Oh how it hurts to see no gains

[dragoncar]

Tex, the only solace I have is that I'm (very barely) positive since I started the PP.  One more day like today and I'll be negative.  I have never seen these 20% gains.

At least today, spy was down more than pp.  That seems like the way it should work.  Not spy up, pp down days that really frustrate me. 

[Perm Port Fan]

Sympathies to the wounded. Green as grass newbie here, just liquidated a conventional bank IRA and the cash is moving into position.

Couldn't be more optimistic - bonds and gold are down. Some of the froth is coming off the stock market, and cash is, well, cash. Looking forward to buying into the PP on one of those rare occasions when it is down.

The psychology of sunken cost is difficult to deal with and easy to ignore if it isn't kicking your backside. But tomorrow is a new day. There are limits to what money can do in our lives. But seems like the PP is the best chance we have to tame the monetary beast, if it is in fact possible to tame it.

[Pointedstick]

Budd, here's something else I thought of:

You've said your dual portfolios are for two purposes; protection against job loss and saving for retirement. But both of these are really just the same thing as they describe the ability to not care about the cessation of work. If you imagine it that way, then you can think of your entire portfolio as purchasing the ability to not need to work anymore.

And that's a very achievable task; all you need to do is derive enough income or capital gains to cover your annual spending. With your $1.6m portfolio, you could put it all into 30-year treasuries yielding 3.42% and boom, instant $55k/yr! Now I don't know what your annual spending is, but with such a large portfolio it's not hard at all for me to imagine a way for you to make it produce enough income for financial independence, either today or within a year or two max. I mean, $1.6m split evenly between treasuries and municipals gives you about $65k/yr, half of it tax-free!). If that's not enough, just reinvest that very large sum and continue working for another year or two.

You may be one of those people who doesn't realize he actually already has enough to be financially independent!

http://www.mrmoneymustache.com/2013/05/ ... llionaire/

[doodle]

Budd, here's something else I thought of:

You've said your dual portfolios are for two purposes; protection against job loss and saving for retirement. But both of these are really just the same thing as they describe the ability to not care about the cessation of work. If you imagine it that way, then you can think of your entire portfolio as purchasing the ability to not need to work anymore.

And that's a very achievable task; all you need to do is derive enough income or capital gains to cover your annual spending. With your $1.6m portfolio, you could put it all into 30-year treasuries yielding 3.42% and boom, instant $55k/yr! Now I don't know what your annual spending is, but with such a large portfolio it's not hard at all for me to imagine a way for you to make it produce enough income for financial independence, either today or within a year or two max. I mean, $1.6m split evenly between treasuries and municipals gives you about $65k/yr, half of it tax-free!). If that's not enough, just reinvest that very large sum and continue working for another year or two.

You may be one of those people who doesn't realize he actually already has enough to be financially independent!

http://www.mrmoneymustache.com/2013/05/ ... llionaire/

Exactly! Does anyone see wages rising anytime soon as well? If you can lock in 65 grand a year you should be golden. Im not seeing inflation happening in these conditions.

[buddtholomew]

Something definitely to consider PS. I have decided to take the family on a trip to San Diego this upcoming week. My goal is to not check the portfolio until I return on Thu. I highly doubt I can last that long, but maybe I will surprise myself. Can someone promise to post if the world collapses and I should SELL, SELL, SELL NOW! 

[Pointedstick]

But that's when you should BUY BUY BUY!

[koekebakker]

"The investment strategy that worked so flawlessly up until now, somehow stops working the moment you start investing in them."

This is not surprising off course as the PP had a phenomenal decade. A goldrush, a bond-bullmarket, decent performance of stocks. High past returns=lower future returns.
The expected return (if you believe in expected returns) of the PP is very, very low right now. Is there anything you can do about that? Probably not. But you have to remember that the PP is a relatively low-risk, low-return portfolio.

On top of that, the tracking error vs a standard stock/bond portfolio is huge. I think people underestimate how hard it is to see stocks rise and rise while the PP barely breaks even.
Try to imagine the 90's. Everyone was making 20-30% gains a year, buying random stocks. The PP did fine enough in the 90's but I doubt many people could stick with it.

The PP works but it's a very tough portfolio to buy-and-hold.

[Thomas Hoog]

Just to rub it in.
Gold is down 5 %. These are times when gamblers become investors.
I bet that Budd is checking his portfolio right now.
Imagine Budd running in the streets of San Diago yelling for accountability of HB.

[dragoncar]

Just to rub it in.
Gold is down 5 %. These are times when gamblers become investors.
I bet that Budd is checking his portfolio right now.
Imagine Budd running in the streets of San Diago yelling for accountability of HB.

This is going to be another killer day for the PP. 

[doodle]

Oh yeah...bring the pain. 

Im not sure what is happening right now. It seems like our so called leaders in Washington are dead set on inducing some type of tight money recession. Lets balance the budget and tighten monetary policy yippeee!!! Wow, these guys really are morons.

[GA Ray]

The global central bankers have gotten us to this point by flooding the world with money to desperately prop up asset prices instead of letting the cleansing mechanism of capitalism (recession) clear the decks.  Since the market is bigger than governments, it could get very ugly if they lose control of rates because the leverage in the system is larger than it has ever been.  I'm glad I have been a longtime PP investor whether in up or down markets because nobody knows how Uncle Ben's great adventures will turn out.

[iwealth]

Looking back at past years, the frustration with current PP performance may be related to the portfolio being in the red for the year while equities or a 60/40 split are green.

According to etfreplay and not including today's potential ugliness:



Year60/40100/0PP


20138.5%15.5%-2.6%



So YTD the PP is -10% versus a 60/40 and -18% versus 100% equities.

Looking back farther using Simba's spreadsheet, this underperformance is not unusual. As recently as 2009, the PP was -12% versus 60/40 and -18% versus 100% equities. Heck, in the 80s and 90s, the PP lagged the 60/40 by an average of -5.5% every single year. It lagged equities an average of -8.8% every year.

But, if the year ended today, there's one difference that'd have made 2013 unique. Never before has the PP finished the year negative while both a 60/40 or 100% equities portfolio finished positive. Closest we've come was in 1981 and 1994:



Year60/40100/0PP


19812.93%-3.88%-4.13%


19940.53%-0.17%-2.58%



Just a hunch, but maybe the performance anxiety isn't due to the underperformance relative to other portfolios (it's been worse in the past) but perhaps because the PP is actually negative while the other portfolios are performing so well.

[doodle]

The global central bankers have gotten us to this point by flooding the world with money to desperately prop up asset prices instead of letting the cleansing mechanism of capitalism (recession) clear the decks.  Since the market is bigger than governments, it could get very ugly if they lose control of rates because the leverage in the system is larger than it has ever been.  I'm glad I have been a longtime PP investor whether in up or down markets because nobody knows how Uncle Ben's great adventures will turn out.

I really think that capitalism is broken and this massive debt bubble is only the symptom of that. How is capitalism broken? Well, the problem as I see it is that capital has started to decouple from labor. So while our economy is more productive than ever and corporate profits are strong, it is only through labor taking on increasing debt that they have been able to purchase the products that our economy can create. My prediction is that if this trend continues we will be forced to create a so called national / citizens dividend....after all, highly productive robots don't need haircuts and wedding dresses.

Letting things collapse is not a solution either because that isn't getting to the root of the problem.

This from M.I.T. economist Erik Brynjolfsson:

"You’ve also said that productivity has become “decoupled”? from employment. Can you explain?"

"Throughout most of modern history, productivity and employment have grown side by side. But starting about 15 years ago they started becoming decoupled. Productivity continued to grow, even accelerate, but employment stagnated and even fell, as did median wages for the people who were still working. This was an important milestone, because most economists, including me, used to be of the mind-set that if you just keep increasing productivity, everything else kind of takes care of itself.

But there’s no economic law that says everyone has to benefit equally from increased productivity. It’s entirely possible that some people benefit a lot more than others or that some people are made worse off. And as it turns out, for the past 10 to 15 years it’s gone that way. The pie has gotten bigger but most of the increase in income has gone to less than 1 percent of the population. Those at the 50th percentile or lower have actually done worse in absolute terms.

There are a lot of causes for this—some of it has to do with offshoring, tax policy and so on—but those are minor players compared with the big story, which is the nature of technology. It’s simultaneously allowing us to grow faster and leading us to a very different allocation of those benefits."

[flyingpylon]

Losing money is okay, it's losing (or at least temporarily doubting) that smug sense of superior investing prowess compared to your friends and relatives that really hurts. 

[GA Ray]

That's an excellent comment Doodle.  I don't think it's capitalism that's broken, it's the crony capitalism that allows favored industries (e.g., banks) to never pay the ultimate price for their reckless behavior, while non favored industries go bankrupt.  This causes a massive misallocation of capital like we're seeing in housing.  Did you know Blackstone is the largest single buyer of houses?  This is only available because of artifically low interest rates.  When this carry trade (of sorts) ends, the unwind will be breath taking.  There was a great article in some Las Vegas paper about this a few months ago by the writer who beat the table on the real estate bubble in 2005. 

[doodle]

That's an excellent comment Doodle.  I don't think it's capitalism that's broken, it's the crony capitalism that allows favored industries (e.g., banks) to never pay the ultimate price for their reckless behavior, while non favored industries go bankrupt.  This causes a massive misallocation of capital like we're seeing in housing.  Did you know Blackstone is the largest single buyer of houses?  This is only available because of artifically low interest rates.  When this carry trade (of sorts) ends, the unwind will be breath taking.  There was a great article in some Las Vegas paper about this a few months ago by the writer who beat the table on the real estate bubble in 2005. 

Im a total noob on Hyman Minsky, but I think he has a lot of interesting things to say about capitalism. He and Steve Keen (who follows in his footsteps) are worth looking at more closely.

Im a big believer in the productive and innovative potential of capitalism, however it presupposes a type of rational incredibly flexible human that in my mind just isn't realistic. People cannot keep up with the fast paced changes of capitalism and its crazy up and down swings. It is a volatile system and sometimes government has to step in and smooth things over even if it does reduce efficiency. Sometimes stability and slowing transitions is just more important. Today however I think we are facing an entirely new problem.  I think it is becoming evident that those people who traditionally provided the labor in the capitalist system and purchased the products that it created are becoming obsolete.

Historically: Production = Capital + Labor

Today: Production = Capital

How does that get resolved? My opinion is through socialism...I see no other way.

[clacy]

QE has held the bond and stock markets together.  It also previously pumped up real assets such as REIT's and Gold.  Now we're seeing the markets come back to reality a little based on the realization that QE will eventually taper.

[doodle]

QE has held the bond and stock markets together.  It also previously pumped up real assets such as REIT's and Gold.  Now we're seeing the markets come back to reality a little based on the realization that QE will eventually taper.

Back to reality means deflation...

Also, this doesn't address decoupling of capital and labor that in my opinion underlies this whole debt problem to begin with. Look at wealth distribution, consumers have no option but to take on debt to fuel consumption. And corporations cannot exist without consumption.

The ultimate problem is that this game of capitalism doesn't work when all the chips are sitting in the hands of a few players. Think of a game of Monopoly where one player owns almost every property with hotels. When the other players spend all their money (and they cant take on more debt) then the game is over.

[doodle]

In addition to Minsky....Marx might be another person to start reading. He did identify a few flaws with capitalism. Here are two that I think are very relevant to todays discussion:

1. Demands for labor-saving machinery, will force unemployment and create a more hostile proletariat.

2. Employers will tend to maximize profits by reducing labor expenses, thus creating a situation where workers will not have enough income to buy the goods produced, creating the contradiction of causing profits to fall.

[Perm Port Fan]

Permanent Portfolio - Temporary insanity

[MediumTex]

Permanent Portfolio - Temporary insanity

Don't look at portfolio constantly - Peace of mind

[Ad Orientem]

Relax everybody and take a deep breath. In 2008 the permanent portfolio saw a sharp peak to trough drop until the LTTs kicked in. The permanent portfolio is not a Swiss watch where all the gears move in tandem. I don't know which one of the gears will start picking up the slack or when. But I do feel fairly confident that we are not in  tight money recession. Nothing that the FED has said or done seriously suggests any money tightening. All they are saying is that they might slow the rate of new liquidity creation from a Tsunami to a high powered fire-hose.

Wall Street, as usual, is way overreacting.

[Pointedstick]

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.

[steve]

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

[dragoncar]

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

I'm about a 6 right now, so does that mean I should sell
And get back in around 12?