This is the best time in 45 years to invest in the Permanent Portfolio

[vnatale]

7.7 percent higher than previous all time high.

That is always a tricky comparison as all things have to be equal. So higher than previous all-time high for the exact same time period?

And, is that 7.7% higher 7.7% added to the previous return? Or 7.7% of the previous return?

[ppnewbie]

This thread is taking a strange turn. Last time I will respond. Take the last high for the last year or so before the portfolio went sideways and down for a bit then use that high number muliply by 1.077.

Now it will get even more strange if you say something like is that rolling returns month over month. I can delete the post if you want Vinny.

Just looked now its 8.3 percent higher than the previous high (2 year look back).

[dualstow]

..
I made my only investments now 21 years ago in January 2003. All investments since have gone into cash.
..
Seems like I would have been much better off over these last 21 years by having done the exact opposite. Having the bulk in Growth and giving away the Value funds.

Opposite: I thought you were going to say not putting so much into cash. Still, if you were in your late 50’s or older by then, I can undertand the desire to sock more away in non-stocks.

[vnatale]

..
I made my only investments now 21 years ago in January 2003. All investments since have gone into cash.
..
Seems like I would have been much better off over these last 21 years by having done the exact opposite. Having the bulk in Growth and giving away the Value funds.

Opposite: I thought you were going to say not putting so much into cash. Still, if you were in your late 50’s or older by then, I can undertand the desire to sock more away in non-stocks.

Doing all that cash worked out well during 2007 / 2008 and other down periods. At this point, I'm at about 50 / 50, equity / (fixed + cash).

[dualstow]

I appreciate the smooth ride of the PP. If I had the stomach for it, I’d be 90% stocks to just fight inflation and bet on prosperity (and my own longevity).

[mathjak107]

..
I made my only investments now 21 years ago in January 2003. All investments since have gone into cash.
..
Seems like I would have been much better off over these last 21 years by having done the exact opposite. Having the bulk in Growth and giving away the Value funds.

Opposite: I thought you were going to say not putting so much into cash. Still, if you were in your late 50’s or older by then, I can undertand the desire to sock more away in non-stocks.

Doing all that cash worked out well during 2007 / 2008 and other down periods. At this point, I'm at about 50 / 50, equity / (fixed + cash).

pretty much the same if i take all my models plus cash and make one big portfolio

53% equities 37% assorted short to intermediate term bond funds , 10% cash

[Wonk]

Checking back in 18 months later. Since 10.31.22, a cashless PP (33x3) is up over 20% as of 3.31.24. From a big picture perspective, it still looks to be about 12% undervalued relative to expected real return of about 5.6% over the long term. So I feel good about continuing to put cash to work vs t-bill & chill.

Back in '22, it was ~20% undervalued which is pretty rare--the last time being 1982. As a reference point, there should have been alarm bells going off in July of 2020 when it was 20% overvalued relative to expected real returns, which would suggest near term underperformance at best or a healthy drawdown at worst. Although t-bills weren't paying anything back then, that was the place to park liquidity until a more attractive environment presented itself. We all witnessed what happened over the next 2 years. Of course, hindsight is always 20/20.

[ppnewbie]

Can you remind me what the cashless PP is? Stocks, Gold, LTTs? Also how are you measuring the value? I am currently seeing an everything bubble inflate (Stocks, Gold). But I guess LTTs are getting cheaper and small cap value is still a bit stagnant. So maybe not an everything bubble.

[Wonk]

Can you remind me what the cashless PP is? Stocks, Gold, LTTs?

Yes. Cash is a dead asset that dampens volatility. It has useful features and everyone should have cash, but for the purposes of tracking this portfolio, I don't include cash.

Also how are you measuring the value?

The mean expected real rate of return for this portfolio is 5.6% over the last 46+ years. If you take the real rate of return from 1978 and plot highs and lows, the mean is 5.6%. Projected over a long time horizon, it gives you an idea of what the expected value of these assets as a whole should be. Keep in mind:

1. It's only 46 years, not 400 years. So it's a limited data set. As Long Term Capital Management found out, that can sometimes be problematic.
2. Past returns do not guarantee future returns.
3. The portfolio rarely returns exactly 5.6%. It's typically trending either higher or lower but that's the direction it is going in. It can take years to revert to the mean. When the variance is extreme, as in 1980(+33%), 1982(-20%), 1987(+25%), 2002(-18%), 2008(-19%), 2012(+18%), 2020(+21%) & 2022 (-21%), it likely makes sense to take a step back and look at the big picture. Those extremes are where fear and greed are felt the most and should be put in perspective. When it's overvalued, sometimes it trends sideways and bleeds off the excess. Other times there's a sharp drawdown as in 2020-2022. When it's undervalued, it likely make sense to put more liquidity to work, but knowing that it may take years to trend back up.

Right now the portfolio sits at -12% so it's in the lower quartile of expected returns.

[mathjak107]

from 2021 it’s just about been flat

100k has gained about 1200 bucks from jan 2021 to april 30th 1 2024 . a .38% cagr


https://www.portfoliovisualizer.com/bac ... SUlrdyQOt3

[mathjak107]

tried a comparison between the pp and the leveraged risk parity portfolio i have been experimenting with which is

20% upro a 3x leveraged equities fund
13.333% tyd a 3x leveraged bond fund
and 66.666% dbmf a non leveraged managed futures fund

i wanted a real tough patch for assets to look at so i picked jan 2021 to present

the pp averaged a cagr of .38% , 100k grew to 101,256 from jan 2021 to april 30 2024

there has been quite a bit of research on these by cliff asness over the years



the leveraged risk parity portfolio grew to 146,408 dollars , a return of 12.12% cagr

the sharpe ratio on the leveraged risk parity portfolio called the carolina reaper is .85

the ratio for the pp is minus .19.

i have been steadily growing the reaper , it looks very promising .

like the pp it takes crazy volatile assets and smooths them out greatly .

but it seems to do it with better gains then the ppl and less risk .

worst down year for pp minus 13.85% . 2022

worst year for reaper minus 2.79% 2022

max drawdown for pp is 17.20%

for reaper 8.96%


https://www.portfoliovisualizer.com/bac ... 1Mz32vxRYK

even going back to jan 2020 right before covid , the reaper blew it away in all respects , most importantly , risk vs reward

https://www.portfoliovisualizer.com/bac ... Ou41UHBuS9


not enough history yet to declare the pp a poor choice in comparison to the newer leveraged risk parity portfolios but so far they look very promising as the next wave of risk parity design

[Jack Jones]

not enough history yet to declare the pp a poor choice in comparison to the newer leveraged risk parity portfolios but so far they look very promising as the next wave of risk parity design

I recently watched this video and it made me think of you.

[mathjak107]

i gave up trying to watch it unfortunately..to long and boring for me to focus on it..

[Jack Jones]

i gave up trying to watch it unfortunately..to long and boring for me to focus on it..

All good. The lesson might only be applicable in one in ten lifetimes or so.

[ArthurPooh]

from 2021 it’s just about been flat

100k has gained about 1200 bucks from jan 2021 to april 30th 1 2024 . a .38% cagr


https://www.portfoliovisualizer.com/bac ... SUlrdyQOt3

It's mostly the long bonds' fault, isn't it?

[mathjak107]

long term bonds and if short term bonds funds were used , them too, plus a negative year for equities in 2022.

like i said years ago , rising rates would be kryptonite to the pp

[ArthurPooh]

long term bonds and if short term bonds funds were used , them too, plus a negative year for equities in 2022.

like i said years ago , rising rates would be kryptonite to the pp

Aren't they a killer of any portfolio that heavily relies on nominal bonds? Many people over at the Bogleheads forum weren't satisfied with their 60/40 portfolios either over the last years either.

[mathjak107]

depends on the bond funds held and their duration as far as how bad they would get hit.

a leveraged risk parity portfolio performed very differently in the 2022 down turn as well .. it had better returns , lower risk , less draw down then the pp did. i posted the carolina reaper results above which i use compared to the pp over the last few years which were awful for the pp

so rising rates can have a different effect on different portfolio design


look at the results thru the worst years we just had that i posted above.

i am starting to think that conventional portfolios with their inherent risks may no longer be the best way to be defensive.

here is jan 2024 to may 1 as well . big difference in risk vs reward

https://www.portfoliovisualizer.com/bac ... vYmswKLj1q

[mathjak107]

like the buggy , conventional investing for lower risk may be a thing of the past .

harry could never imagine the masses having simple access to the funds of today that are leveraged as well as go long and short or able to have managed futures working for them in a reliable fashion to create what may be much better risk profiles

cliff asness founder of aqr have all kinds of defensive funds using modern day research and tools that are now available.

harry couldnt imagine the common investor only needing 20 cents out of a dollar in an equities fund and 13 cents out of a dollar in a bond fund and duplicating the performance of a 60/40 yet having .67 cents left to provide different kinds of protections that can go long. short , invest in futures ,etc

[Smith1776]

I, too, must confess that I am no longer a user of the pure PP. There are just too many new developments, methodologies, investment paradigms, and considerations for me to warrant sticking with it.

I follow the strategy in my avatar. I genuinely believe that this is not capitulation, but rather an evolution of my thinking. However, only time will tell.

[mathjak107]

yep , i believe its day came and went for conventional investing …2022 showed us how vulnerable the pp is to rates and inflation and a strong dollar unlike the 1970s with all the once in a lifetime events for gold

i believe for someone who wants a defensive portfolio today there are far better risk parity options using all the new methods .

personally i have been dipping my toes in the reaper .

it’s still not replacing my 60/40 as a core portfolio yet but the reaper went from an experimental 20k to 10x that amount today as i shift more and more in to it as time goes on and i trust it more and more .

it would take 7 figures in it to be a core but it may reach that status at some point .

so far thru the covid drop and also the awful combination of events in 2022 it has shown outstanding resilience where the other conventional all weather portfolios crapped the bed.

like the pp it has taken some of the most speculative investments individually like 3x funds and combined them in a way to have one of the highest sharpe ratios around.

the ytd my 60/40 is running 6.50% cagr , the reaper almost 10% is actually a head of 100% equities , with the s&p at about 8%. i think the pp is at about 3.4% ytd and is a higher risk vs the reward then the reaper

[vnatale]

depends on the bond funds held and their duration as far as how bad they would get hit.

a leveraged risk parity portfolio performed very differently in the 2022 down turn as well .. it had better returns , lower risk , less draw down then the pp did. i posted the carolina reaper results above which i use compared to the pp over the last few years which were awful for the pp

so rising rates can have a different effect on different portfolio design


look at the results thru the worst years we just had that i posted above.

i am starting to think that conventional portfolios with their inherent risks may no longer be the best way to be defensive.

here is jan 2024 to may 1 as well . big difference in risk vs reward

https://www.portfoliovisualizer.com/bac ... vYmswKLj1q

Yes. But a time period that short carries no weight in making any kind of interpretations of the facts.

[mathjak107]

which is why i went back to 2020 in my look originally as to how it behaved in both covid and the rising rates and inflation which crushed conventional portfolios.

others have looked at it too




as i said in another thread here

i just went as far back with these funds as i could in portfolio visualizer. first time running it myself .

i was able to go back to jan 2020 , so more than 4 years

a 60/40 consisting of 60% voo (s&p fund )and 40% bnd ( total bond fund ) took 100k and turned it in to 126,130 , a cagr of 6.11%

the 60/40 carolina reaper took a 100k grew it to 136,260 ,a cagr of 8.22%

BUT GET THIS

WORST DOWN YEAR WAS MINUS 2.57% for the reaper with a worst draw down of 9.45%

the conventional 60/40 had a worst year of minus 16.16 % and a worst draw down of 20.15%

HOLY CRAP , WHAT A DIFFERENCE .

i mean down a mere 2.57% …that’s incredible while a 60/40 was down 16.16% , yet beat it by over 2% in gains

for comparison to the permanent portfolio .

the pp grew 100k to 11,202 , cagr of 2.94% , worst year down 13.85 and worst draw down 17.20%