MediumTex wrote:
To test the theory that the PP only performs well when gold is performing well, I looked at the 20 year bear market for gold between 1981 and 2000, and the average annual PP return for this period was 8.34%...
Note, however, that this risk to the PP investor doesn't involve losses or a failure of the strategy to "work", it just means that when the most popular asset in the PP (i.e., stocks) is performing exceptionally well it may be hard to stick with any conservative and safe investment strategy.
This is old news but in 2009, everyone was still saying this about gold, and so I examined the question using Craigr's Crawlingroad chart at that time— looking solely for the bad I could find.
Over the period (since 1972), Gold had 17 down years averaging -7.84%
In those same years the Permanent Portfolio averaged +6.75%
• The worst Gold loss was -32.8%. In that year the portfolio returned -3.9%
• The second worst Gold loss was -22.7%. In that year the portfolio returned +8.3%
• The third worst Gold loss was -21.5%. In that year the portfolio returned +7.5%
Based on the way the argument
felt, ex ante, and since a number of experts felt and spoke the same way (and still do), I was surprised by these findings, initially, which were readily available for anyone to examine by way of testing one's feelings towards the topic. But as with many things about the PP, it was often discussed by way of the subjective.
Now, Stocks (S&P 500) sometimes did well in Gold's worst years, but not always. And LT Bonds did very well, on average, in those years. So maybe it really is about the
Treasuries. But it does seem to be about the
combination of the PP volatile assets (one application of the sometimes devisive word "diversification"), and its comically symmetrical weighting among those assets. And many other common portfolio combinations really have only two broad assets and often in varying weightings (I am assuming, for purposes of this discussion, that all equity types are more similar than they are different). So maybe that is how the PP survives times when gold does its reverse alchemy thing.
Anyway, judged by the butcher's bill, the above is how the bad gold thing happened for the PP. But
conviction in the strategy (or any other strategy) as one lives-through Bull and Bear moments, is what seems necessary to obtain its benefits, and such is likely more important than any dispassionate retrospective breakdown of "Xs" and "Os" can ever be. It is also the only thing that prevented me from going with the HB PP (I did hold it with some funds just to have skin in its game), even as it is suitable for my conservative bent, and I believe I fully understand how and why it works.