Harry Browne Permanent Portfolio Discussion (Cont'd)

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
linenfort
Posts: 2143
Joined: Sat Sep 22, 2007 9:22 am
Location: #96151D

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by linenfort » Sat Jun 16, 2018 10:21 am

linenfort wrote:
Thu Jun 14, 2018 8:55 pm
Ok, I’ll pm you tomorrow. Please get a free Telegram account. You can always get rid of it afterwards.
No? Well, I'll check in once a day.
bogleheads, don't knock state lotteries. They helped defund the mafia.

CULater
Posts: 1496
Joined: Sun Nov 13, 2016 10:59 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by CULater » Sat Jun 16, 2018 11:22 am

willthrill81 wrote:
Fri Jun 15, 2018 10:16 am
CULater wrote:
Fri Jun 15, 2018 10:10 am
Today the DOW is down 250, while gold is down and long term treasuries are up even though interest rates are going up. Over the last 9 years, the correlation between stocks and gold is .04 and between stocks and long treasuries is -0.47. Seems to me that if you want a diversifying asset for stocks it would be long treasuries, not gold.
Long-term nominal bonds get hammered by unexpected inflation. Long-term treasuries lost a whopping 46.5% of their real value between Jan., 1977, and Oct., 1981. Stocks had a real CAGR of 3.24% over that period but had a cumulative real loss of 12% from 1972-1981. Diversification through nominal bonds didn't 'save the day'. TIPS can certainly help, but I don't see many Bogleheads putting 25% or more of their portfolio into TIPS.
Don't know why you wouldn't if you want a bond-heavy allocation and a small stock allocation. Over last 10 years, the returns from 25/50/25 (stock, intermediate treasuries, TIPS) have been indistinguishable from 25/75 (stock, intermediate treasury) and cum return has matched PP with lower volatility. Plus TIPS actually provide inflation protection, which is what gold is supposed to do but really doesn't.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

columbia
Posts: 987
Joined: Tue Aug 27, 2013 5:30 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by columbia » Sat Jun 16, 2018 11:31 am

Here’s a comparison of PRPFX and Wellesley Income:
https://www.portfoliovisualizer.com/bac ... ion2_2=100

I know which one i would rather have owned since 1985.

All Seasons
Posts: 78
Joined: Sun Dec 10, 2017 4:14 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by All Seasons » Sun Jun 17, 2018 3:30 pm

That sounds like more cherry-picking. In any event, the chart I posted shows what happened for those years too. Gold definitely did much worse than stocks and bonds.
NiceUparticularMan, you are disregarding the entire decade of the 70s in terms of gold's performance and only counting the times when it has done poorly.. and you are accusing Smith of cherry picking? That's seems.. unreasonable. :?

This whole "gold wasn't free floating until the 80s" thing is kind of bunk, too. If you want to discount the period up to 1975, sure, but the entire decade of the 70s? I don't think that's reasonable at all.
The market portfolio is always a legitimate portfolio.

Dancer
Posts: 75
Joined: Mon Feb 03, 2014 2:06 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by Dancer » Sun Jun 17, 2018 4:12 pm

columbia wrote:
Sat Jun 16, 2018 11:31 am
Here’s a comparison of PRPFX and Wellesley Income:
https://www.portfoliovisualizer.com/bac ... ion2_2=100

I know which one i would rather have owned since 1985.
PRPFX isn't current PP / what most folks mention when talking about the Permanent Portfolio. Used to have the PERM ETF that was 4x25 and using index funds for stocks, but that didn't take off and is closed.

AFAIK, no single fund option for PP anymore.

User avatar
nisiprius
Advisory Board
Posts: 36877
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by nisiprius » Sun Jun 17, 2018 4:28 pm

invst65 wrote:
Tue Jun 12, 2018 9:50 am
Not looking to get into a discussion about gold so I'll just leave it with the comment that "extra benefit" isn't the point of holding it.
Even though I don't implement the PP, nor do I intend to, the point of the PP seems to be to have an allocation that is at least theoretically likely to provide some stability in a wide variety of market conditions (i.e. deflationary, inflationary, growing, stable).
During the period from 1981 through the present, which included a severe global financial crisis, where do you see that the Permanent Portfolio provided any more safety or stability than the gold-free, traditional-securities Wellesley? The worst year for Wellesley was -9.84% compared to -12.93%... that is to say, about -10% versus -13%. The maximum drawdown was virtually identical.

From 1981 through the present, Wellesley gave you just as much stability and a heck of a lot higher return.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

columbia
Posts: 987
Joined: Tue Aug 27, 2013 5:30 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by columbia » Sun Jun 17, 2018 5:53 pm

Dancer wrote:
Sun Jun 17, 2018 4:12 pm
columbia wrote:
Sat Jun 16, 2018 11:31 am
Here’s a comparison of PRPFX and Wellesley Income:
https://www.portfoliovisualizer.com/bac ... ion2_2=100

I know which one i would rather have owned since 1985.
PRPFX isn't current PP / what most folks mention when talking about the Permanent Portfolio. Used to have the PERM ETF that was 4x25 and using index funds for stocks, but that didn't take off and is closed.

AFAIK, no single fund option for PP anymore.
In that one can’t even invest a fund/ETF represention of the “current” PP is telling.

All Seasons
Posts: 78
Joined: Sun Dec 10, 2017 4:14 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by All Seasons » Sun Jun 17, 2018 6:21 pm

columbia wrote:
Sun Jun 17, 2018 5:53 pm
Dancer wrote:
Sun Jun 17, 2018 4:12 pm
columbia wrote:
Sat Jun 16, 2018 11:31 am
Here’s a comparison of PRPFX and Wellesley Income:
https://www.portfoliovisualizer.com/bac ... ion2_2=100

I know which one i would rather have owned since 1985.
PRPFX isn't current PP / what most folks mention when talking about the Permanent Portfolio. Used to have the PERM ETF that was 4x25 and using index funds for stocks, but that didn't take off and is closed.

AFAIK, no single fund option for PP anymore.
In that one can’t even invest a fund/ETF represention of the “current” PP is telling.
Can't argue with you on that one. :P
The market portfolio is always a legitimate portfolio.

petulant
Posts: 352
Joined: Thu Sep 22, 2016 1:09 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by petulant » Sun Jun 17, 2018 7:36 pm

CULater wrote:
Fri Jun 15, 2018 10:10 am
Today the DOW is down 250, while gold is down and long term treasuries are up even though interest rates are going up. Over the last 9 years, the correlation between stocks and gold is .04 and between stocks and long treasuries is -0.47. Seems to me that if you want a diversifying asset for stocks it would be long treasuries, not gold.
All things being equal, wouldn't 0 correlation be better than -.5 correlation?

CULater
Posts: 1496
Joined: Sun Nov 13, 2016 10:59 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by CULater » Mon Jun 18, 2018 9:00 am

nisiprius wrote:
Sun Jun 17, 2018 4:28 pm
invst65 wrote:
Tue Jun 12, 2018 9:50 am
Not looking to get into a discussion about gold so I'll just leave it with the comment that "extra benefit" isn't the point of holding it.
Even though I don't implement the PP, nor do I intend to, the point of the PP seems to be to have an allocation that is at least theoretically likely to provide some stability in a wide variety of market conditions (i.e. deflationary, inflationary, growing, stable).
During the period from 1981 through the present, which included a severe global financial crisis, where do you see that the Permanent Portfolio provided any more safety or stability than the gold-free, traditional-securities Wellesley? The worst year for Wellesley was -9.84% compared to -12.93%... that is to say, about -10% versus -13%. The maximum drawdown was virtually identical.

From 1981 through the present, Wellesley gave you just as much stability and a heck of a lot higher return.
You did about the same with 35% stocks and 65% intermediate treasuries, which I think is about the stock/bond ratio of Wellesley. It's been a long time since the PP outperformed a simple fat-tail stock/bond allocation, even though there was a pretty good run for gold from 2001-2008.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

All Seasons
Posts: 78
Joined: Sun Dec 10, 2017 4:14 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by All Seasons » Mon Jul 02, 2018 1:14 pm

NiceUnparticularMan wrote:
Thu Apr 27, 2017 9:57 pm
sophie1 wrote:You can't leave out the 1970s. It was the last era of serious inflation & stagflation, and this is why gold was doing so well. That's kind of the point. It is a bit of a drag on the portfolio otherwise, but it's there because the 1970s could happen again. Not saying it will, just that it might.
Well, you really have to, because free-floating gold and pegged gold aren't the same thing, and the transition from one to the other isn't going to happen again.

Fortunately, we have another test. In 1986, inflation had declined all the way to about 1.94%. In then rose to about 5.4% in 1990. Not as dramatic as the 1970s, but this was a good moderate test of the gold as inflation hedge idea in the free-floating era.

So what happened? Gold declined in real value by about 12.5%. The supposed inflation hedge never showed up.

1998, inflation was 1.55%. By 2000, this increased to 3.4%. Gold declined in real value by about 15%. Again, no hedge.

By the way, this concept that gold is only ever a "bit of a drag" is again a legacy of the pegged era. Losing 80% of its real value over 20 years is more than a "bit of a drag".
Neither you, Smith, or anyone else knows whether the 70s style inflation could happen again. You are simply asserting that is so because of the removal of the peg, but asserting something doesn't automatically make it true. There are other reasons other than the removal of the peg that could cause inflation. Besides, gold is also useful for general SHTF situations, not just inflation.

Good luck collecting on your digital stocks and bonds if the exchanges are being attacked for instance: http://money.cnn.com/2014/07/17/technol ... index.html

And, are you under the impression that transitory 5.4% and 3.4% inflation spikes are large? You are being willfully ignorant here.

Be that as it may, Browne specifically says in Fail-Safe Investing: "Once U.S. inflation becomes more than a minor irritant (that is, once inflation reaches 6% or so), gold usually starts moving upward--and when the inflation rate gets into double digits, gold's rise accelerates."

Coincidentally, neither of your "tests" actually meets that threshold.
The market portfolio is always a legitimate portfolio.

User avatar
willthrill81
Posts: 6118
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by willthrill81 » Mon Jul 02, 2018 4:03 pm

nisiprius wrote:
Sun Jun 17, 2018 4:28 pm
invst65 wrote:
Tue Jun 12, 2018 9:50 am
Not looking to get into a discussion about gold so I'll just leave it with the comment that "extra benefit" isn't the point of holding it.
Even though I don't implement the PP, nor do I intend to, the point of the PP seems to be to have an allocation that is at least theoretically likely to provide some stability in a wide variety of market conditions (i.e. deflationary, inflationary, growing, stable).
During the period from 1981 through the present, which included a severe global financial crisis, where do you see that the Permanent Portfolio provided any more safety or stability than the gold-free, traditional-securities Wellesley? The worst year for Wellesley was -9.84% compared to -12.93%... that is to say, about -10% versus -13%. The maximum drawdown was virtually identical.

From 1981 through the present, Wellesley gave you just as much stability and a heck of a lot higher return.
Just to play devil's advocate a bit (even though I do hold a portion of my emergency fund in Wellesley), most of that period was very solid for the bonds that represent two-thirds of the fund. A repeat of that performance over the next decade or two seems unlikely though admittedly possible. I believe that Wellesley will continue to be comparatively stable, but I'm less optimistic about the returns.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

GRP
Posts: 40
Joined: Wed Nov 22, 2017 5:35 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by GRP » Mon Jul 02, 2018 6:08 pm

All Seasons wrote:
Mon Jul 02, 2018 1:14 pm
NiceUnparticularMan wrote:
Thu Apr 27, 2017 9:57 pm
sophie1 wrote:You can't leave out the 1970s. It was the last era of serious inflation & stagflation, and this is why gold was doing so well. That's kind of the point. It is a bit of a drag on the portfolio otherwise, but it's there because the 1970s could happen again. Not saying it will, just that it might.
Well, you really have to, because free-floating gold and pegged gold aren't the same thing, and the transition from one to the other isn't going to happen again.

Fortunately, we have another test. In 1986, inflation had declined all the way to about 1.94%. In then rose to about 5.4% in 1990. Not as dramatic as the 1970s, but this was a good moderate test of the gold as inflation hedge idea in the free-floating era.

So what happened? Gold declined in real value by about 12.5%. The supposed inflation hedge never showed up.

1998, inflation was 1.55%. By 2000, this increased to 3.4%. Gold declined in real value by about 15%. Again, no hedge.

By the way, this concept that gold is only ever a "bit of a drag" is again a legacy of the pegged era. Losing 80% of its real value over 20 years is more than a "bit of a drag".
Neither you, Smith, or anyone else knows whether the 70s style inflation could happen again. You are simply asserting that is so because of the removal of the peg, but asserting something doesn't automatically make it true. There are other reasons other than the removal of the peg that could cause inflation. Besides, gold is also useful for general SHTF situations, not just inflation.

Good luck collecting on your digital stocks and bonds if the exchanges are being attacked for instance: http://money.cnn.com/2014/07/17/technol ... index.html

And, are you under the impression that transitory 5.4% and 3.4% inflation spikes are large? You are being willfully ignorant here.

Be that as it may, Browne specifically says in Fail-Safe Investing: "Once U.S. inflation becomes more than a minor irritant (that is, once inflation reaches 6% or so), gold usually starts moving upward--and when the inflation rate gets into double digits, gold's rise accelerates."

Coincidentally, neither of your "tests" actually meets that threshold.
Totally agree. It's also worth pointing out that while yes, gold did do poorly for a 20 year period, it's not like gold is alone in experiencing such a phenomenon. Would you tell Japanese investors to quit investing in their economy just because their stock market has done poorly for a generation?

All Seasons
Posts: 78
Joined: Sun Dec 10, 2017 4:14 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by All Seasons » Wed Jul 04, 2018 3:58 pm

Totally agree. It's also worth pointing out that while yes, gold did do poorly for a 20 year period, it's not like gold is alone in experiencing such a phenomenon. Would you tell Japanese investors to quit investing in their economy just because their stock market has done poorly for a generation?
What's really interesting to me is the question of how the psyche of U.S. investors might change (and the world's attitudes towards equities in general) if something similar were to happen in America today.

I remember once reading about how a huge wave of U.S. investors after the 1929 crash only considered bonds to be for investment, and that stocks were de facto speculations. :twisted:
The market portfolio is always a legitimate portfolio.

User avatar
nisiprius
Advisory Board
Posts: 36877
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by nisiprius » Wed Sep 12, 2018 4:34 pm

I just noticed the Global X Permanent ETF, PERM, ceased trading on 10/06/17. I guess it was only a temporary ETF, after all.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
linenfort
Posts: 2143
Joined: Sat Sep 22, 2007 9:22 am
Location: #96151D

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by linenfort » Wed Sep 12, 2018 7:21 pm

nisiprius wrote:
Wed Sep 12, 2018 4:34 pm
I just noticed the Global X Permanent ETF, PERM, ceased trading on 10/06/17. I guess it was only a temporary ETF, after all.
😂 Well, the strategy is supposed to be unchanging. Some ETFs will come and go.
bogleheads, don't knock state lotteries. They helped defund the mafia.

User avatar
permport
Posts: 101
Joined: Sat Mar 31, 2018 11:20 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by permport » Sun Sep 16, 2018 9:39 pm

linenfort wrote:
Wed Sep 12, 2018 7:21 pm
nisiprius wrote:
Wed Sep 12, 2018 4:34 pm
I just noticed the Global X Permanent ETF, PERM, ceased trading on 10/06/17. I guess it was only a temporary ETF, after all.
😂 Well, the strategy is supposed to be unchanging. Some ETFs will come and go.
Given how passive the PP is, and given how having separate securities for each portion of the portfolio allows for greater control, it doesn't surprise me. (Although I'm sure there were other factors.)

Having one security per portion of the PP is probably ideal.
Buy right and hold tight.

User avatar
willthrill81
Posts: 6118
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by willthrill81 » Sun Sep 16, 2018 9:46 pm

permport wrote:
Sun Sep 16, 2018 9:39 pm
linenfort wrote:
Wed Sep 12, 2018 7:21 pm
nisiprius wrote:
Wed Sep 12, 2018 4:34 pm
I just noticed the Global X Permanent ETF, PERM, ceased trading on 10/06/17. I guess it was only a temporary ETF, after all.
😂 Well, the strategy is supposed to be unchanging. Some ETFs will come and go.
Given how passive the PP is, and given how having separate securities for each portion of the portfolio allows for greater control, it doesn't surprise me. (Although I'm sure there were other factors.)

Having one security per portion of the PP is probably ideal.
For the type of person interested in the PP, I would think that creating their own through four funds wouldn't be a problem over buying an all-in-one fund.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
permport
Posts: 101
Joined: Sat Mar 31, 2018 11:20 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by permport » Sun Sep 16, 2018 9:51 pm

willthrill81 wrote:
Sun Sep 16, 2018 9:46 pm
permport wrote:
Sun Sep 16, 2018 9:39 pm
linenfort wrote:
Wed Sep 12, 2018 7:21 pm
nisiprius wrote:
Wed Sep 12, 2018 4:34 pm
I just noticed the Global X Permanent ETF, PERM, ceased trading on 10/06/17. I guess it was only a temporary ETF, after all.
😂 Well, the strategy is supposed to be unchanging. Some ETFs will come and go.
Given how passive the PP is, and given how having separate securities for each portion of the portfolio allows for greater control, it doesn't surprise me. (Although I'm sure there were other factors.)

Having one security per portion of the PP is probably ideal.
For the type of person interested in the PP, I would think that creating their own through four funds wouldn't be a problem over buying an all-in-one fund.
Agreed -- especially since this allows one to put each security in the "correct" account for tax purposes and such.
Buy right and hold tight.

All Seasons
Posts: 78
Joined: Sun Dec 10, 2017 4:14 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by All Seasons » Mon Oct 22, 2018 8:24 pm

permport wrote:
Sun Sep 16, 2018 9:51 pm
willthrill81 wrote:
Sun Sep 16, 2018 9:46 pm
permport wrote:
Sun Sep 16, 2018 9:39 pm
linenfort wrote:
Wed Sep 12, 2018 7:21 pm
nisiprius wrote:
Wed Sep 12, 2018 4:34 pm
I just noticed the Global X Permanent ETF, PERM, ceased trading on 10/06/17. I guess it was only a temporary ETF, after all.
😂 Well, the strategy is supposed to be unchanging. Some ETFs will come and go.
Given how passive the PP is, and given how having separate securities for each portion of the portfolio allows for greater control, it doesn't surprise me. (Although I'm sure there were other factors.)

Having one security per portion of the PP is probably ideal.
For the type of person interested in the PP, I would think that creating their own through four funds wouldn't be a problem over buying an all-in-one fund.
Agreed -- especially since this allows one to put each security in the "correct" account for tax purposes and such.
Permport, what do you think are the implications for Browne's strategy when it comes to the latest literature regarding factor tilting?

It seems to me that Browne, later in life, decided that broad-based index funds were good enough for the PP due to the inherent simplicity. Earlier in his career however he advocated more small cap and volatile growth stocks. Now that ETFs and index funds have made factor exposure easier to obtain, it seems this idea perhaps has credence again. Malkiel's apparent acceptance of factors of late also lends potential legitimacy to this line of reasoning.
The market portfolio is always a legitimate portfolio.

User avatar
permport
Posts: 101
Joined: Sat Mar 31, 2018 11:20 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by permport » Sat Oct 27, 2018 2:45 pm

All Seasons wrote:
Mon Oct 22, 2018 8:24 pm
permport wrote:
Sun Sep 16, 2018 9:51 pm
willthrill81 wrote:
Sun Sep 16, 2018 9:46 pm
permport wrote:
Sun Sep 16, 2018 9:39 pm
linenfort wrote:
Wed Sep 12, 2018 7:21 pm


😂 Well, the strategy is supposed to be unchanging. Some ETFs will come and go.
Given how passive the PP is, and given how having separate securities for each portion of the portfolio allows for greater control, it doesn't surprise me. (Although I'm sure there were other factors.)

Having one security per portion of the PP is probably ideal.
For the type of person interested in the PP, I would think that creating their own through four funds wouldn't be a problem over buying an all-in-one fund.
Agreed -- especially since this allows one to put each security in the "correct" account for tax purposes and such.
Permport, what do you think are the implications for Browne's strategy when it comes to the latest literature regarding factor tilting?

It seems to me that Browne, later in life, decided that broad-based index funds were good enough for the PP due to the inherent simplicity. Earlier in his career however he advocated more small cap and volatile growth stocks. Now that ETFs and index funds have made factor exposure easier to obtain, it seems this idea perhaps has credence again. Malkiel's apparent acceptance of factors of late also lends potential legitimacy to this line of reasoning.
The factor tilting aspect has been applied to the PP already. Tyler, from the famous portfoliocharts.com website, has applied that idea to the PP and came up with the Golden Butterfly portfolio.

https://portfoliocharts.com/portfolio/golden-butterfly/

It backtests well, as you can imagine. The crux of the issue is whether you think the small cap value premium will persist going forward. In that regard, I recommend reading the works of Larry Swedroe.

My take? I don't bother with factor tilting, as I don't want to overcomplicate my portfolio. However, I wouldn't criticize anyone for adopting the Golden Butterfly or something similar.

P.S. I basically consider the Golden Butterfly to be the love child between the Permanent Portfolio and the Larry Portfolio. Take from that what you will. :D
Buy right and hold tight.

All Seasons
Posts: 78
Joined: Sun Dec 10, 2017 4:14 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by All Seasons » Sun Oct 28, 2018 4:08 pm

permport wrote:
Sat Oct 27, 2018 2:45 pm

The factor tilting aspect has been applied to the PP already. Tyler, from the famous portfoliocharts.com website, has applied that idea to the PP and came up with the Golden Butterfly portfolio.

https://portfoliocharts.com/portfolio/golden-butterfly/

It backtests well, as you can imagine. The crux of the issue is whether you think the small cap value premium will persist going forward. In that regard, I recommend reading the works of Larry Swedroe.

My take? I don't bother with factor tilting, as I don't want to overcomplicate my portfolio. However, I wouldn't criticize anyone for adopting the Golden Butterfly or something similar.

P.S. I basically consider the Golden Butterfly to be the love child between the Permanent Portfolio and the Larry Portfolio. Take from that what you will. :D
Thanks. It is a shame that craigr and MediumTex aren't still here to opine on some of the latest in PP theory and the state of the economy. Craig seems to have moved on with a new company, and who the heck knows where Tex is these days.
The market portfolio is always a legitimate portfolio.

User avatar
permport
Posts: 101
Joined: Sat Mar 31, 2018 11:20 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by permport » Wed Oct 31, 2018 1:06 am

All Seasons wrote:
Sun Oct 28, 2018 4:08 pm
permport wrote:
Sat Oct 27, 2018 2:45 pm

The factor tilting aspect has been applied to the PP already. Tyler, from the famous portfoliocharts.com website, has applied that idea to the PP and came up with the Golden Butterfly portfolio.

https://portfoliocharts.com/portfolio/golden-butterfly/

It backtests well, as you can imagine. The crux of the issue is whether you think the small cap value premium will persist going forward. In that regard, I recommend reading the works of Larry Swedroe.

My take? I don't bother with factor tilting, as I don't want to overcomplicate my portfolio. However, I wouldn't criticize anyone for adopting the Golden Butterfly or something similar.

P.S. I basically consider the Golden Butterfly to be the love child between the Permanent Portfolio and the Larry Portfolio. Take from that what you will. :D
Thanks. It is a shame that craigr and MediumTex aren't still here to opine on some of the latest in PP theory and the state of the economy. Craig seems to have moved on with a new company, and who the heck knows where Tex is these days.
If you are going to be doing backtests with the PP there's caveat you should take into consideration that many don't.

The PP isn't just a portfolio like, say, the Three Fund Portfolio. It's more than that. It's also got the cash management system and emergency fund built into its 25% cash allocation. As such, the performance of the PP is usually understated relative to traditional portfolios.

A typical 60/40 or Three Fund investor will measure the performance of the portfolio in isolation, but not consider the drag of their emergency fund and cash savings on total asset returns. The PP is sort of fighting with one hand behind its back as the cash aspect is built in.

A more accurate measure of PP performance versus more traditional portfolios would be a 33/33/33 split between the stocks, bonds, and gold respectively. Alternatively, you can keep the PP as it is and add a lump of cash to the 60/40 or Three Fund portfolio to account for the drag that is being ignored in those strategies.
Buy right and hold tight.

CULater
Posts: 1496
Joined: Sun Nov 13, 2016 10:59 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by CULater » Wed Oct 31, 2018 9:09 am

The PP isn't just a portfolio like, say, the Three Fund Portfolio. It's more than that. It's also got the cash management system and emergency fund built into its 25% cash allocation. As such, the performance of the PP is usually understated relative to traditional portfolios.
Not really. The classical PP splits it's bond allocation between long term treasuries and T-bills. The average duration of this combination is about the same as intermediate term treasuries, so effectively the PP holds 50% in intermediate term treasuries, with 25% gold and 25% U.S stocks.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

User avatar
weltschmerz
Posts: 379
Joined: Thu Jul 30, 2009 9:17 pm
Location: Calistan

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by weltschmerz » Wed Oct 31, 2018 9:29 am

All Seasons wrote:
Sun Oct 28, 2018 4:08 pm
Thanks. It is a shame that craigr and MediumTex aren't still here to opine on some of the latest in PP theory and the state of the economy. Craig seems to have moved on with a new company, and who the heck knows where Tex is these days.
For the latest discussions on the PP, be sure to check out the dedicated forum:
Gyroscopic Investing

I think Craig and Tex have moved on because there’s nothing left to learn about this portfolio. The PP has you covered no matter the economic conditions, so say the proponents. Set it and forget it.

I studied the PP many years ago, even listened to all of Harry Browne’s podcasts, which were instructive and entertaining. At the end of the day, 25% gold is just too high for my tastes, so I follow something closer to the 60/40 now.

Smith1776
Posts: 27
Joined: Fri Apr 21, 2017 5:37 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by Smith1776 » Wed Oct 31, 2018 5:02 pm

permport wrote:
Wed Oct 31, 2018 1:06 am
All Seasons wrote:
Sun Oct 28, 2018 4:08 pm
permport wrote:
Sat Oct 27, 2018 2:45 pm

The factor tilting aspect has been applied to the PP already. Tyler, from the famous portfoliocharts.com website, has applied that idea to the PP and came up with the Golden Butterfly portfolio.

https://portfoliocharts.com/portfolio/golden-butterfly/

It backtests well, as you can imagine. The crux of the issue is whether you think the small cap value premium will persist going forward. In that regard, I recommend reading the works of Larry Swedroe.

My take? I don't bother with factor tilting, as I don't want to overcomplicate my portfolio. However, I wouldn't criticize anyone for adopting the Golden Butterfly or something similar.

P.S. I basically consider the Golden Butterfly to be the love child between the Permanent Portfolio and the Larry Portfolio. Take from that what you will. :D
Thanks. It is a shame that craigr and MediumTex aren't still here to opine on some of the latest in PP theory and the state of the economy. Craig seems to have moved on with a new company, and who the heck knows where Tex is these days.
If you are going to be doing backtests with the PP there's caveat you should take into consideration that many don't.

The PP isn't just a portfolio like, say, the Three Fund Portfolio. It's more than that. It's also got the cash management system and emergency fund built into its 25% cash allocation. As such, the performance of the PP is usually understated relative to traditional portfolios.

A typical 60/40 or Three Fund investor will measure the performance of the portfolio in isolation, but not consider the drag of their emergency fund and cash savings on total asset returns. The PP is sort of fighting with one hand behind its back as the cash aspect is built in.

A more accurate measure of PP performance versus more traditional portfolios would be a 33/33/33 split between the stocks, bonds, and gold respectively. Alternatively, you can keep the PP as it is and add a lump of cash to the 60/40 or Three Fund portfolio to account for the drag that is being ignored in those strategies.
Yeah, this point has been discussed actually quite a few times on the Gyroscopic Investing forum. All of your chequing accounts, savings accounts, EF and all that can be lumped together as part of the cash allocation.

It's not just a portfolio for your investments, the PP is really more of a total wealth management system.

User avatar
permport
Posts: 101
Joined: Sat Mar 31, 2018 11:20 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by permport » Wed Oct 31, 2018 5:13 pm

Smith1776 wrote:
Wed Oct 31, 2018 5:02 pm

Yeah, this point has been discussed actually quite a few times on the Gyroscopic Investing forum. All of your chequing accounts, savings accounts, EF and all that can be lumped together as part of the cash allocation.

It's not just a portfolio for your investments, the PP is really more of a total wealth management system.
What's really interesting to me is that including your savings accounts and EF into the cash allocation of one's portfolio is kind of uniquely suited to the PP.

The PP is a very low volatility strategy, which allows for your EF and daily cash to be included in your investment portfolio with minimal risk. A higher volatility portfolio would probably require the cash allocation to be explicitly separate and off limits. :idea:
Buy right and hold tight.

staythecourse
Posts: 6126
Joined: Mon Jan 03, 2011 9:40 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by staythecourse » Wed Oct 31, 2018 5:22 pm

permport wrote:
Wed Oct 31, 2018 5:13 pm
Smith1776 wrote:
Wed Oct 31, 2018 5:02 pm

Yeah, this point has been discussed actually quite a few times on the Gyroscopic Investing forum. All of your chequing accounts, savings accounts, EF and all that can be lumped together as part of the cash allocation.

It's not just a portfolio for your investments, the PP is really more of a total wealth management system.
What's really interesting to me is that including your savings accounts and EF into the cash allocation of one's portfolio is kind of uniquely suited to the PP.

The PP is a very low volatility strategy, which allows for your EF and daily cash to be included in your investment portfolio with minimal risk. A higher volatility portfolio would probably require the cash allocation to be explicitly separate and off limits. :idea:
Not sure if that is correct. On the final version Mr. Browne was explicit at keeping that each asset be kept at 25%. I remember on one of his podcasts someone asking him if lengthening the LTT to 20+ years is preferable. He suggested not as the duration he rec. was around 16. If one had to remove part of their cash allocation (duration of <1 year by def.) it would in effect lengthen the total duration of the fixed income beyond what he recommended.

Of course, one could sell the other components to keep the allocation steady, but then again the idea is not sell any asset with possible cap. gain tax implication just because you have to to generate income for emergencies.

Hope others will chime in if he makes mention of EF on his "Fail Safe" book.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

Smith1776
Posts: 27
Joined: Fri Apr 21, 2017 5:37 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by Smith1776 » Wed Oct 31, 2018 6:38 pm

Since this thread has revived I thought I'd share a post I made on the Gyroscopic Investing forum regarding a new PP variant.

It's the traditional PP but with international diversification for the stock and bond portions and an allocation of silver to the precious metals.

I've been tinkering with this as a more robust alternative to the traditional PP with its greater diversification.

In my mind I've just been calling it the Super Permanent Portfolio. I know... it's a bit much. :mrgreen:
I've been working on and finally implemented an international Permanent Portfolio.

I'm a Canadian investor, and one of the biggest issues I've had intellectually is investing my money in a classic PP -- in other words, all my money domestically. Canada represents something like 3% of the total world's stock market capitalization and we have a tiny population. We are also really unbalanced sector-wise, with huge concentrations in banking and energy.

So what does one do? Do you simply put the stock portion of the PP into a global fund? Maybe, but, as some have pointed out, this means that the rest of your portfolio isn't responding to the same economic conditions as the stock portion is. You may lose some protection and "responsiveness" to underlying economic factors. So, let's add some international bonds? Sure, but the portfolio starts to look more and more complicated going down this path.

Recently, Vanguard released asset allocation ETFs in Canada that are diversified stock/bond portfolios in a single security. The one of interest to me was VCNS (Vanguard Conservative Portfolio). https://www.vanguardcanada.ca/individua ... /?overview

This ETF has 40% in international stocks and 60% in international investment grade bonds in sensible portions relative to the various geographic regions. Best of all, it's just one security. The bond portion nets out to being intermediate-term fixed-income. Perfect.

My precious metals security of choice is of the Sprott Physical variety: CEF. It has 2/3 in gold and 1/3 in silver. http://sprott.com/investment-strategies ... rusts/cef/

Now I've constructed my PP out of just these two securities:

25% in CEF - Sprott Physical Gold and Silver Trust
75% in VCNS - Vanguard Conservative Portfolio

The underlying holdings are thus:

- 17.5% gold
- 7.5% silver
- 30% international stocks
- 22.5% international long-term bonds
- 22.5% international short-term bonds

Many will take issue with the fact that CEF has some silver in addition to gold. That's a deviation that I personally just like for my taste. Also, the portfolio is ever so slight stock-heavy due to the 40/60 split in VCNS. It's not ideal, but close enough for me. An additional caveat is that while the bonds are all considered investment grade, they are not all government securities, and thus not free of credit risk. This, too, is a sacrifice I'm willing to make to get the international diversification I was seeking in addition to the simplicity of having only 2 securities in the whole account.

I've put together a portfolio I'm personally very satisfied with and accomplished what I set out to do: assemble a simple PP variant for a Canadian investor that wants international diversification. Just thought I'd share!

User avatar
permport
Posts: 101
Joined: Sat Mar 31, 2018 11:20 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by permport » Wed Oct 31, 2018 7:16 pm

Smith1776 wrote:
Wed Oct 31, 2018 6:38 pm
Since this thread has revived I thought I'd share a post I made on the Gyroscopic Investing forum regarding a new PP variant.

It's the traditional PP but with international diversification for the stock and bond portions and an allocation of silver to the precious metals.

I've been tinkering with this as a more robust alternative to the traditional PP with its greater diversification.

In my mind I've just been calling it the Super Permanent Portfolio. I know... it's a bit much. :mrgreen:
Super Permanent Portfolio????

That is both hilarious and bloody brilliant. The idea of a Super PP (SPP?) is very intriguing.

I've posted this before, but one of my primary attractions to the PP has been my desire to setup a family trust for my heirs and future generations to last indefinitely. I simply don't have confidence in more traditional portfolios like the classic 60/40 to withstand the test of time (say, 10 generations, or whatever it maybe). The PP has been the best portfolio I've found when it comes to balancing truly long-term wealth preservation in addition to a providing a reasonable CAGR.

This SPP idea seems like a PP on roids -- something potentially even more robust than Browne's original concept. I won't pull the trigger right away, as I will have to do some research here. However, I don't see any prima facie indicators of dissuasion.
Buy right and hold tight.

User avatar
LadyGeek
Site Admin
Posts: 48624
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by LadyGeek » Wed Oct 31, 2018 7:29 pm

FYI - The Permanent Portfolio is in the wiki. See: Lazy portfolios (Permanent Portfolio)
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

All Seasons
Posts: 78
Joined: Sun Dec 10, 2017 4:14 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by All Seasons » Wed Oct 31, 2018 8:01 pm

permport wrote:
Wed Oct 31, 2018 7:16 pm
Smith1776 wrote:
Wed Oct 31, 2018 6:38 pm
Since this thread has revived I thought I'd share a post I made on the Gyroscopic Investing forum regarding a new PP variant.

It's the traditional PP but with international diversification for the stock and bond portions and an allocation of silver to the precious metals.

I've been tinkering with this as a more robust alternative to the traditional PP with its greater diversification.

In my mind I've just been calling it the Super Permanent Portfolio. I know... it's a bit much. :mrgreen:
Super Permanent Portfolio????

That is both hilarious and bloody brilliant. The idea of a Super PP (SPP?) is very intriguing.

I've posted this before, but one of my primary attractions to the PP has been my desire to setup a family trust for my heirs and future generations to last indefinitely. I simply don't have confidence in more traditional portfolios like the classic 60/40 to withstand the test of time (say, 10 generations, or whatever it maybe). The PP has been the best portfolio I've found when it comes to balancing truly long-term wealth preservation in addition to a providing a reasonable CAGR.

This SPP idea seems like a PP on roids -- something potentially even more robust than Browne's original concept. I won't pull the trigger right away, as I will have to do some research here. However, I don't see any prima facie indicators of dissuasion.
It's such a simple and obvious extension to the original idea... As someone who is a PP fan I'm surprised I didn't already consider it. :shock:
The market portfolio is always a legitimate portfolio.

GRP
Posts: 40
Joined: Wed Nov 22, 2017 5:35 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by GRP » Thu Nov 01, 2018 12:59 am

Smith1776 wrote:
Wed Oct 31, 2018 6:38 pm
Since this thread has revived I thought I'd share a post I made on the Gyroscopic Investing forum regarding a new PP variant.

It's the traditional PP but with international diversification for the stock and bond portions and an allocation of silver to the precious metals.

I've been tinkering with this as a more robust alternative to the traditional PP with its greater diversification.

In my mind I've just been calling it the Super Permanent Portfolio. I know... it's a bit much. :mrgreen:
An allocation with utmost diversification between asset classes, geography, currency, and just about everything else... with no systemic biases towards any particular direction.

It might be more apt to borrow Bill Sharpe's term and call it the Perfect Portfolio. :beer

Smith1776
Posts: 27
Joined: Fri Apr 21, 2017 5:37 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by Smith1776 » Thu Nov 01, 2018 3:06 am

GRP wrote:
Thu Nov 01, 2018 12:59 am
Smith1776 wrote:
Wed Oct 31, 2018 6:38 pm
Since this thread has revived I thought I'd share a post I made on the Gyroscopic Investing forum regarding a new PP variant.

It's the traditional PP but with international diversification for the stock and bond portions and an allocation of silver to the precious metals.

I've been tinkering with this as a more robust alternative to the traditional PP with its greater diversification.

In my mind I've just been calling it the Super Permanent Portfolio. I know... it's a bit much. :mrgreen:
An allocation with utmost diversification between asset classes, geography, currency, and just about everything else... with no systemic biases towards any particular direction.

It might be more apt to borrow Bill Sharpe's term and call it the Perfect Portfolio. :beer
Perfectly balanced. As all things should be. :D :D :D

Image

User avatar
permport
Posts: 101
Joined: Sat Mar 31, 2018 11:20 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by permport » Thu Nov 01, 2018 5:23 pm

My friends, here are some back test results for the Super Permanent Portfolio (or "Perfect Portfolio", whatever you want to call it).

Portfolio 1 has unhedged global bonds. Portfolio 2 has hedged global bonds. Portfolio 3 is the classic 60/40 portfolio.

The data set is short, so obviously take this with a yuuuuge truck load of salt. Be that as it may, it's still nice to see some results. Take them as you will. It's interesting that the hedged/unhedged portfolio results are so similar.

Image

Edit: Sorry, I forgot to include the precise allocations.

Image
Buy right and hold tight.

All Seasons
Posts: 78
Joined: Sun Dec 10, 2017 4:14 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by All Seasons » Thu Nov 01, 2018 7:50 pm

permport wrote:
Thu Nov 01, 2018 5:23 pm
My friends, here are some back test results for the Super Permanent Portfolio (or "Perfect Portfolio", whatever you want to call it).

Portfolio 1 has unhedged global bonds. Portfolio 2 has hedged global bonds. Portfolio 3 is the classic 60/40 portfolio.

The data set is short, so obviously take this with a yuuuuge truck load of salt. Be that as it may, it's still nice to see some results. Take them as you will. It's interesting that the hedged/unhedged portfolio results are so similar.
Thanks for test results, permport. I'm very much partial to the portfolio with the unhedged international bond allocation.
The market portfolio is always a legitimate portfolio.

GRP
Posts: 40
Joined: Wed Nov 22, 2017 5:35 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by GRP » Thu Nov 01, 2018 11:21 pm

permport wrote:
Thu Nov 01, 2018 5:23 pm
My friends, here are some back test results for the Super Permanent Portfolio (or "Perfect Portfolio", whatever you want to call it).

Portfolio 1 has unhedged global bonds. Portfolio 2 has hedged global bonds. Portfolio 3 is the classic 60/40 portfolio.

The data set is short, so obviously take this with a yuuuuge truck load of salt. Be that as it may, it's still nice to see some results. Take them as you will. It's interesting that the hedged/unhedged portfolio results are so similar.
Super Permanent Portfolio is a better name than Perfect Portfolio... less pompous. :D

Smith1776
Posts: 27
Joined: Fri Apr 21, 2017 5:37 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by Smith1776 » Fri Nov 02, 2018 1:17 am

As others have mentioned, the backtests need to be taken with a big grain of salt. Starting date in particular matters a lot.

Nonetheless, I'm quite pleasantly surprised at the numbers for the SPP. Cheers, guys. :beer

User avatar
linenfort
Posts: 2143
Joined: Sat Sep 22, 2007 9:22 am
Location: #96151D

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by linenfort » Fri Nov 02, 2018 6:54 am

staythecourse wrote:
Wed Oct 31, 2018 5:22 pm
...Mr. Browne... I remember on one of his podcasts someone asking him if lengthening the LTT to 20+ years is preferable. He suggested not as the duration he rec. was around 16. If one had to remove part of their cash allocation (duration of <1 year by def.) it would in effect lengthen the total duration of the fixed income beyond what he recommended.

Are you sure you’re not thinking of someone else? In the Money Talk archives, Browne always said to go for the longest LTTs currently 30 years (I know you used the word “duration” whereas this is maturity.)

He acknowledged that 30-year bonds were no longer available at the time of the caller’s question, and said to just buy the longest bonds possible on the secondary market.

In a later show, 30-years must have been offered again because someone asked him about TLT, the 20+ year treasury ETF. He wanted to find out more about it, but said that it sounded ideal.
bogleheads, don't knock state lotteries. They helped defund the mafia.

staythecourse
Posts: 6126
Joined: Mon Jan 03, 2011 9:40 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by staythecourse » Fri Nov 02, 2018 8:09 am

linenfort wrote:
Fri Nov 02, 2018 6:54 am
staythecourse wrote:
Wed Oct 31, 2018 5:22 pm
...Mr. Browne... I remember on one of his podcasts someone asking him if lengthening the LTT to 20+ years is preferable. He suggested not as the duration he rec. was around 16. If one had to remove part of their cash allocation (duration of <1 year by def.) it would in effect lengthen the total duration of the fixed income beyond what he recommended.

Are you sure you’re not thinking of someone else? In the Money Talk archives, Browne always said to go for the longest LTTs currently 30 years (I know you used the word “duration” whereas this is maturity.)

He acknowledged that 30-year bonds were no longer available at the time of the caller’s question, and said to just buy the longest bonds possible on the secondary market.

In a later show, 30-years must have been offered again because someone asked him about TLT, the 20+ year treasury ETF. He wanted to find out more about it, but said that it sounded ideal.
No I am sure he did not want the DURATION of 30 years. He wanted the longest date to maturation as it increases the duration, but a duration of 30 years would mean you would buy ALL your 25% of your LTT bucket at newly released 30 year treasuries then sell them all at 1 year and buy all new 30 year treasuries. On one of his podcast someone asked about zero coupon 30 years treasuries. He said not as they were too volatile as part of only 25% of the portfolio. Again, I am talking about duration and not maturity.

I do remember your point and he meant at that time since you couldn't buy 30 year treasuries (since been changed of course) just buy the longest ones in relation to MATURITY.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

User avatar
linenfort
Posts: 2143
Joined: Sat Sep 22, 2007 9:22 am
Location: #96151D

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by linenfort » Fri Nov 02, 2018 8:45 am

linenfort wrote:
Fri Nov 02, 2018 6:54 am
staythecourse wrote:
Wed Oct 31, 2018 5:22 pm
...Mr. Browne... I remember on one of his podcasts someone asking him if lengthening the LTT to 20+ years is preferable. He suggested not as the duration he rec. was around 16. If one had to remove part of their cash allocation (duration of <1 year by def.) it would in effect lengthen the total duration of the fixed income beyond what he recommended.

Are you sure you’re not thinking of someone else? In the Money Talk archives, Browne always said to go for the longest LTTs currently 30 years (I know you used the word “duration” whereas this is maturity.)

He acknowledged that 30-year bonds were no longer available at the time of the caller’s question, and said to just buy the longest bonds possible on the secondary market.

In a later show, 30-years must have been offered again because someone asked him about TLT, the 20+ year treasury ETF. He wanted to find out more about it, but said that it sounded ideal.
staythecourse wrote:
Fri Nov 02, 2018 8:09 am
He wanted the longest date to maturation as it increases the duration
On that point, our memories agree. Harry wanted maximum maturity for massive duration. Beyond that, I don't think he ever spoke about the specific duration of the portfolio's holdings. As far as instructions go, it was to hold the long bonds until there were 20 years left on them, sell those, and replace them with new 30-year bonds.

I guess the part I don't understand is where you said
someone asking him if lengthening the LTT to 20+ years is preferable. He suggested not
Not the entire portfolio but LTTs? :? Was that the call about zeroes to which you referred? What is the effective average duration of EDV?
bogleheads, don't knock state lotteries. They helped defund the mafia.

staythecourse
Posts: 6126
Joined: Mon Jan 03, 2011 9:40 am

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by staythecourse » Fri Nov 02, 2018 10:37 am

linenfort wrote:
Fri Nov 02, 2018 8:45 am
linenfort wrote:
Fri Nov 02, 2018 6:54 am
staythecourse wrote:
Wed Oct 31, 2018 5:22 pm
...Mr. Browne... I remember on one of his podcasts someone asking him if lengthening the LTT to 20+ years is preferable. He suggested not as the duration he rec. was around 16. If one had to remove part of their cash allocation (duration of <1 year by def.) it would in effect lengthen the total duration of the fixed income beyond what he recommended.

Are you sure you’re not thinking of someone else? In the Money Talk archives, Browne always said to go for the longest LTTs currently 30 years (I know you used the word “duration” whereas this is maturity.)

He acknowledged that 30-year bonds were no longer available at the time of the caller’s question, and said to just buy the longest bonds possible on the secondary market.

In a later show, 30-years must have been offered again because someone asked him about TLT, the 20+ year treasury ETF. He wanted to find out more about it, but said that it sounded ideal.
staythecourse wrote:
Fri Nov 02, 2018 8:09 am
He wanted the longest date to maturation as it increases the duration
On that point, our memories agree. Harry wanted maximum maturity for massive duration. Beyond that, I don't think he ever spoke about the specific duration of the portfolio's holdings. As far as instructions go, it was to hold the long bonds until there were 20 years left on them, sell those, and replace them with new 30-year bonds.

I guess the part I don't understand is where you said
someone asking him if lengthening the LTT to 20+ years is preferable. He suggested not
Not the entire portfolio but LTTs? :? Was that the call about zeroes to which you referred? What is the effective average duration of EDV?
My bad, I meant duration out to 30 years like in zero coupon bonds. You are correct I think he would be happy around 20 years. TLT I see is a pretty good substitute if one does some backfill analysis to what his approach is suggested and final outcomes.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

User avatar
linenfort
Posts: 2143
Joined: Sat Sep 22, 2007 9:22 am
Location: #96151D

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by linenfort » Fri Nov 02, 2018 2:06 pm

I see.
Thanks!
bogleheads, don't knock state lotteries. They helped defund the mafia.

All Seasons
Posts: 78
Joined: Sun Dec 10, 2017 4:14 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by All Seasons » Fri Nov 02, 2018 5:43 pm

Smith1776 wrote:
Fri Nov 02, 2018 1:17 am
As others have mentioned, the backtests need to be taken with a big grain of salt. Starting date in particular matters a lot.

Nonetheless, I'm quite pleasantly surprised at the numbers for the SPP. Cheers, guys. :beer
I've been doing some thinking on the SPP concept, and it seems to me that the SPP is the best formal approach we have to the idealized global asset portfolio.

What's particularly great is that the portfolio still has Browne's underpinnings of having assets that respond in different ways to various underlying economic conditions. The only difference is that the portfolio is now doing this in a global context rather than a local one.

The SPP idea basically does to asset classes what the index fund did to individual securities. It holds everything and has no bias towards anything. I imagine this allocation would stand the test of time better than more traditional allocations.

Who knows who's right about the future? Maybe Buffett and Bogle are right about the U.S. centric view and the dominance of stocks in general. Maybe Dent is right about deflation. Maybe Schiff and Dalio are right about precious metals and inflation. Maybe Cuban is right about holding cash and being opportunistic. Maybe Swedroe is right about holding international. It's hard to know who's right, and with the SPP you don't have to.
The market portfolio is always a legitimate portfolio.

GRP
Posts: 40
Joined: Wed Nov 22, 2017 5:35 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by GRP » Sat Nov 03, 2018 10:59 pm

A great video for those interested in the SPP. A discussion on the state of the dollar in a global context relative to other currencies and gold.

https://www.youtube.com/watch?v=jrLrmalthC0

All Seasons
Posts: 78
Joined: Sun Dec 10, 2017 4:14 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by All Seasons » Fri Nov 16, 2018 4:43 am

permport wrote:
Wed Oct 31, 2018 1:06 am
If you are going to be doing backtests with the PP there's caveat you should take into consideration that many don't.

The PP isn't just a portfolio like, say, the Three Fund Portfolio. It's more than that. It's also got the cash management system and emergency fund built into its 25% cash allocation. As such, the performance of the PP is usually understated relative to traditional portfolios.

A typical 60/40 or Three Fund investor will measure the performance of the portfolio in isolation, but not consider the drag of their emergency fund and cash savings on total asset returns. The PP is sort of fighting with one hand behind its back as the cash aspect is built in.

A more accurate measure of PP performance versus more traditional portfolios would be a 33/33/33 split between the stocks, bonds, and gold respectively. Alternatively, you can keep the PP as it is and add a lump of cash to the 60/40 or Three Fund portfolio to account for the drag that is being ignored in those strategies.
I've done some thinking on this matter and I think you're more correct than you even suspected. The PP is fighting with two hands tied behind its back. It hasn't really been fairly represented in modern discussion. Consider these two passages of Browne's work.

Image

Image

In the first screenshot we see that Browne did indeed imply that your chequing accounts, savings accounts, and emergency fund are to be included in the PP. (The rest of the chapter confirms this.) This indeed also means that most comparisons with other portfolios aren't apple-to-apples. Most 60/40 and Three Fund investors have a habit of conveniently leaving out their cash hoards when comparing their strategies with the PP. You need to either exclude cash from the PP or include cash in competing portfolios to get a meaningful comparison.

The second screenshot clearly shows TSM funds are not appropriate for the PP. Browne recommends smaller, more volatile and aggressive stocks. Keep in mind that this was published back in 1987, so phrases like "small cap value" were not in vogue. The Fama-French Three Factor Model wasn't even published till 1992. Browne was ahead of his time. Again, the PP is often misrepresented as ppl use TSM funds when making comparisons.

A more accurate picture of the PP would be something like 1/3 each in SCV, Gold, and Long Treasurys respectively. (Alternatively, you can add cash to the competing portfolio to level the playing field too.) The performance of the portfolio thus becomes something more like:

Image

Portfolio 1 is the PP. Portfolio 2 is 60/40. The PP performs very admirably. Keep in mind that this even excludes the crazy gold run up of the early and mid-1970s that people like to harp on as being the PP's crutch.
The market portfolio is always a legitimate portfolio.

rich126
Posts: 157
Joined: Thu Mar 01, 2018 4:56 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by rich126 » Fri Nov 16, 2018 9:47 am

Interesting comparison.

Not sure how important these observations are but I'll note:
There was a 54% gain for the PP in 1979 due to gold's 127% rise.
Overall there were 8 declines in the PP and only 5 in the 60/40 but the 16.9% in the 60/40 certainly hurt its performance.

If you redid this to start in 1980 the CAGs are 9.03 vs. 10.05. Similar best years but the max drawdown is only 17.73 in the PP compared to 27.98. Still not a bad performance for the "alternate" PP of 1/3 SCV/GLD/LTT.

Thanks.

pascalwager
Posts: 1247
Joined: Mon Oct 31, 2011 8:36 pm

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by pascalwager » Sat Nov 17, 2018 1:06 am

All Seasons wrote:
Fri Nov 16, 2018 4:43 am
permport wrote:
Wed Oct 31, 2018 1:06 am
If you are going to be doing backtests with the PP there's caveat you should take into consideration that many don't.

The PP isn't just a portfolio like, say, the Three Fund Portfolio. It's more than that. It's also got the cash management system and emergency fund built into its 25% cash allocation. As such, the performance of the PP is usually understated relative to traditional portfolios.

A typical 60/40 or Three Fund investor will measure the performance of the portfolio in isolation, but not consider the drag of their emergency fund and cash savings on total asset returns. The PP is sort of fighting with one hand behind its back as the cash aspect is built in.

A more accurate measure of PP performance versus more traditional portfolios would be a 33/33/33 split between the stocks, bonds, and gold respectively. Alternatively, you can keep the PP as it is and add a lump of cash to the 60/40 or Three Fund portfolio to account for the drag that is being ignored in those strategies.
I've done some thinking on this matter and I think you're more correct than you even suspected. The PP is fighting with two hands tied behind its back. It hasn't really been fairly represented in modern discussion. Consider these two passages of Browne's work.

Image

Image

In the first screenshot we see that Browne did indeed imply that your chequing accounts, savings accounts, and emergency fund are to be included in the PP. (The rest of the chapter confirms this.) This indeed also means that most comparisons with other portfolios aren't apple-to-apples. Most 60/40 and Three Fund investors have a habit of conveniently leaving out their cash hoards when comparing their strategies with the PP. You need to either exclude cash from the PP or include cash in competing portfolios to get a meaningful comparison.

The second screenshot clearly shows TSM funds are not appropriate for the PP. Browne recommends smaller, more volatile and aggressive stocks. Keep in mind that this was published back in 1987, so phrases like "small cap value" were not in vogue. The Fama-French Three Factor Model wasn't even published till 1992. Browne was ahead of his time. Again, the PP is often misrepresented as ppl use TSM funds when making comparisons.

A more accurate picture of the PP would be something like 1/3 each in SCV, Gold, and Long Treasurys respectively. (Alternatively, you can add cash to the competing portfolio to level the playing field too.) The performance of the portfolio thus becomes something more like:

Image

Portfolio 1 is the PP. Portfolio 2 is 60/40. The PP performs very admirably. Keep in mind that this even excludes the crazy gold run up of the early and mid-1970s that people like to harp on as being the PP's crutch.
Browne may have been thinking of small growth companies rather than small value. Using PV the standard deviation for small growth since 1972 was 21.06 and 17.72 for small value. Or maybe he was just thinking of small companies in general.
Preferred AA: Total US and foreign stock markets and short-term Treasury fixed income

User avatar
linenfort
Posts: 2143
Joined: Sat Sep 22, 2007 9:22 am
Location: #96151D

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by linenfort » Sat Nov 17, 2018 5:55 am

All Seasons wrote:
Fri Nov 16, 2018 4:43 am
The second screenshot clearly shows TSM funds are not appropriate for the PP. Browne recommends smaller, more volatile and aggressive stocks. Keep in mind that this was published back in 1987, so phrases like "small cap value" were not in vogue.

While that’s true for 1987, he definitely switched to the S&P in his final iteration of the pp. He mentions it regularly in the radio archives.

That said, plenty of pp investors are happy to tweak their stock portion for more volatility.
bogleheads, don't knock state lotteries. They helped defund the mafia.

Post Reply