Oh how it hurts to see no gains

[annieB]

"Ain't they cheap".

[AdamA]

Maybe it is time to revisit this
This image shows what I think about Investing Psychology and Market timing

That's a great diagram.

[Thomas Hoog]

Oh man, what an amazing buying opportunity for gold and probably bonds too. I sure am glad 25% of my portfolio is in stable, easily-sellable cash. Gold is about to hit a rebalance band and I'm real happy to be buying shortly! Should be nice to be able to pick up bonds at more reasonable yields, too.

I think Pointedstick is a number 6

[Storm]

I hate to say this, but the groupthink is strong on this forum.  I started a brand new 4xPP for my wife 18 months ago, and today it is down by 5.82%.  That's a real loss of more like 10% counting inflation.  I'm not about to touch it for fear of doing something stupid and selling at a loss, however, if we're still net negative for the PP after 24 months it's highly likely that the PP is not a winning strategy any more.

Luckily, I gutted my PP recently when I sold all my gold to put a down payment on a house.  I need to rebalance, though, and I still have too many long term treasuries and I'm a bit afraid to do anything with them.  I also have a lot of cash, which is nice right now.

It's very possible that when I rebalance it will be something more like 60/40 stocks/10yr (your traditional "age in bonds portfolio").  Gold typically does very poorly over long periods of time when the market is doing well (like in an economic recovery), so you could keep rebalancing into a losing position for a decade or more.

It's all very depressing to think about - If the PP doesn't work, what does?

[Alanw]

So the PP has been taking a beating lately.  If you think things are bad, you may want to read the "Tony Soprano Actor dies at 51" thread.  Things could be much worse.

[AdamA]

I hate to say this, but the groupthink is strong on this forum.  I started a brand new 4xPP for my wife 18 months ago, and today it is down by 5.82%. 

Using ETF replay, GLD, SPY, SHV, and TLT, from Jan 1, 2013 until today (18 months), I get the PP being up 3.2%.  How did you get -5.82%?

[dragoncar]

I hate to say this, but the groupthink is strong on this forum.  I started a brand new 4xPP for my wife 18 months ago, and today it is down by 5.82%. 

Using ETF replay, GLD, SPY, SHV, and TLT, from Jan 1, 2013 until today (18 months), I get the PP being up 3.2%.  How did you get -5.82%?

I'm guessing it was started feb 24, 2011 and doesn't include dividends

[craigr]

So the PP has been taking a beating lately.  If you think things are bad, you may want to read the "Tony Soprano Actor dies at 51" thread.  Things could be much worse.

Yeah dying of cancer at age 47 is much worse. It really makes you appreciate what you have.

It's interesting reading these threads. I was on a stock forum and they are in panic mode despite being up for the year mostly. Bonds are also getting whipped and so is gold. It happens.

I remember starting my Permanent Portfolio and about a year or so later it sank -15%. Then within a month it floated back up to about 0% for the year. This was when my older stock heavy portfolio would have taken an easy -30% pounding. Then there was the tech bubble bursting which I took serious losses as well. That was even with stock index funds being used in the mix.

So when I look at the Permanent Portfolio having a losing year I just don't get agitated about it because I know it could be a lot worse. Investing is risky and it takes a lot of discipline to ride out the volatility that inevitably happens.

[Xan]

The PP is the reason I'm not 100% gold.  Whew!!

[MediumTex]

I hate to say this, but the groupthink is strong on this forum. 

Do you mean "groupthink" in the sense that everyone is freaking out in tandem, or do you mean "groupthink" in the sense that people formed unrealistic expectations concerning the short term performance that the PP was likely to deliver continuously?

For myself, I don't think I am part of any PP groupthink process because I really don't think about the PP that much at all when it comes to short term performance.  I was burned too many times in my pre-PP days by focusing on short term performance to get pulled back into that again.

[craigr]

For myself, I don't think I am part of any PP groupthink process because I really don't think about the PP that much at all when it comes to short term performance.  I was burned too many times in my pre-PP days by focusing on short term performance to get pulled back into that again.

Yep. Investing is volatile, especially short-term. I can take the short-term beatings because my experience is doing nothing is often the best long-term strategy.

http://www.forbes.com/sites/chrisbarth/ ... and-there/

“My rule — and it’s good only about 99% of the time, so I have to be careful here — when these crises come along, the best rule you can possible follow is not “Don’t stand there, do something,”? but “Don’t do something, stand there!”? said Bogle.

[Pointedstick]

[…] I really don't think about the PP that much at all when it comes to short term performance.  I was burned too many times in my pre-PP days by focusing on short term performance to get pulled back into that again.

That's a great point. It seems like the problem is that a lot of people took "smooth returns" to mean "smooth short-term returns". The only way to have smooth short-term returns is with more cash.

[dragoncar]

Peak to trough loss right now looks like 6.23% ... So only 1/3 of the way to a historic max dd, although economic conditions wouldn't seem to warrant that.

The groupthink is strong because of the "just don't look at it" responses.  Also I've noticed an inability to articulate where returns come from beyond "there's at least one asset that is going to perform well in any economic condition" as if that explains everything (I've got my own theories).

[craigr]

The groupthink is strong because of the "just don't look at it" responses.  Also I've noticed an inability to articulate where returns come from beyond "there's at least one asset that is going to perform well in any economic condition" as if that explains everything (I've got my own theories).

Well this is the Permanent Portfolio forum, so obviously some bias comes into play. But really any passively managed investing forum is going to say the same thing. You don't go onto Diehards and start talking about market timing and bailing on your investment strategy for instance without running into resistance.

And the "just don't look at it" is not unique advice here. It's not only something luminaries like Jack Bogle have said about investing, but shown through various behavioral finance experiments to be the likely best way to deal with loss aversion and other psychological hangups. I'd say the same thing if someone were in a traditional 60/40 portfolio.

Returns are easy to articulate. They come from:

1) Dividend payments from companies.
2) Interest payments from cash/bonds.
3) Capital appreciation of the assets which can be used for rebalancing.

And there have been times when all the assets have sunk together, notably the early 1980s as interest rates were being heavily manipulated by Fed policies. Of course we get something similar going on today for different reasons, but it's still there.

Really all I can do is just shrug it off and carry on. I've been through all this before in various ways for almost 20 years now of investing. This isn't new. It's not even kind of recent. Volatility in the markets and risk of loss is always possible when investing.

And really the losses aren't even anywhere near where I think there is a problem. I've known people that took -40-50% losses in their (non-Permanent) portfolios and had to come out of retirement as a result. While that could happen with the Permanent Portfolio, I can't imagine how bad the markets would have to be for other approaches. But I suspect things would be very ugly.

The Permanent Portfolio does not guarantee against losses. Nobody can say that about any investment. All it does is distribute your assets in a way where a large loss is less likely compared to a lot of other approaches I've seen. 

[doodle]

Im surprisingly not concerned about the losses that we are seeing here. Non-action is not an option when it comes to investment.

If you are down on the PP, then you must have another plan that you think will work better. That might work for a few months or a year and then it will fail as well...at which time you will be searching once again.

I have two goals for my portfolio:

1. Protection against crazy black swan events (good diversification)

2. Cash flow income from dividends and interest.

Principal movements on a daily basis are not that important other than big volatility would give opportunities to rebalance.

I think its important to just chill, live cheap, and not worry so much about money. 

[JMoyle]

Gold down 20% and my Permanent Portfolio is only down less than 4% since last fall!

Looks like the Permanent Portfolio is working like Craig, Medium Tex, and Harry said it should!

Since the market disaster in 2008, I only concern myself with the downside of investing while letting the upside take care of itself!

My only concern for the Permanent Portfolio has been that the portfolio would not hit a rebalancing point where I could sell high and buy low - harvest some profits to add more shares!

[Robert]

I really don't understand Storm's wondering whether the PP 'works' based on one year of results. People seem to have very naive and unrealistic expectations about portfolio construction and their own tolerance for risk. It's becoming clear to me that people really don't understand investing and should be honest with themselves and be in T Bills, CD's and Savings Bonds. Good grief, whoever said there would never be paper losses?

[goodasgold]

I think its important to just chill, live cheap, and not worry so much about money.

Good advice, Doodle. Let's not forget that the Permanent Portfolio does sometimes have negative years, although the losses are usually less than conventional portfolios.

Whatever crazy, pretzel-like turns the markets may take, let's be thankful that we PPers are well-prepared, in the long term, to benefit. I feel sorry for folks who are thinking of selling out now, when we just might be at the bottom. Who knows? And, more importantly, who can know? The answer to both questions is: nobody.

Let's cowboy up and stay the course, in the spirit of the legendary Gen. Chesty Puller, who, when informed during the Korean War that his Marines were surrounded by 100,000 enemy soldiers, replied: "Good! Now we can shoot in all directions."

[Robert]

Im surprisingly not concerned about the losses that we are seeing here. Non-action is not an option when it comes to investment.

If you are down on the PP, then you must have another plan that you think will work better. That might work for a few months or a year and then it will fail as well...at which time you will be searching once again.

I have two goals for my portfolio:

1. Protection against crazy black swan events (good diversification)

2. Cash flow income from dividends and interest.

Principal movements on a daily basis are not that important other than big volatility would give opportunities to rebalance.

I think its important to just chill, live cheap, and not worry so much about money.

+1

[Gosso]

One thing to keep in mind is that the USD has increased by 1.7% over the past two days, while the US PP has fallen 2.9%.  So from a global purchasing power perspective the US PP is only down roughly 1.6% over the past two days; still sucks, but not as bad.  This is why I recommend that non-US investors hold some USD (easiest method is via stocks) since it helps during times like these.

[doodle]

For those worried about missing out on the beginning of a bull market in stocks, please make the case for where the consumer spending that drives corporate earnings is going to come from?

I'm not sure, but the housing market is already starting to heat up again--at least in Southern California. Prices have climbed 25% compared to a year ago. Where is that spending coming from?

In other words, increases in consumer income may be a sufficient condition for causing certain asset prices to rise, but evidently it is not a necessary one. Asset prices can also rise when banks start lending more freely, and/or when investors sitting on big piles of cash finally decide to start using some of that cash to buy stuff.

This housing thing was brought up a few days ago.....here is some information: http://www.cnbc.com/id/100831431

For six straight months, home prices have been leaping in double digits from a year ago. In May, the median existing home sale price was 15.4 percent higher nationally than May of 2012, according to a new report from the National Association of Realtors.

The Realtors themselves say that kind of jump is "unsustainable."

"Some of the increases can be explained by the fact that it is recovering from an over-corrected situation," said Lawrence Yun, chief economist for the Realtors. "But with people's income rising at only 1 or 2 percent and prices rising in double digits, it cannot continue."

Notice in video how increases in median price are being driven by price increases in high end homes. The stuff on the lower end continues to decrease. Again, just another symptom of money being all bunched up at the top.

We will not get a sustainable economic recovery until we figure out how to reinvigorate the middle class. In my opinion things are going to get a lot worse for the middle class before they get better.

[AdamA]

I hate to say this, but the groupthink is strong on this forum. 

Do you mean "groupthink" in the sense that everyone is freaking out in tandem, or do you mean "groupthink" in the sense that people formed unrealistic expectations concerning the short term performance that the PP was likely to deliver continuously?

For myself, I don't think I am part of any PP groupthink process because I really don't think about the PP that much at all when it comes to short term performance.  I was burned too many times in my pre-PP days by focusing on short term performance to get pulled back into that again.

I think he means "groupthink" in the sense that most of us are saying that the recent losses are no big deal.

[moda0306]

Just think of this all as 1981 light...

Instead of starting a recession on purpose, the fed allowed itself to dip the rod in a little too weak in what is a remarkably weak recovery, and in a country of really nasty-looking balance sheets, and therefore really sensitive to such movements.

[MediumTex]

But the real issue, I think, is what to do on all the drawdowns I've circled on the SPY line.  If you are worried about what the PP is doing now, how do you think you would be during the SPY drawdowns?

And those stock drawdowns were in the midst of a very strong cyclical bull market for stocks.  If you can't take downside volatility during a bull market, what does that say about your ability to cope with downside volatility during a bear market?

The reason I ask is that from a longer term perspective we are still in a secular bear market for stocks.  This Fed-fueled rally for stocks looks like mostly smoke and mirrors to me.  The underlying economy simple hasn't improved anywhere near enough to justify a doubling of stock values over the last four years (i.e., 20%+ annual gains on average during that period).

This stock rally just looks tired, gold looks cheap, and bond yields look high.  That's JMHO, of course.

[slk23]

This stock rally just looks tired, gold looks cheap, and bond yields look high.  That's JMHO, of course.

I agree, but I thought that 6 months ago too.  I guess it's like Alan Greenspan's warning about irrational exuberance; he was right but the turn didn't happen until 3 years later.