low.  I think the only guideline we really have is the safe withdrawal rates chart otherwise it seems like a crapshoot to decide what to use for strategic.

the chert is a guideline but the ultimate guideline will still be monitoring your own results for that proverbial 2% real return  the first 15 years  of retirement .

don't forget how the 1960's had the worst possible sequences  the first  15 years and the best market run up in history the next 15 but it was to little to late .  they already over spent down their assets the first 15 years .

with results from all asset classes pointing to below average performance this is really going to make things tough to go by what was in the past .

it figures i would retire smack in to it . but luckily our plan has a lot of discretionary spending in it so cutting withdrawals a bit may not be much fun  but it can be done .

the good news is the safe withdrawal rates are called safe because they are already so conservative  just because they are based around the worst conditions we have had  and they were already pretty nasty .

the other good thing is that  we will be not only dynamic with the portfolio  but dynamic with the budget as each year will be based not on some fixed percentage of an opening balance but on the actual balance yearly  .

the issue i have with the "4% rule " is 90% of the time you died with more than you started . not enjoying more things in life that cost money  that you could have is not a good thing either .

so even if you go the standard 4% withdrawals inflation adjusted you still need a  means of increasing withdrawals or risk  leaving to much unspent on the table .

to conservative is no good either ,.

bob clyatt's dynamic spending method automatically gives you more when markets are up .

it can be hard as heck trying to come up with a spending plan using the 4% rule as any increases in a good market can't easily be spent since you are going to need them as a cushion in a down market since the income stream has to remain constant .

the dynamic method does not have a constant income stream . it can vary on the upside unlimited and is limited to just 5% cuts  each year on the down side .

but spending methods in retirement are a whole other topic  and could be their own discussion and this topic is about the pp in the accumulation stage not the decumulation stage ..
Last edited by mathjak107 on Mon Nov 02, 2015 3:54 am, edited 1 time in total.
barrett
Executive Member
Executive Member
Posts: 1481
Joined: Sat Jan 04, 2014 2:54 pm

Re: Why the PP is better in accumulation than you think

Post by barrett » Mon Nov 02, 2015 5:58 am

MachineGhost wrote: I don't see any realistic alternative but to think outside the box.

Either we go the way of the high inflation 1970's and a dollar crisis all over again where real assets shine, including the gold heavy PP.

Or we we go the way of Japan where everything sucks, including the PP, but it eeks out a meager miserable existence.  I think the latter is more likely due to the operational reality of the world we live in.  At least for a while.  Eventually we'll shift to the former.
And what might cause that shift? Japan has certainly been trying to get the juices flowing to no avail. And if there is a reasonable chance of high inflation happening in the next few years, then it certainly make sense to hedge against it, right?
MachineGhost wrote: The bigger question is, where will substantial portfolio growth come from?  I need growth and I'm having trouble seeing it coming from anywhere but startup investing, real estate and P2P lending.  And that may be less true growth than a bubble, but I can't afford to be picky.

If the PP had a downside risk more in line with its meager expected returns, it would be academic in worrying about it...
Yeah, that seems to be the crux of the angst in this thread at the moment. We are hedging for everything but don't see the potential for assets to really shine... only to not stink too badly if conditions are right.

In an effort to bring this topic back to where Tyler started, yes, I believe that the PP has been a fine growth portfolio up until now. What we are questioning is what will power it going forward?
User avatar
mathjak107
Executive Member
Executive Member
Posts: 2369
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Why the PP is better in accumulation than you think

Post by mathjak107 » Mon Nov 02, 2015 7:33 am

japan blew it day one and there central bank continued to do the wrong thing 2 or 3x . plus japan had very little inflation . they needed very little in gains to sustain life , as well as they  did not just have to invest in the Japanese markets .

we are not a japan by any long shot .
Last edited by mathjak107 on Mon Nov 02, 2015 7:45 am, edited 1 time in total.
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: Why the PP is better in accumulation than you think

Post by MachineGhost » Mon Nov 02, 2015 11:18 am

barrett wrote: And what might cause that shift? Japan has certainly been trying to get the juices flowing to no avail. And if there is a reasonable chance of high inflation happening in the next few years, then it certainly make sense to hedge against it, right?
The former seems like it will occur when all the foreign sovereign USD-denominated debt at near zero interest rates starts blowing up once the Fed raises.  It will be like dominoes collapsing around the world and then eventually it will hit the last man standing, the US.  So depending on how slow/clueless/idiotic the ruling/bureaucratic class is at the Fed, NGOs, etc. the SHTF may last a couple of years or it may be nipped in the bud rather quickly as the USD is replaced as the world's reserve currency.  Foreign nations will be demanding its replacement because their stupidity would have been no different than the pegging of their currencies to gold in the 1930's.  Pegs ALWAYS fail, everywhere and anywhere without exception.  If we're very lucky, the US come out of this standing alive.  A lot could depend on whether or not we shift to the right politically because you know progressive liberals like Sanders or Clinton would throw us under the bus to sing Kumbaya! with the incestuous NGOs.  Those are the same NGO's "advising" the current EU clusterfuck.  Not holding my breath here.

OTOH, I think Japanization will occur if voters are again stupid and elect more Nanny-State NeoConners, like Sanders, Clinton, Rubio, etc.  Pretty much all of the top tier lot except for Trump, Fiorina, Kasich and Christie.  We need a wholesale shakeup of overregulation, not more of the same Bullshit That Has Gone Before.  Stagnation and loss of confidence is what causes persistent deflation.  Japan has a lack of immigration, women are second class citizens, a ridiculously huge and aged population and they don't date, bother to have sex or get married.  It's a whole litany of social issues that we really don't have yet, so economic overregulation is the immediate #1 risk, i.e. turning more and more into that socialist basketcase called France.

Its also quite possible we can have both scenarios occuring one after another or even at the same time!

I think we have a few years left while the Middle Eats does their stupid religious war.  There's not enough retail participation in the equity market for another bubble top yet, but I think legal startup investing will light a fire under their ass.

Hey, that's just my opinion, but I could be wrong!
Last edited by MachineGhost on Mon Nov 02, 2015 11:28 am, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
User avatar
Kriegsspiel
Executive Member
Executive Member
Posts: 1891
Joined: Sun Sep 16, 2012 5:28 pm

Re: Why the PP is better in accumulation than you think

Post by Kriegsspiel » Tue Nov 03, 2015 6:06 am

MachineGhost wrote:
barrett wrote: And what might cause that shift? Japan has certainly been trying to get the juices flowing to no avail. And if there is a reasonable chance of high inflation happening in the next few years, then it certainly make sense to hedge against it, right?
The former seems like it will occur when all the foreign sovereign USD-denominated debt at near zero interest rates starts blowing up once the Fed raises.  It will be like dominoes collapsing around the world and then eventually it will hit the last man standing, the US.  So depending on how slow/clueless/idiotic the ruling/bureaucratic class is at the Fed, NGOs, etc. the SHTF may last a couple of years or it may be nipped in the bud rather quickly as the USD is replaced as the world's reserve currency.  Foreign nations will be demanding its replacement because their stupidity would have been no different than the pegging of their currencies to gold in the 1930's.  Pegs ALWAYS fail, everywhere and anywhere without exception.  If we're very lucky, the US come out of this standing alive.  A lot could depend on whether or not we shift to the right politically because you know progressive liberals like Sanders or Clinton would throw us under the bus to sing Kumbaya! with the incestuous NGOs.  Those are the same NGO's "advising" the current EU clusterfuck.  Not holding my breath here.

OTOH, I think Japanization will occur if voters are again stupid and elect more Nanny-State NeoConners, like Sanders, Clinton, Rubio, etc.  Pretty much all of the top tier lot except for Trump, Fiorina, Kasich and Christie.  We need a wholesale shakeup of overregulation, not more of the same Bullshit That Has Gone Before.  Stagnation and loss of confidence is what causes persistent deflation.  Japan has a lack of immigration, women are second class citizens, a ridiculously huge and aged population and they don't date, bother to have sex or get married.  It's a whole litany of social issues that we really don't have yet, so economic overregulation is the immediate #1 risk, i.e. turning more and more into that socialist basketcase called France.

Its also quite possible we can have both scenarios occuring one after another or even at the same time!

I think we have a few years left while the Middle Eats does their stupid religious war.  There's not enough retail participation in the equity market for another bubble top yet, but I think legal startup investing will light a fire under their ass.

Hey, that's just my opinion, but I could be wrong!
You may be right about all this. Except for the sex part. The Japanese DO have sex, it's just with tentacle monsters.
There are several thousand nearly complete viral genomes integrated into the human genome, most now inert or missing a crucial gene. These account for 1.3% of the entire genome. That may not sound like much, but 'proper' genes account for only 3%. If you think being descended from apes is bad for your self-esteem, then get used to the idea that you are also descended from viruses.
Ridley, Genome
Post Reply