I'm Done!

[rantsalot]

Over the past several months, I made a decent return on a stock that I'd purchased when it was in the doghouse and its outlook was pretty bleak.  I was then looking for a good place to park the proceeds.  With the DJIA over 13,000, I didn't feel comfortable dumping the proceeds into a stock index fund or another stock.  So on Monday I did what I thought would be the safest thing to do if I still wanted the money to grow faster than the return on money market funds: Set up a permanent portfolio.

Oops.

I'd backtested the allocation to see what it looked like on a chart.  It appeared that the permanent portfolio was on sale.  Great.  A bargain to boot.

Once again, oops.

I would be selling in a panic right now, except for the fact that the last several times I'd added to other permanent portfolios, they always went down right after setting them up, only to come back up and yield a respectable return with very little volatility.  So I was rewarded for being patient.  It's really interesting, though, to see how my emotions are responding to the situation: That was so stupid, I should have waited, etc., etc., etc.  Having held the PP during some breath-taking market drops in the past, I take comfort in the idea that this too shall pass and my patience will be rewarded.

[MediumTex]

This thread is a great example of why I really enjoy this forum: no escalation, triggering or flaming. Just a lot of patience, understanding, good humour and unwaveringly clear thinking.

One of the things the puzzles me is why there is not more of this kind of discourse on the internet, given that everyone seems to like it.

In general, I think that people prefer courteous and respectful interactions with others, and when people are rude and abusive to others I think that they often regret it when they calm down from whatever they may have been upset about.

I think that some people like the thrill of being able to act crazy in an anonymous environment, though this seems like a sort of pointless activity to me.  Happily, the PP has this amazing quality of attracting the kind of person that in general seems to be able to add to the discussion rather than subtract from it.

I have had countless conversations with others about all sorts of controversial topics and I have learned that, for me, I take no pleasure whatsoeve in making the other person feel threatened, insecure, attacked, ignorant or not as smart as me.  Part of it is because I have been the one who was being attacked enough times to know that it is an unpleasant experience for me emotionally, plus it makes it impossible to make whatever point I am trying to make if I don't feel the other party is participating in the discussion in good faith.  Another truth that I have learned is that discussions of abstract ideas that don't have any immediate bearing on you personally should not be used to create a lot of tension in a relationship with someone you care about.

I am also a firm believer that staring at your computer screen should not raise your blood pressure.

[Snowman9000]

I take it the PP went down this week?  I hadn't noticed.


I do imagine it is easier to weather the downturns in a more conventional portfolio like 60/40 than in something offbeat like the PP.  The comfort of being part of the herd, I suppose.  I don't mean that sarcastically.  It's probably deep in our DNA somewhere. 

I agree with the advice not to watch the investometer that closely.  If you can't weather a few down days, just wait till the PP sucks dust in a raging bull market.  That'll really try your will power.  As MT says, greed and fear.  Also in our DNA.

[lazyboy]

I take it the PP went down this week?  I hadn't noticed.


I do imagine it is easier to weather the downturns in a more conventional portfolio like 60/40 than in something offbeat like the PP.  The comfort of being part of the herd, I suppose.  I don't mean that sarcastically.  It's probably deep in our DNA somewhere.   

I agree with the advice not to watch the investometer that closely.   If you can't weather a few down days, just wait till the PP sucks dust in a raging bull market.  That'll really try your will power.  As MT says, greed and fear.  Also in our DNA.

I do believe that you have hit upon something important for me at least, Snowman, about the comfort of being part of the herd. Thanks for that.   

[lazyboy]

This thread is a great example of why I really enjoy this forum: no escalation, triggering or flaming. Just a lot of patience, understanding, good humour and unwaveringly clear thinking.

One of the things the puzzles me is why there is not more of this kind of discourse on the internet, given that everyone seems to like it.

In general, I think that people prefer courteous and respectful interactions with others, and when people are rude and abusive to others I think that they often regret it when they calm down from whatever they may have been upset about.

I think that some people like the thrill of being able to act crazy in an anonymous environment, though this seems like a sort of pointless activity to me.  Happily, the PP has this amazing quality of attracting the kind of person that in general seems to be able to add to the discussion rather than subtract from it.

I have had countless conversations with others about all sorts of controversial topics and I have learned that, for me, I take no pleasure whatsoeve in making the other person feel threatened, insecure, attacked, ignorant or not as smart as me.  Part of it is because I have been the one who was being attacked enough times to know that it is an unpleasant experience for me emotionally, plus it makes it impossible to make whatever point I am trying to make if I don't feel the other party is participating in the discussion in good faith.  Another truth that I have learned is that discussions of abstract ideas that don't have any immediate bearing on you personally should not be used to create a lot of tension in a relationship with someone you care about.

I am also a firm believer that staring at your computer screen should not raise your blood pressure.

Thanks, MT, for all the honesty, humor and wisdom you bring to this forum.

[TripleB]

My individual portfolio is down 1% this week. Not a big deal either way.

[steve]

I do imagine it is easier to weather the downturns in a more conventional portfolio like 60/40 than in something offbeat like the PP.  The comfort of being part of the herd, I suppose.  I don't mean that sarcastically.  It's probably deep in our DNA somewhere.   

It seemed to me that it was not so easy for people with the conventional portfolio like 60/40 to weather the downturn in 2008. On the Boglehead forum at the time gurus there were saying "stay the course" trying to encourage people not to panic. When risk tolerance is tested for real there is quite a bit of panic. Just like the Boglehead forum this forum helps because you feel like you are part of a group (herd) and the gurus here can help you avoid panic. I appreciate this forum and give thanks to Craigr, MediumTex and everyone else who contributes. I also think that as a group most of us here are closer to accepting our real risk tolerance which is low and at times when it is tested it is still emotionally hard.

[jackely]

It seemed to me that it was not so easy for people with the conventional portfolio like 60/40 to weather the downturn in 2008. On the Boglehead forum at the time gurus there were saying "stay the course" trying to encourage people not to panic.

I was a "stay the course" kind of investor for all of my investing life until the fiasco in 2008. Actually, I did stay the course long enough to see almost a full recovery but it wasn't due to inner fortitude. When you are down 40 percent the idea of getting out is not very appealing. I only switched to the PP when I decided I didn't have the stomach for the roller coaster any more. 

[dualstow]

Remember when someone posted excitedly about how they had just set up a pp and its value had gone up 3 days in a row.
Medium Tex's response was that the true test would be holding the pp while it falls.

Michael Cuggino, quoted in various articles, said that yes, the fund is very popular right now, but there are huge outflows during "lean years." Huge numbers invariably fly to tech stocks when non-stock investments start falling while the NASDAQ soars.

And who's to say they're wrong? What Budd is feeling is totally normal, natural and human. When the pp really starts to fall, there will be great numbers of people who feel the same.

I remember ridiculing someone on a local city-centric forum (nothing to do w/ investing) in late 2007 or early 2008 who had just sold all her stocks and gone 100% into gold. Along with others, I said something snide like, "Congratulations. You're getting into gold at the top." At the same time, when a friend asked me what I thought of gold, I told him how I thought it was a poor investment. I was a boglehead and unaware of the pp. The woman on the forum and my friend both did very well for themselves by making their own decisions. I was proud of myself for staying the course...until I wasn't.

But, the stock market recovered and the value of my stocks has come back. I have also done extraordinarily well with the pp since I got in, in 2010. I guess there's more than one road to Dublin.

Sure, it's not fun to watch those beautiful 50+% gains in treasuries and 30+% gains in gold both shrink. And sure, I'm tempted to sell it all and wait for the DOW to go to 14,000. But I won't. I'm staying the course with the pp. I guess I'll never learn. ;-)

[Storm]

I'm really interested if you feel the same way now that you did when you first started this thread.  It's funny how the market can turn on a dime.  Treasuries have fallen, but recently the stock market just gave up much of it's recent gains, and gold this morning is around $1665 an ounce.

Also, I think Bernanke and the Fed are looking on in horror as yields rise and mortgage rates inevitably rise.  Can you imagine the damage done to the already fragile housing market if rates rise 100-200 basis points?  I think even a 50 basis point rise in the 10 year yields will force Bernanke to unleash the firehose of QE3 to prevent it, which is only bullish for gold.

Of course, nothing can be predicted, but since I'm making predictions, I believe the Fed will do everything in it's power to keep rates as low as possible.  They've already said that they want rates to remain low until 2014 at least.  Nothing would be more devastating to the already fragile economy than $5 a gallon gas prices combined with 6-7% mortgage rates. 

[buddtholomew]

I'm really interested if you feel the same way now that you did when you first started this thread.  It's funny how the market can turn on a dime.  Treasuries have fallen, but recently the stock market just gave up much of it's recent gains, and gold this morning is around $1665 an ounce.

Also, I think Bernanke and the Fed are looking on in horror as yields rise and mortgage rates inevitably rise.  Can you imagine the damage done to the already fragile housing market if rates rise 100-200 basis points?  I think even a 50 basis point rise in the 10 year yields will force Bernanke to unleash the firehose of QE3 to prevent it, which is only bullish for gold.

Of course, nothing can be predicted, but since I'm making predictions, I believe the Fed will do everything in it's power to keep rates as low as possible.  They've already said that they want rates to remain low until 2014 at least.  Nothing would be more devastating to the already fragile economy than $5 a gallon gas prices combined with 6-7% mortgage rates. 

There is definitely a sense of relief when the portfolio responds as advertised.

[buddtholomew]

Honestly, this completely stinks. I'm sure a few on this board are expecting me to respond in this fashion, but it is really getting way too tiresome...Enough is enough already.

[craigr]

Honestly, this completely stinks. I'm sure a few on this board are expecting me to respond in this fashion, but it is really getting way too tiresome...Enough is enough already.

I don't understand. The portfolio is positive for the year. Morningstar is showing me +3.55% and it's only April. A stock heavy portfolio has higher returns so far, but is much more volatile. I don't check my portfolio that often. That will be a big help for you I am sure. No investment is without risk or without volatility. Even cash has inflation risk, but is less volatile however.

[buddtholomew]

Honestly, this completely stinks. I'm sure a few on this board are expecting me to respond in this fashion, but it is really getting way too tiresome...Enough is enough already.

I don't understand. The portfolio is positive for the year. Morningstar is showing me +3.55% and it's only April. A stock heavy portfolio has higher returns so far, but is much more volatile. I don't check my portfolio that often. That will be a big help for you I am sure. No investment is without risk or without volatility.

Its the volatility...I'm not comparing the returns of the PP to any other portfolio composition.

[moda0306]

budd,

Ever think of upping your T-Bill portion to xx% or having a fixed amount of T-bill cushion that's completely outside the PP?

[craigr]

Honestly, this completely stinks. I'm sure a few on this board are expecting me to respond in this fashion, but it is really getting way too tiresome...Enough is enough already.

I don't understand. The portfolio is positive for the year. Morningstar is showing me +3.55% and it's only April. A stock heavy portfolio has higher returns so far, but is much more volatile. I don't check my portfolio that often. That will be a big help for you I am sure. No investment is without risk or without volatility.

Its the volatility...I'm not comparing the returns of the PP to any other portfolio composition.

Then you probably should just own much more cash until you feel better about things. No investment is without volatility. You will have volatility in the cash, but it is happening behind the scenes with inflation and not in the price you see however.

[MediumTex]

Today's action is all about the market not getting what it wanted from the Fed.

Once the Fed's position is digested, things will settle down.

As far as not liking the volatility, I still think that anyone who doesn't like the PP's volatility is going to like the volatility of virtually any other allocation even less.

[Reub]

I think that a nice, safe certificate of deposit, or even better, a ladder of them, might be better suited for you.

[buddtholomew]

I think that a nice, safe certificate of deposit, or even better, a ladder of them, might be better suited for you.

I currently have the following in-place:

Assume $1 million total portfolio value for this exercise.

350K in laddered CD's with durations from 12 months through 5 years
250K in Cash or MM instruments
400K in SPY, GLD and TLT

[moda0306]

budd,

You seem to have plenty of cushion.  If you ARE going to look at it every day, do yourself a favor and look at your whole portfolio.

By my calculations, with this example, you lost about $5,300 today, or .53% of your total portfolio.  Is that really so bad?

[Gosso]

Honestly, this completely stinks. I'm sure a few on this board are expecting me to respond in this fashion, but it is really getting way too tiresome...Enough is enough already.

I don't understand. The portfolio is positive for the year. Morningstar is showing me +3.55% and it's only April. A stock heavy portfolio has higher returns so far, but is much more volatile. I don't check my portfolio that often. That will be a big help for you I am sure. No investment is without risk or without volatility.

Its the volatility...I'm not comparing the returns of the PP to any other portfolio composition.

Well, you have gotten plenty of great advise in this thread, so I thought I'd give you some horrible advise:

It sounds like investing is a large source of stress for you, even in the fairly boring PermPort.  My advise is to stop investing and blow all you money on exotic vacations, fast women, and drugs.  Once all the money is gone then simply live pay check to pay check, take out a whole bunch of debt, and live the dream.  Then when you're old simply live off what the government gives you and hopefully some sort of pension, or move in with the kids.

Wait a second, that sounds great!  What the heck am I investing for???  ;D

[moda0306]

Gosso...

That does sound pretty awesome.  Sometimes, I think a worthwhile goal would be to die in as much debt as possible.

[Gumby]

Budd,

I'm seeing a pattern emerge:

See: Mar 14, 2012: I'm done!
...and: Sep 26, 2011: Weather the Storm...
...and: Sep 28, 2011: Hey Look...
...and: Aug 11, 2011: Nauseous

If we plot your comments on a chart of the PP, we get the following...

[align=center][/align]

This kind of nervous behavior will continue as long as you keep looking at the portfolio every day. You need to stop looking at your portfolio so closely.

Honestly, I really don't see what you're so excited about. The PP is exhibiting very low volatility. And the only time the PP really goes down is when the dollar gets stronger (which is actually good thing for a dollar-denominated PP).

[align=center][/align]

[Gosso]

Gosso...

That does sound pretty awesome.  Sometimes, I think a worthwhile goal would be to die in as much debt as possible.

I was trying to be silly, but this has actually crossed my mind more than a few times.

I thought it might help to point out that there are other options than investing, especially if it causing someone large amounts of stress.  Although one doesn't have to go to the extremes that I proposed.

[MediumTex]

Budd,

I'm seeing a pattern emerge...

Gumby,

Thanks for the great data.