Free eBook: Charles Gave’s Strategy for Optimizing the Permanent Portfolio

[Mayday_I]

Hi everyone,

Over the holidays, I came across a short book by Charles Gave, a french economist, that is available online for free: The General Theory of Portfolio Construction (https://web.gavekal.com/books/the-gener ... struction/). I thought it might be of interest to some of you here.

The book focuses on portfolio construction and presents what Gave considers an improved version of the classic Permanent Portfolio. His approach differs from Harry Browne's original concept in two key ways:

-) He adds 20% energy equities (XLE) as a hedge against oil price shocks.

-) Gave only holds Gold or LTTs at a time, never both. The rational behind that is, that LTTs and Gold are meant to protect the portfolio during diametrically opposed economic phases. The choice is determined by a dual momentum strategy.

In my opinion, a 20% allocation to XLE seems excessive. However, the dual momentum idea for Gold and LTTs is very intriguing. This strategy would have protected investors from both the long gold bear market of the 90s and the massive drawdown in LTTs in 2022/23. That said, I'm not a big fan of holding the remaining three asset classes at a fixed 33% each.

Regardless, Gave’s insights are compelling and the book is definitely worth a read.

Enjoy,
Mayday

[Jack Jones]

This looks interesting. I will take a closer look. Thanks for sharing.

[yankees60]

This looks interesting. I will take a closer look. Thanks for sharing.

Same here. Downloaded my copy. Thanks!

[dualstow]

Interesting!

[dopplerdave]

Over the years there has been a lot of discussion in this forum regarding how to improve on the Permanent Portfolio. This book offers two ways for doing so. The swap between gold and long term treasuries makes sense to me, but I am not convinced that the addition of energy stocks does. For one thing, it appears that nuclear power is about to make a major comeback, and with AI there will be a new dependency between energy and tech stocks in the S&P 500.

There is a lot of stuff in the book I do not understand, but it is worthy of consideration, especially the gold/LTT momentum swap. The Gavekal 3-Asset portfolio looks almost like a no brainer to pick up over a full percentage in average yield with negligible effect on volatility or drawdown. The following data is taken from the book so it does not include 2024 and 2025.