Are you buying, holding, or selling the PP?

General Discussion on the Permanent Portfolio Strategy

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Which of these best describes your current asset allocation strategy?

I am continuing to maintain my PP at the 25x4 allocation, within my chosen rebalancing bands
48
50%
I am allowing my PP to drift, with the goal of getting to a new allocation
7
7%
I've changed my investment allocation in order to follow a "modified PP" strategy (e.g. golden butterfly)
17
18%
I've changed my investment allocation to a conventional allocation (e.g. BH 60/40)
5
5%
I want to jump into the PP but I'm hesitant because of recent poor performance compared to conventional portfolios
1
1%
I maintain more than one asset allocation for my core investments, so the PP is only part of my overall strategy.
16
17%
Just lurking and completely confused by the all the differing opinions
2
2%
 
Total votes: 96
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Re: Are you buying, holding, or selling the PP?

Post by dualstow » Mon Nov 23, 2015 2:26 pm

dragoncar wrote:
buddtholomew wrote:
sophie wrote: ~
Meanwhile, 12 of 40 posts (30%) are negative - and that doesn't count the responses to them.
~  Particularly when you're just repeating stuff you've said a gzillion times already.  We get it.  Nobody is forcing you to buy into the PP, but it looks like you're actively trying to convince everyone else here to avoid it.  Why is that?
I wish there were more negative opinions of the PP when I was researching portfolios. All I remember was a book and posts about how awesome the portfolio was. It's called a reality check Sophie.
Me too, that said I noticed the same thing as Sophie and I'm kinda surprised how few people voted that they switched to 60/40.  I think without the negative posts and helpful responses here, I might have jumped ship long ago.  So thanks to all posters
I like Budd and everything, but how is grieving over a temporary situation a reality check? And why would it be something to base your own investments on? When stuff goes down, people complain. When stuff goes up, people cheer. Stuff was going up, and that's why many of us heard how awesome the pp strategy was.

More to the point, people tend to hear about a portfolio strategy precisely when it's doing well. There's no coincidence there.

There are just two main outcomes here: either the pp will languish for ten years and the complainers will be vindicated and validated, or it will come back and those who stayed the course will.

ADDED: What would really be cool is if someone new realized that now might be a good time to jump into the pp and did so, just as it was becoming unpopular. That would take courage, but it might really pay off.
Last edited by dualstow on Mon Nov 23, 2015 2:29 pm, edited 1 time in total.
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Re: Are you buying, holding, or selling the PP?

Post by Ugly_Bird » Mon Nov 23, 2015 2:33 pm

sophie wrote: We get it.
Yep! I'm here since the beginning of the year and after quickly sorting out who is who I just stopped reading responses from certain guys... :P

Andrei.
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Re: Are you buying, holding, or selling the PP?

Post by dutchtraffic » Mon Nov 23, 2015 2:46 pm

koekebakker wrote: @Dutchtraffic. Wether bonds and stocks are overvalued is pure speculation. And if they are that would mean that most investment strategies are in the same boat and that the PP might actually be one of the better options right now.
That's obviously not speculation, valuations are just silly high, a 30 year bond yielding close to 1% is not a good deal.
For stocks, the shiller PE also says enough, they need a -50% drop to get to more sane levels.

We cannot really argue about these facts, however, anything can happen, it is already at insane levels but that doesn't mean it can't go twice as high.
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Re: Are you buying, holding, or selling the PP?

Post by Ugly_Bird » Mon Nov 23, 2015 3:10 pm

sophie wrote: We want to hear your opinions!
Sophie,

Thank you for doing this!


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Re: Are you buying, holding, or selling the PP?

Post by dragoncar » Tue Nov 24, 2015 1:41 pm

dualstow wrote:
dragoncar wrote:
buddtholomew wrote: I wish there were more negative opinions of the PP when I was researching portfolios. All I remember was a book and posts about how awesome the portfolio was. It's called a reality check Sophie.
Me too, that said I noticed the same thing as Sophie and I'm kinda surprised how few people voted that they switched to 60/40.  I think without the negative posts and helpful responses here, I might have jumped ship long ago.  So thanks to all posters
I like Budd and everything, but how is grieving over a temporary situation a reality check? And why would it be something to base your own investments on? When stuff goes down, people complain. When stuff goes up, people cheer. Stuff was going up, and that's why many of us heard how awesome the pp strategy was.

More to the point, people tend to hear about a portfolio strategy precisely when it's doing well. There's no coincidence there.

There are just two main outcomes here: either the pp will languish for ten years and the complainers will be vindicated and validated, or it will come back and those who stayed the course will.

ADDED: What would really be cool is if someone new realized that now might be a good time to jump into the pp and did so, just as it was becoming unpopular. That would take courage, but it might really pay off.
It's a reality check because honestly without budd (and others) everyone would probably still be saying stuff like "the pp is just chugging along doing its thing rock steady no problemo," talking about how great the portfolio is and otherwise circle jerking. 

Without budd I would look at the posts here and go "am I crazy?  Am I the only one who sees this portfolio as anything other than a super stable aircraft carrier with four different rocket launchers-- one for each economic condition?" 

I'm probably not explaining it right, but it's kinda like if I converted to Some religion and then joined a zealot forum.  Everyone is just posting about how good God is, and I'm doubting my faith, then budd comes along and goes "if God is so good why do bad things happen to good people?"  That's when you really see what lies behind the bs hyperbole
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Re: Are you buying, holding, or selling the PP?

Post by christina » Tue Nov 24, 2015 2:04 pm

I've held a vanilla PP for 4 years. (Well, I have the Canadian version, which splits the stock portion into 66% Canadian stocks and 33% American.)

I've had one down year (2013) and that was a challenge to get through, admittedly. This year is going to be a flat year, it looks like.

I really HATE losing money, and the steady, wealth-preserving nature of this portfolio has really won me over. My friends have 100% stocks, or a lot of gold, and they are always experiencing massive swings. I don't want to deal with that.

This is what Craig says,
"A widely diversified Permanent Portfolio can really protect an investor and allow them to stay in the market capturing returns without panicking"

This is so true for me. Despite big swings in the stock market and gold and bonds, I remain invested.

I'm young, and am in wealth-accumulation mode, and at this point, my contributions outweigh any gains from the portfolio itself. I just want to keep my hard-earned money--that's really the key for me, and it took me about 10 years to figure out that I'm not built to handle large down-swings. That is just who I am. I'm cautious I guess.

The Canadian PP has fared MUCH worse than its American counterpart over the past 4 years, and yet I'm pretty zen about it. I feel like you Americans are a bunch of babies (joke joke) :-)
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Re: Are you buying, holding, or selling the PP?

Post by Pointedstick » Tue Nov 24, 2015 2:10 pm

The key thing that's so hard to wrap your mind around is that every investment portfolio will do badly at various times. Murphy's law dictates that this will probably happen to you as soon as you get in. It's normal. Obviously the PP's performance has been a tad disappointing recently, but there is nothing at all out of the ordinary about it. The PP had some similarly disappointing stretches during the 80s and 90s. The real question is whether the portfolio still works. Is this low period nothing but a perfectly ordinary bump in the road, or it is the new normal? I think this is a perfectly legitimate question but it has nothing to do with recent underperformance; it would have to do with interest rates, geopolitics, etc. The combination of low interest rates, a strong dollar, and a booming, potentially overvalued stock market seems worrisome, that's for sure. But if this is true, what's the alternative? 100% cash? Abandon the USA and go with a mostly foreign portfolio? It's a challenging climate for any portfolio. Anyone who claims they have a bulletproof answer to this vexing question should be treated with the utmost skepticism.
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Re: Are you buying, holding, or selling the PP?

Post by barrett » Tue Nov 24, 2015 3:14 pm

Pointedstick wrote: It's a challenging climate for any portfolio. Anyone who claims they have a bulletproof answer to this vexing question should be treated with the utmost skepticism.
Couldn't agree with this more. The PP may be dismal for a while going forward but there are no really great alternatives that I can see.

I've posted this before on this site but here is Ray Dalio's take (from 48:00 to 52:00):

https://www.youtube.com/watch?v=SFaRazMpxcM

If you have four minutes to spare, that's worth watching. That interview was four years ago and maybe he has changed his recommendations a bit based on four additional years of ZIRP. I don't know. He talks about how "in every generation there will be a ruinous asset class and you don't know which one its going to be."

With the PP a good question to ask yourself is whether you can imagine inflation, deflation, prosperity or a recession at any given time. For me the answer to that question is yes at the moment. If you have a different answer and are willing to concentrate your bets, then the PP is probably not a good choice.
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Re: Are you buying, holding, or selling the PP?

Post by sophie » Tue Nov 24, 2015 4:11 pm

Pointedstick wrote: The real question is whether the portfolio still works. Is this low period nothing but a perfectly ordinary bump in the road, or it is the new normal? I think this is a perfectly legitimate question but it has nothing to do with recent underperformance; it would have to do with interest rates, geopolitics, etc. The combination of low interest rates, a strong dollar, and a booming, potentially overvalued stock market seems worrisome, that's for sure. But if this is true, what's the alternative?
+1.

This is absolutely worth talking about.  As in, might there be a condition where the PP's safety is compromised because one of its fundamental assumptions, e.g. gold as the international default currency of choice, is no longer valid?  There are indeed plenty of posts on this topic and we definitely could use some more discussion about this.

What I am asking to be toned down are the posts about how people who own the PP are making a dumb decision because it's been doing poorly recently compared to standard stock and bond portfolios, or because market timing would get them much better results.  Try this little exercise:  Imagine that it's March of 2009, and you're a 100% stock investor.  You only know the history of the stock market up until the current moment.  The market has just fallen like a rock, and your investment portfolio's value has been cut in half.  The news is full of dire predictions that the world is entering another Great Depression, and everyone you know is scrambling to get out of the stock market before they lose everything.  You look back at your stock investments over the past 10 years and realize you've not made a dime in all that time.

What do you do?  If you're a disciplined investor, you hold your nose and buy stocks.  If you go by current/recent/predicted market experience, you'd do exactly what you're advocating now, and sell.  How do those decisions work out later?  And could you in all honesty say that you would buy more stocks in this situation, or would you be chastising stock investors for messing with such an obviously flawed investment?

If you don't like the PP, then by all means, go find another allocation you're more comfortable with.  I would certainly consider jumping to another allocation if I were certain it would meet my investing goals better than the PP does.  Which conventional stock/bond portfolios do not.  See above.  In the meantime, I'm trying to keep on my "disciplined investor" hat, and I'm looking to this board to help me do that.  It would just be nice to hear more from the others here (i.e. majority) with the same mindset.
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Re: Are you buying, holding, or selling the PP?

Post by I Shrugged » Tue Nov 24, 2015 6:11 pm

I think the fear that those of us (not in the PP) experienced in 2008-09 is fading for many of us.  Now stocks have had a good run and we have non-buyer's remorse.  Greed, the side of the coin from fear.
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Re: Are you buying, holding, or selling the PP?

Post by buddtholomew » Tue Nov 24, 2015 6:54 pm

I compare the PP to a BH 50/50 portfolio.
The PP has under-performed this benchmark over my personal 2011-2015 timeframe.
The difference is attributed to gold - the asset that I dislike the most. Also, the asset that is considered the most "controversial". Everyday that gold is down reinforces the poor decision I made to invest in precious metals. I want vindication!

70/30 in retirement accounts, 25/20/20/40 stocks/bond/gold/cash in taxable (PP + cash) for a blended 52.5/40/7.5 stock/bonds/gold allocation. This seems to work better on all levels for me. I still maintain 15/35 bands but also manage bond duration to 5.6 years.
Last edited by buddtholomew on Tue Nov 24, 2015 6:55 pm, edited 1 time in total.
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Re: Are you buying, holding, or selling the PP?

Post by mathjak107 » Tue Nov 24, 2015 7:05 pm

A total bond fund is also about a 5.5 year duration. They really are not a total bond fund . They are to heavy in treasury's and gov't bonds. They also miss to many segmants of the bond market . But they do serve as a core when other types of bond funds are added .

Being so heavy in the gov't stuff has the yields lower then a good bond mix has to be.
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Re: Are you buying, holding, or selling the PP?

Post by buddtholomew » Tue Nov 24, 2015 8:21 pm

I prefer to take my risk on the equity side and personally stick to total bond market and stable value in retirement accounts, long-term treasuries and CD's in taxable for the PP portion.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Re: Are you buying, holding, or selling the PP?

Post by lordmetroid » Tue Nov 24, 2015 8:24 pm

Sold everything bought the fund that has performed best the last 12 month.
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Re: Are you buying, holding, or selling the PP?

Post by koekebakker » Tue Nov 24, 2015 11:29 pm

buddtholomew wrote: 70/30 in retirement accounts, 25/20/20/40 stocks/bond/gold/cash in taxable (PP + cash) for a blended 52.5/40/7.5 stock/bonds/gold allocation. This seems to work better on all levels for me. I still maintain 15/35 bands but also manage bond duration to 5.6 years.
This is what I've been doing for the last 7 years or so. It worked pretty well for me. I tried to create one mixed portfolio of a BH-style retirement portfolio and a PP in taxable but I recently gave up on that idea. I now treat them as seperate buckets, so in taxable I can now have a vanilla PP.

The thing I like most about holding a PP in taxable is the low correlation with my own career. So far the correlation between the stock market and my career has been close to one.
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Re: Are you buying, holding, or selling the PP?

Post by mathjak107 » Wed Nov 25, 2015 4:14 am

buddtholomew wrote: I prefer to take my risk on the equity side and personally stick to total bond market and stable value in retirement accounts, long-term treasuries and CD's in taxable for the PP portion.
while called a total bond fund agg ,bnd and vbtlx are actually missing a lot of different areas in bonds . it has quite a few gaps , under weightings cutting yield and missing segments of the bond market .

i do like a  total bond fund as a core in a the bond portion of a portfolio  but far to much yield is given up by using it by itself . combined with other bond funds it can be a good core holding .

1. it has a significant Allocation to treasuries and government securities:

it allocates more than a quarter of its holdings to U.S. Treasuries, and nearly 50% to securities issued by FNMA, GNMA, FHLMC, and other U.S. government-sponsored agencies. If investors are particularly bullish on Treasuries, it offers a significant amount of exposure. But many investors would be better served to hold a higher percentage of their fixed income portfolio in corporate bonds and other fixed income instruments with higher yields.

2. No Exposure to High Yield Bonds: it offers exposure to the total investment grade U.S. bond market, meaning that they invest primarily in debt issues that are above a certain rating (BBB- by Standard & Poor’s and Baa3 by Moody’s). Bonds rated below these cutoffs carry a higher risk of default, and as such generally offer a higher rate of return. If upgraded to investment grade status, high yield bonds can see a narrowing of their credit spread and a jump in price.

3. It has a shortage of Inflation-Protected Securities: Total bond market ETFs have limited holdings in inflation-protected securities, indicating that the real returns on these securities may be negatively impacted if we experience a significant uptick in inflation .

4. it lacks foreign fixed income bonds and muni's : . Municipal bonds, emerging market bonds, and convertible bonds are but a few of the segments missing.

if one really wanted true total bond  diversification  it would actually take a portfolio  of bond funds to do it right .

something like  this would fill in all the holes :

25% iShares Barclays Aggregate Bond ETF (AGG) (Tracks a broad index of high-quality U.S. bonds)

25% iShares iboxx $ Investment Grade Corporate (LQD) (Tracks an index of the most liquid, long-term corporate bonds)

10% Fidelity Floating Rate High Income (FFRHX) (Invests in floating rate bank loans that automatically adjusts to rising short-term interest rates. It offers additional inflation hedge)

10% iShares MBS Fixed Income (MBB) (Tracks a broad index mortgage-backed securities)

7.5% SPDR DB International Govt Inflation-Protected Bond (WIP) (Invests in an index of non-U.S., inflation-linked bonds)

7.5% PowerShares Emerging Markets Sovereign Debt (PCY) (Tracks an index of emerging markets government debt)

7.5% iShares Barclays TIPS Bond (TIP) (Tracks an index of inflation-protected, U.S. Treasury securities)

7.5% iShares Iboxx $ High Yield Corporate Bond (HYG) (Tracks an index of high yield bonds)
Last edited by mathjak107 on Wed Nov 25, 2015 4:27 am, edited 1 time in total.
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Re: Are you buying, holding, or selling the PP?

Post by ochotona » Wed Nov 25, 2015 9:24 am

What I find interesting is that adding all of these fancy types of bonds doesn't seem to help a portfolio, and at times they may hurt.
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Re: Are you buying, holding, or selling the PP?

Post by mathjak107 » Wed Nov 25, 2015 9:33 am

at times they may , but that is why i  always stay dynamic .  but if you were going to hold a total bond fund you can get a higher yield with much more diversification  and actually lessen the chances of being hurt  as  not all of them move together  and with that diversification actually lessen risk ..

you have floating rate bonds , inflation adjusted bonds  and foreign  for better inflation protection .  you have corporate which can see a jump in credit worthiness and do better then treasuries as well as some high yield bolstering things but not enough to do much damage since they follow stocks .

if inflation showed signs i would simply alter the weightings but keep the holdings . if inflation picks up  with just a total bond fund  you have nothing else going for you on the bond side as there is little diversification . .

that mix is the brain child of larry swedroe
Last edited by mathjak107 on Wed Nov 25, 2015 9:41 am, edited 1 time in total.
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Re: Are you buying, holding, or selling the PP?

Post by MachineGhost » Wed Nov 25, 2015 10:05 pm

Swedroe is a curve fit fetishist into diworsification.

All bond types correlate together in a downturn except Treasuries.  That is a fact.

To the extent you that have non-Treasuries in a bond allocation, add that to the stocks for your net total Prosperity exposure.  Your real risk will be a lot higher than the security theatre.  Denial is not a river in Egypt.
Last edited by MachineGhost on Wed Nov 25, 2015 10:09 pm, edited 1 time in total.
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Re: Are you buying, holding, or selling the PP?

Post by blackomen » Sun Dec 06, 2015 9:52 pm

I'm considering switching my tax-exempt and tax-deferred accounts to a variation of Ray Dalio's All-Weather strategy (at least the versions he released to the public.)  Risk parity might be a bit tax inefficient so I'm still sticking with the PP in my taxable accounts.
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