Harry Browne Permanent Portfolio Discussion (Cont'd)

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Clearly_Irrational
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Re: Re:

Post by Clearly_Irrational » Tue Oct 25, 2011 5:58 pm

craigr wrote:How did a stock/bond only portfolio do on real return terms during the 1970s and 2000s?
I'm not sure what portfolio to use as a fair comparison, so it's hard to say. Most Total Stock Market / Total Bond market combos would have compared poorly during those time frames.

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

Post by craigr » Tue Oct 25, 2011 6:08 pm

Clearly_Irrational wrote:Most Total Stock Market / Total Bond market combos would have compared poorly during those time frames.
Yep they did. So in other words gold was a drag on the portfolio up until the point where it wasn't a drag. In which case it was actually pretty useful. The Permanent Portfolio hasn't had a 10 year period of zero or negative real returns. It is usually in that +3.5% real return range. Stock and bond portfolios can't claim that.

So are cash and bonds drags on performance? Well compared to other approaches they are not. In fact during the decade of the 1970s and 2000s gold was really a good thing to own to diversify against stock and bond risks. That's 20 of the 40 years of data you have or roughly 50% of the time. So the case that gold and cash are drags on portfolio performance is not so cut and dry. Like most things in investing it comes down to: "It depends"
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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by Clearly_Irrational » Tue Oct 25, 2011 6:10 pm

Indices wrote:What you backtested isn't the permanent portfolio. I'm not even sure what you are backtesting. Not that backtesting tells us anything about future returns.

VUSTX is not only long term bonds.
Yes, a mutual fund of long term treasuries is not the same as holding actual treasuries, but for this purpose I think it's reasonably close. If you care, here is where the return data is from:

Tamasset Spreadsheet 1972-1986
Vanguards Long Term Treasury(VUSTX) 1987-2010

Obviously Harry Brown recommends holding actual physical gold which has some nice additional properties other than the returns & correlation but that's not relevant to this particular comment.

I actually like the permanent portfolio and I'd say this is a fair representation of the intent / design for comparison purposes. If someone can point out a serious misrepresentation in that I'd actually really like to hear it.

There is a difference between backtesting and curve fitting. If you're claiming that any prior historical data is completely worthless then all investing decisions, including the permanent portfolio, are impossible to make on any sort of rational basis. You wouldn't even be able to say something as simple as "bonds tend to be safer than stocks" or "gold behaves differently than cash".

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

Post by craigr » Tue Oct 25, 2011 6:15 pm

Clearly_Irrational wrote:I actually like the permanent portfolio and I'd say this is a fair representation of the intent / design for comparison purposes. If someone can point out a serious misrepresentation in that I'd actually really like to hear it.
That data is fine for modeling concepts.

I think the concept though that is being seen is that the portfolio returned real 3-5% through the past several decades. But the reason I asked about alternative stock/bond allocations is because they haven't done that.

One of my own personal goals with investing is low volatility and real returns in that +3-5% range over various economic climates. The Permanent Portfolio has done that. If that's not what someone is looking for then it's not for them.
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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by Clearly_Irrational » Tue Oct 25, 2011 6:29 pm

I like the non-predictive balanced nature of it. Overall I'd say it's probably a good choice for investors who can live with a lower expected return in return for the extra safety it provides. Tracking error would make it hard for many people to keep executing it properly during times of prosperity.

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

Post by Indices » Tue Oct 25, 2011 7:20 pm

Clearly_Irrational wrote:
Indices wrote:What you backtested isn't the permanent portfolio. I'm not even sure what you are backtesting. Not that backtesting tells us anything about future returns.

VUSTX is not only long term bonds.
Yes, a mutual fund of long term treasuries is not the same as holding actual treasuries, but for this purpose I think it's reasonably close. If you care, here is where the return data is from:

Tamasset Spreadsheet 1972-1986
Vanguards Long Term Treasury(VUSTX) 1987-2010

Obviously Harry Brown recommends holding actual physical gold which has some nice additional properties other than the returns & correlation but that's not relevant to this particular comment.

I actually like the permanent portfolio and I'd say this is a fair representation of the intent / design for comparison purposes. If someone can point out a serious misrepresentation in that I'd actually really like to hear it.

There is a difference between backtesting and curve fitting. If you're claiming that any prior historical data is completely worthless then all investing decisions, including the permanent portfolio, are impossible to make on any sort of rational basis. You wouldn't even be able to say something as simple as "bonds tend to be safer than stocks" or "gold behaves differently than cash".
I clearly stated it is useless for predicting returns. I did not say it is completely worthless at all. Obviously backtesting is useful for seeing how assets behave in certain environments. The Securities and Exchange Commission agrees and mandates that all mutual funds prominently say as much in their prospectuses and advertisements.

Also VUSTX is only 50 per cent long term bonds, the rest are bonds with shorter maturities so that would greatly affect the returns you looked at. I would suggest replacing that with some new information.

To get the permanent portfolio you have to understand that its adherents (I am one of them) no longer believe in the concept of expected returns. This is hard for a lot of people to stomach because it is essentially stating that a stock heavy portfolio might not necessarily succeed, particularly since it is based on the example of one country over the past 80 years or so which isn't much data to extrapolate with.

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

Post by Clearly_Irrational » Tue Oct 25, 2011 7:43 pm

Indices wrote:I clearly stated it is useless for predicting returns. I did not say it is completely worthless at all. Obviously backtesting is useful for seeing how assets behave in certain environments. The Securities and Exchange Commission agrees and mandates that all mutual funds prominently say as much in their prospectuses and advertisements.

Also VUSTX is only 50 per cent long term bonds, the rest are bonds with shorter maturities so that would greatly affect the returns you looked at. I would suggest replacing that with some new information.

To get the permanent portfolio you have to understand that its adherents (I am one of them) no longer believe in the concept of expected returns. This is hard for a lot of people to stomach because it is essentially stating that a stock heavy portfolio might not necessarily succeed, particularly since it is based on the example of one country over the past 80 years or so which isn't much data to extrapolate with.
Here is the current data for VUSTX

Overall Portfolio Composition (%)
Cash: 7.54
Stocks: 0.00
Bonds: 92.46
Other: 0.00
Top 10 Holdings (92.69% of Total Assets)
Company Symbol % Assets YTD Return %
US Treasury Bond 6.25% N/A 13.86 N/A
US Treasury Bond 7.875% N/A 12.07 N/A
United States Treas Bds 3.5% N/A 11.40 N/A
United States Treas Bds 6.25% N/A 10.64 N/A
US Treasury Bond 3.5% N/A 10.47 N/A
US Treasury Bond 3.875% N/A 7.29 N/A
US Treasury Bond 5% N/A 7.26 N/A
United States Treas Bds 5.375% N/A 6.77 N/A
United States Treas Bds 4.5% N/A 6.47 N/A
US Treasury Bond 4.5% N/A 6.46 N/A

Bond Holdings
Averages VUSTX Category Avg
Maturity 21.30 19.08
Duration 13.22 13.15
Credit Quality NaN AAA

Not exactly the same obviously but I'd be pretty surprised if the performance wasn't fairly close, but if you've got better data from somewhere else, by all means, let's see it. Assuming you're running a bond ladder of 30 year treasuries I think it would be difficult to do much better than that.

While I'm certainly not saying that expected returns = future returns, if we completely throw out all of that data there is no way to be sure that even the permanent portfolio will have positive future returns at all and we're essentially just speculating. Based on long term history I think it's fair to say things like "Over the long run stocks will outperform other asset types and have a positive return", oh and by the way, if that's false you should be diversifying into bullets and shelf stable food because our society will probably collapse. That would mean that it would be impossible to profitably invest capital. Stocks are darn scary though and you, I, and everyone else do our best to mitigate some of that scaryness, of which the permanent portfolio is one way. (long term meaning over multiple decades)

This conversation is actually pretty funny since Harry Browne did some pretty significant backtesting of his own before recommending it.

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

Post by Lbill » Tue Oct 25, 2011 8:55 pm

Using Simba's back-testing spreadsheet, we see that the PP (25% VTSMX, VUSTX, VMPXX, GLD) had about the same average annual return, volatility, and risk-adjusted return as a portfolio of 1/3 VTSMX, 2/3 5-Yr Treasurys from 1972-2010. This 39-year period breaks down into 3 periods. The first nine years the real return of the PP exceeded the real return of the stock-bond portfolio by an annual average of 7.2%. By 1981, everyone wanted to own gold, no-one wanted to own stocks and 10-year treasuries had to be offered at 16% to clear. That was a good time to take the other side of the trade. The next 21 years, the real return of the stock-bond portfolio exceeded the PP by an annual average of 4.0%. By 2000, everyone wanted to own stocks and gold had reached a low of $250/oz. That was a good time to take the other side of that trade. In the last nine year period, the real return of the PP exceeded the stock-bond portfolio by an annual average of 2.6%. The broad stock market is where it was 12 years ago, and gold is $1700/oz. The 10-year treasury is so desirable that it only takes an interest rate of 2% to clear the market. Which side of the trade is likely to be the right one over the next decade or two?
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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by Indices » Wed Oct 26, 2011 9:19 am

[quote="Clearly_Irrational
While I'm certainly not saying that expected returns = future returns, if we completely throw out all of that data there is no way to be sure that even the permanent portfolio will have positive future returns at all and we're essentially just speculating. Based on long term history I think it's fair to say things like "Over the long run stocks will outperform other asset types and have a positive return", oh and by the way, if that's false you should be diversifying into bullets and shelf stable food because our society will probably collapse. That would mean that it would be impossible to profitably invest capital. Stocks are darn scary though and you, I, and everyone else do our best to mitigate some of that scaryness, of which the permanent portfolio is one way. (long term meaning over multiple decades)

This conversation is actually pretty funny since Harry Browne did some pretty significant backtesting of his own before recommending it.[/quote]

My problem is that I look at the backtesting data from other countries over longer periods than the 20th century and come away with a completely different conclusion than yours. I do not think stocks are guaranteed to outperform bonds as there are several countries that issue bonds and no longer have stock markets at all. I am looking at the longer term in its truest sense, i.e. my lifespan, not "multiple decades" which I think is a short period.

I know Harry Browne did backtesting. Nowhere did I say that backtesting was a bad thing in general, and I think it is very useful in some ways. It is just not useful in predicting future "expected" returns. Backtesting is very useful in seeing how asset classes behave. There is more to backtesting than just predicting future returns.

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

Post by Clearly_Irrational » Wed Oct 26, 2011 10:29 am

Indices wrote:My problem is that I look at the backtesting data from other countries over longer periods than the 20th century and come away with a completely different conclusion than yours. I do not think stocks are guaranteed to outperform bonds as there are several countries that issue bonds and no longer have stock markets at all. I am looking at the longer term in its truest sense, i.e. my lifespan, not "multiple decades" which I think is a short period.
I would argue that if they didn't have a mostly free market and something at least resembling public corporations then you're probably comparing apples and oranges. With the exception of Amsterdam and Paris which started earlier, most I know of started in the 1800s and are still around (in merged form) and doing fine. Obviously if there is some sort of political upheaval and the country abandons capitalism (Russia) or there is a collapse of the currency (Germany) then your results will be different. If a country doesn't even have a stock market, then there is a good chance they are running on an older economic model and none of this information applies anyways.

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Re: New Predictions Requested From Medium Tex

Post by Clearly_Irrational » Wed Oct 26, 2011 4:28 pm

MediumTex wrote:
Reubin wrote:Tex, you are truly a Boglehead treasure! Now how about some predictions for 2011?
I may just retire after calling 2010 pretty well. :)

I will probably get clocked in 2011. That's normally what follows a few good calls.
Well then, it's obvious what you should do, make some predictions then short the heck out of yourself!

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Re:

Post by Clearly_Irrational » Wed Oct 26, 2011 5:26 pm

Dr1Gonzo wrote:Risky in what way?! This is what stop losses are for.
SHorting stocks is no more risky than going long.
Having actually shorted things before I can say that is categorically not true. Stop losses are a trigger not a guarantee, significant slippage or even an unfilled order can occur.

I'm not advocating this since I think it violates the whole idea of the permanent portfolio, but if you wanted to include downside bets I would use options or an inverse ETF.

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Re: New Predictions Requested From Medium Tex

Post by Reubin » Wed Oct 26, 2011 5:41 pm

Clearly_Irrational wrote:
MediumTex wrote:
Reubin wrote:Tex, you are truly a Boglehead treasure! Now how about some predictions for 2011?
I may just retire after calling 2010 pretty well. :)

I will probably get clocked in 2011. That's normally what follows a few good calls.
Well then, it's obvious what you should do, make some predictions then short the heck out of yourself!
Actually, Tex has done a pretty good job this year of predicting the LTT windfall that took place a few months ago, as well. But his greatest asset is knowing, as Harry Browne preached, that the future is truly unknowable.

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Permanent Portfolio 2011 Results

Post by craigr » Sun Jan 01, 2012 1:22 pm

Well 2011 was an interesting year. New gold highs and bond yield lows. The year was very volatile overall, but the Permanent Portfolio built with ETFs managed to pull in +11% and change. Full breakdown is here:

http://crawlingroad.com/blog/2012/01/01 ... 1-results/

Have a great new year everyone!
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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by steve roy » Sun Jan 01, 2012 1:51 pm

Permanent Portfolio out-performed my 70/30 bond/stock holdings by 6%. On the other hand, my huge slug of Vanguard Treasury Inflation Protected Securities ended up at 13%.

I think the PP has value, but I shrink from plunging in all the way. (Cowardly me.) Instead, I do the Larry Swedroe thing, heavily weight to bonds with a 30% slice of equities.

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

Post by MediumTex » Mon Jan 02, 2012 1:08 pm

steve roy wrote: I think the PP has value, but I shrink from plunging in all the way.
Given that the PP has basically been chugging along for 40 years in spite of all arguments for why it shouldn't work, is there anything that the PP could do that would make you stop shrinking from it?

I ask this question because I think a lot of people feel like you do, and I am always trying to understand what evidence it would take to overcome certain types of skepticism, or whether there is some baseline of skepticism that isn't subject to revision through any amount of evidence.
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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by beardsworth » Mon Jan 02, 2012 1:44 pm

MediumTex wrote:
steve roy wrote: I think the PP has value, but I shrink from plunging in all the way.
Given that the PP has basically been chugging along for 40 years in spite of all arguments for why it shouldn't work, is there anything that the PP could do that would make you stop shrinking from it?

I ask this question because I think a lot of people feel like you do, and I am always trying to understand what evidence it would take to overcome certain types of skepticism, or whether there is some baseline of skepticism that isn't subject to revision through any amount of evidence.
Can't speak for steve roy, but . . .

Acknowledging, as always in discussions on this subject, that the Permanent Portfolio mutual fund (PRPFX) is not identical to the classic Harry Browne permanent portfolio, this chart, comparing it to plain ol' vanilla Vanguard Wellesley, may help to illustrate the time dependency of people's impressions of the permanent portfolio concept--or, for that matter, of any mutual fund--and may explain a lingering degree of "skepticism" based on "evidence." And I don't think that even adherence to the classic Browne allocation could possibly have overcome the enormous gap illustrated here.

I don't own Wellesley, but just picked it as an example of a simple conservative stocks-and-bonds fund with a history going back at least as far as the 1982 inception of PRPFX.

http://quote.morningstar.com/fund/chart ... %2C0%22%7D

"To every thing there is a season . . ."

Marc

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

Post by Roy » Mon Jan 02, 2012 2:13 pm

I prefer to compare the Harry Browne version—the original quartile concept—with VWINX (or anything else). I view PRPFX as a more expensive too-smart-by-half alternative, even as it has had success and is popular.

Without cherry-picking the time, the Harry Browne portfolio can be tracked to 1972; Wellesley to 1970. Last I looked (going back to the common startpoint in 1972), they have both performed admirably and to similar effects in cost-adjusted Gross Returns and Standard Deviation, across that larger time frame.

The Harry advocates might say it did demonstrably better during the hyper-inflation period regarding Real returns. Wellesley has the attractiveness of being one-stop (like PRPFX only cheaper). They both performed well in the worst Bear years, though the Harry portfolio had smaller drawdowns; here, one has simply to compare the specific years. They both represent successful (in past) low-cost approaches, one clearly more passive than the other.

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

Post by steve roy » Mon Jan 02, 2012 8:41 pm

MediumTex wrote:
steve roy wrote: I think the PP has value, but I shrink from plunging in all the way.
Given that the PP has basically been chugging along for 40 years in spite of all arguments for why it shouldn't work, is there anything that the PP could do that would make you stop shrinking from it?

I ask this question because I think a lot of people feel like you do, and I am always trying to understand what evidence it would take to overcome certain types of skepticism, or whether there is some baseline of skepticism that isn't subject to revision through any amount of evidence.
Right now I've got some but not all the components of the PP. Own Total Stock Market. Own short term treasury bonds. Don't own Gold (I have a 4% Precious Metals Allocation). And don't have long term bonds. (Have a big slug of TIPS.)

Cash flow permitting, at some point I'll carve out a portion of the investments with the four allocations, and see how they do. I've read a lot of your posts, Tex, and I get that all the disparate parts work together as a whole package, but I'm still iffy about GLD. Or gold doubloons in a sock. The closest I came to owning glittery metal outright was when I kept a thirty pound bar of silver in an old shoe in my garage.

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

Post by steve roy » Mon Jan 02, 2012 8:50 pm

MarcMyWord wrote:
MediumTex wrote:
steve roy wrote: I think the PP has value, but I shrink from plunging in all the way.
Given that the PP has basically been chugging along for 40 years in spite of all arguments for why it shouldn't work, is there anything that the PP could do that would make you stop shrinking from it?

I ask this question because I think a lot of people feel like you do, and I am always trying to understand what evidence it would take to overcome certain types of skepticism, or whether there is some baseline of skepticism that isn't subject to revision through any amount of evidence.
... I don't own Wellesley, but just picked it as an example of a simple conservative stocks-and-bonds fund with a history going back at least as far as the 1982 inception of PRPFX.

http://quote.morningstar.com/fund/chart ... %2C0%22%7D

"To every thing there is a season . . ."

Marc
Funny, but my Roth IRA is mostly Wellesley (with a slice of REITS.) I like the fund a lot, and plan to stay with it into the distant future. I toyed with the idea of having Wellesley be a major part of the rest of my tax sheltered account, but "shrink" from having too much of a good thing. Diversification is the name of my game. As good as I believe Wellesley to be, it's a wee bit too concentrated.

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

Post by StdDeviant » Fri Jul 27, 2012 9:46 am

"I get that all the disparate parts work together as a whole package, but I'm still iffy about GLD."

Then, with all due respect, it sounds like you really don't yet "get" it. Four investment components, each protecting the portfolio from four different economic scenarios. That's the way the PP was designed, and that's why it has worked flawlessly for the past 40 years. Picking several components and omitting the ones you're "iffy" about is not the permanent portfolio. It doesn't resemble the PP in any way. It's no more the permanent portfolio than a pound cake is a pound cake if you leave out the flour, because you're "iffy" about flour. Or eggs. Or butter. Leave out the chromium in stainless steel because you're "iffy" about chromium. It won't be stainless steel! Leave out the gold, and you don't have the permanent portfolio. It's that simple. It is what it is precisely because of the carefully constructed balance between the four components. Leaving even one out and you don't have anything that resembles the permanent portfolio, and won't behave as such.

"I shrink from plunging in all the way."

I chuckled at MediumTex's response to this. He sure has more patience than about anyone else I've ever encountered. 40 years of proving itself isn't enough. Would 400 years be enough? 4,000? "But what if we get hit by an asteroid?"

There must be some fundamental concept that people who don't "get" the permanent portfolio aren't understanding. It seems to be presented simply and clearly by Harry Browne (and countless others since). My gut tells me that the problem is that most people think they're above average, or even way, way above average. Thus, they are reluctant to adopt the same system that the special ed kids can follow, that grandma can follow, that the wood shop guys in school can follow.

Most people think they can pick stocks, time their trades so they buy low and sell high, time markets so they move in and out of stocks and bonds at the right time, and recognize trends and be so smart to foresee that some new technology is going to be ramping up wildly in the next few years (never mind that you're recognizing this years after the people who were in on the ground floor recognized it, and probably years after the full time industry analysts also knew about it; it's priced into the stocks already). People just think they are smarter than they are. It's especially difficult for people who know they have a high IQ, and where they've succeeded at various complex endeavors in their life, proving how smart they are. Why can't they outsmart the masses? Of course they can! And we see Warren Buffet as proof that SOMEBODY is smart enough. (I see one Warren Buffett and 7 billion non-Warren Buffetts, so I don't like the odds, but that's just me!)

So I think the fundamental cause of the skepticism, long after people have intellectually read and comprehended the permanent portfolio system, is that they refuse to let go of the notion that they can outsmart the market.

Re-read Rule #3: Recognize the difference between investing and speculating. Especially, as HB wrote, "When you invest, you accept the return the markets are paying investors in general. When you speculate, you attempt to beat that return — to do better than other investors are doing — through astute timing, forecasting, or stock selection, and with the implied belief that you’re smarter than most other investors."

Re-read Rule #4: No one can predict the future. "Events in the investment markets result from the decisions of millions of different people. Investor advisors have no more ability to predict the future actions of human beings than psychics and fortune-tellers do."

I think until you "let go" and fully embrace all 17 rules, you'll keep fighting the PP and won't ever be comfortable with it.
steve roy wrote:
MediumTex wrote:
steve roy wrote: I think the PP has value, but I shrink from plunging in all the way.
Given that the PP has basically been chugging along for 40 years in spite of all arguments for why it shouldn't work, is there anything that the PP could do that would make you stop shrinking from it?

I ask this question because I think a lot of people feel like you do, and I am always trying to understand what evidence it would take to overcome certain types of skepticism, or whether there is some baseline of skepticism that isn't subject to revision through any amount of evidence.
Right now I've got some but not all the components of the PP. Own Total Stock Market. Own short term treasury bonds. Don't own Gold (I have a 4% Precious Metals Allocation). And don't have long term bonds. (Have a big slug of TIPS.)

Cash flow permitting, at some point I'll carve out a portion of the investments with the four allocations, and see how they do. I've read a lot of your posts, Tex, and I get that all the disparate parts work together as a whole package, but I'm still iffy about GLD. Or gold doubloons in a sock. The closest I came to owning glittery metal outright was when I kept a thirty pound bar of silver in an old shoe in my garage.

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

Post by steve roy » Mon Jul 30, 2012 12:14 am

Nothing at all wrong with the PP, and I admire folks who plunge in whole hog. I've read the threads here, read "Crawling Road," and se how all the components work together. (I've read Dr Bernstein's "Wild About Harry" as well.)

Guess I just have trouble being a full-on user because -- stupid me -- I look at the components individually as well as together. Weak-kneed, that's me. I know it's wrong, but Harry B. (wherever you are), forgive me.

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

Post by MediumTex » Mon Jul 30, 2012 3:51 pm

steve roy wrote:Nothing at all wrong with the PP, and I admire folks who plunge in whole hog. I've read the threads here, read "Crawling Road," and se how all the components work together. (I've read Dr Bernstein's "Wild About Harry" as well.)

Guess I just have trouble being a full-on user because -- stupid me -- I look at the components individually as well as together. Weak-kneed, that's me. I know it's wrong, but Harry B. (wherever you are), forgive me.
One of the funny things about people in general is that they often understand something intellectually, but for whatever reason the intellectual understanding doesn't manifest itself in their actions.

The mix of intellect and emotion that is present in every action we take is more mysterious than it looks.

The PP is a useful but unusual tool. When used properly, it can provide good service.
"Early in life I noticed that no event is ever correctly reported in a newspaper." | -George Orwell

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

Post by steve roy » Mon Jul 30, 2012 11:48 pm

MediumTex wrote:
steve roy wrote:Nothing at all wrong with the PP, and I admire folks who plunge in whole hog. I've read the threads here, read "Crawling Road," and se how all the components work together. (I've read Dr Bernstein's "Wild About Harry" as well.)

Guess I just have trouble being a full-on user because -- stupid me -- I look at the components individually as well as together. Weak-kneed, that's me. I know it's wrong, but Harry B. (wherever you are), forgive me.
One of the funny things about people in general is that they often understand something intellectually, but for whatever reason the intellectual understanding doesn't manifest itself in their actions.

The mix of intellect and emotion that is present in every action we take is more mysterious than it looks.

The PP is a useful but unusual tool. When used properly, it can provide good service.
Maybe when I have a bigger stash. Maybe when I have more conviction and resolve.

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

Post by Slick8503 » Tue Jul 31, 2012 10:22 am

Maybe after it underperforms a relatively high stock(80/20) to bond portfolio for a number of years? That's what I'm thinking. That's been the best time to implement it before. I love the elegance of it, but record high gold, and record high bond prices, is scary.

Just seems to me that if someone(myself) has held a high allocation to stocks over the past decade, and not waivered, that bailing out now, for the thing that actually did work over that time period, doesn't seem like the smart thing to do. Seems like performance chasing/recency bias to me.

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

Post by MediumTex » Tue Jul 31, 2012 12:41 pm

Slick8503 wrote:Maybe after it underperforms a relatively high stock(80/20) to bond portfolio for a number of years? That's what I'm thinking. That's been the best time to implement it before. I love the elegance of it, but record high gold, and record high bond prices, is scary.

Just seems to me that if someone(myself) has held a high allocation to stocks over the past decade, and not waivered, that bailing out now, for the thing that actually did work over that time period, doesn't seem like the smart thing to do. Seems like performance chasing/recency bias to me.
What about the thing that actually did work (i.e., provided solid 4%+ inflation-adjusted returns through all market climates) over the last 40 years?

The PP didn't just start working over the last decade.
"Early in life I noticed that no event is ever correctly reported in a newspaper." | -George Orwell

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

Post by Slick8503 » Tue Jul 31, 2012 1:13 pm

Point well taken MediumTex. I guess it boils down to one's goals. In my perfect investing world, the equity markets will go on a tear here in about 5 years or so, and then when I am older and starting to scale down my equity percentage i can start implementing a portfolio such as this.

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

Post by MediumTex » Thu Aug 02, 2012 1:31 pm

Slick8503 wrote:Point well taken MediumTex. I guess it boils down to one's goals. In my perfect investing world, the equity markets will go on a tear here in about 5 years or so, and then when I am older and starting to scale down my equity percentage i can start implementing a portfolio such as this.
That sounds like a pretty good plan.

What if it doesn't work?

I'm sure many Japanese equity investors had just such a plan in the late 1990s and it would have been a complete disaster.
"Early in life I noticed that no event is ever correctly reported in a newspaper." | -George Orwell

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

Post by Slick8503 » Thu Aug 02, 2012 1:52 pm

Welp, that would be bad. That is the risk of a high equity %. I'm willing to accept it right now, since I have a very long time horizon. One thing I would say, however is that I don't invest more than half of my equity percentage in one country. That is not to say that it's impossible for the whole world to be "the next Japan".

On edit: Forgot to answer the "what if it doesn't work" question. I guess I will just have to work longer, or just spend less money.

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

Post by Reubin » Fri Aug 03, 2012 6:30 pm

I was lucky enough to have found the PP a year before my new-found retirement, which began this past Tuesday. I think that it was a Godsend.

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

Post by MediumTex » Sun Aug 05, 2012 1:21 am

Reubin wrote:I was lucky enough to have found the PP a year before my new-found retirement, which began this past Tuesday. I think that it was a Godsend.
Congratulations.

The PP can be a great tool in the right hands.
"Early in life I noticed that no event is ever correctly reported in a newspaper." | -George Orwell

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

Post by Alex Frakt » Mon Sep 10, 2012 12:41 pm

craigr's book The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy is now out in a Kindle edition. It looks like there will be a hardcover version soon as well.

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

Post by craigr » Mon Sep 10, 2012 12:47 pm

Alex Frakt wrote:craigr's book The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy is now out in a Kindle edition. It looks like there will be a hardcover version soon as well.
Thank you for posting this, Alex. We are happy to have the book out to update this strategy. Some of the topics covered include:

Foreword by J.D. Roth of Get Rich Slowly

What is the Permanent Portfolio?

We go over the background, ideas and philosophies of Harry Browne and the Permanent Portfolio concept in detail. We explain the basics behind his approach, the ideas of economic diversification he advocated, and other important details about the strategy.

Simple, Safe and Stable Diversification

We discuss why a simple, safe and stable portfolio is critical to investor success. We also show how a simple, safe and stable portfolio can easily match a portfolio that is much riskier over time with far less chance of catastrophic loss.

Real Returns

We cover the importance of real after-inflation returns and how the Permanent Portfolio can give them to you.

Stocks

We tell you how to own stocks and how to avoid common pitfalls in the investing world. We’ll also discuss how to work with less than ideal stock funds if that’s all you have access to.

Bonds

We cover what bonds to own (US Treasury bonds), why you only want those kinds of bonds and what kinds of bonds to absolutely avoid. We’ll also discuss how to hold these bonds in your account for maximum safety.

Cash

Just like bonds, we’ll discuss why you only want to own US Treasury T-bills for your cash and how to do it with maximum safety.

Gold

This in-depth chapter on gold will give an investor the details on various ways to obtain gold exposure in their portfolio and what ways to absolutely avoid. We cover everything from modern day gold funds, to gold bullion and new banking options that will allow you to easily have allocated secure gold storage both domestically and overseas with low expenses and high safety.

Geographic Diversification with Overseas Gold Storage

This is an extensively researched and approachable chapter on this subject. We boil down this subject into some very simple ways to achieve true geographic diversification. By true geographic diversification we don’t mean an ETF or electronic gold service that stores gold in Switzerland (although we touch on that briefly). Rather, we mean true secure allocated gold storage in safe recognizable institutions that are fully insured, fully audited, fully transparent and in places where you can actually drink the water.

We present options that are safe to do, easy to setup and will work with investors who only have funds to buy a single gold coin up to unlimited amounts of gold bullion. It was important for us to present options for all investors and we have done exactly that. Also it was important to us to have these options be inexpensive and we have done that, too. In fact, even the most expensive option is still 30% less than what the average mutual fund charges annually in typical expense ratios!

Now our readers will have affordable and safe options available to implement this critical piece of the Permanent Portfolio with minimal hassle and expense. If you ever wanted to implement geographic diversification but didn’t know how, this chapter will tell you in detail without anything complex or risky.

Tax Management

We will cover tax management issues relating to the portfolio and strategies you can use to maximize your after-tax profits.

Implementing the Permanent Portfolio for International Investors

If you live outside the US, you will find ideas in here to implement the portfolio where you live with locally available investment products in places like Canada, Europe, Australia and other regions.

Much More

Even if you are not implementing the Permanent Portfolio, this book has information you can use to be a better and more intelligent investor. All investors will pick up something useful they can use.

The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy
IMPORTANT NOTE: My old website crawlingroad{dot}com is no longer available or run by me. | | Please refer to archive.is or archive.org for old links in my post.

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

Post by 3CT_Paddler » Mon Sep 10, 2012 1:03 pm

Question for PP proponents... Isn't it possible that something like Executive Order 6102 is issued (confiscating all private gold) again?

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

Post by craigr » Mon Sep 10, 2012 1:08 pm

3CT_Paddler wrote:Question for PP proponents... Isn't it possible that something like Executive Order 6102 is issued (confiscating all private gold) again?
I guess. But not being on the gold standard any more it wouldn't buy them much (not that it did much back then either). But the thing is if you are geographically diversified you'll have the option on what to do at the time on whether to sell the gold and repatriate the assets, etc. What you don't want is to wake up Monday to find an executive order was signed over the weekend locking you out of your assets without your say in the matter.

Again these are remote possibilities. Gold in a portfolio has provided outstanding diversification against stock and bond risks without any extreme scenario coming about.
IMPORTANT NOTE: My old website crawlingroad{dot}com is no longer available or run by me. | | Please refer to archive.is or archive.org for old links in my post.

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

Post by clacy » Mon Sep 10, 2012 5:14 pm

3CT_Paddler wrote:Question for PP proponents... Isn't it possible that something like Executive Order 6102 is issued (confiscating all private gold) again?
No world currency (majors) use a gold standard any more, so I'm not sure why they would confiscate gold.

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

Post by rbowling » Mon Sep 10, 2012 5:56 pm

clacy wrote:
3CT_Paddler wrote:Question for PP proponents... Isn't it possible that something like Executive Order 6102 is issued (confiscating all private gold) again?
No world currency (majors) use a gold standard any more, so I'm not sure why they would confiscate gold.
Plus you'd think the Treasury would stop minting and selling gold coins before they thought confiscation was a good idea.

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

Post by craigr » Sun Sep 30, 2012 7:47 pm

The hardcover and electronic versions of the new Permanent Portfolio book is now shipping from Amazon and other book sellers:

The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy Hardcover

The book features a Foreword by J.D. Roth of Get Rich Slowly and covers a wide range of topics about this portfolio strategy. A sample chapter and table of contents is available on Amazon. We also lightened things up with some illustrations by Wall Street Journal and Washington Post cartoonist Chad Crowe throughout the text like this:

Image

Here is a partial list of topics:

What is the Permanent Portfolio?

We go over the background, ideas and philosophies of Harry Browne and the Permanent Portfolio concept in detail. We explain the basics behind his approach, the revolutionary ideas of economic diversification he advocated, and other important details about the strategy.

Simple, Safe and Stable Diversification

We discuss why a simple, safe and stable portfolio is critical to investor success. We also show how a simple, safe and stable portfolio can easily match a portfolio that is much riskier over time with far less chance of catastrophic loss.

Real Returns

We cover the importance of real after-inflation returns and how the Permanent Portfolio can give them to you.

Stocks

We tell you how to own stocks and how to avoid common pitfalls in the investing world. We’ll also discuss how to work with less than ideal stock funds if that’s all you have access to.

Bonds

We cover what bonds to own (US Treasury bonds), why you only want those kinds of bonds and what kinds of bonds to absolutely avoid. We’ll also discuss how to hold these bonds in your account for maximum safety.

Cash

Just like bonds, we’ll discuss why you only want to own US Treasury T-bills for your cash and how to do it with maximum safety.

Gold

This in-depth chapter on gold will give an investor the details on various ways to obtain gold exposure in their portfolio and what ways to absolutely avoid. We cover everything from modern day gold funds, to gold bullion and new banking options that will allow you to easily have allocated secure gold storage both domestically and overseas with low expenses and high safety.

Geographic Diversification with Overseas Gold Storage

This is an extensively researched and approachable chapter on this subject. We boil down this subject into some very simple ways to achieve true geographic diversification. By true geographic diversification we don’t mean an ETF or electronic gold service that stores gold in Switzerland (although we touch on that briefly). Rather, we mean true secure allocated gold storage in safe recognizable institutions that are fully insured, fully audited, fully transparent and in places where you can actually drink the water.

We present options that are safe to do, easy to setup and will work with investors who only have funds to buy a single gold coin up to unlimited amounts of gold bullion. It was important for us to present options for all investors and we have done exactly that. Also it was important to us to have these options be inexpensive and we have done that, too. In fact, even the most expensive option is still 30% less than what the average mutual fund charges annually in typical expense ratios!

Now our readers will have affordable and safe options available to implement this critical piece of the Permanent Portfolio with minimal hassle and expense. If you ever wanted to implement geographic diversification but didn’t know how, this chapter will tell you in detail without anything complex or risky.

Tax Management

We will cover tax management issues relating to the portfolio and strategies you can use to maximize your after-tax profits.

Implementing the Permanent Portfolio for International Investors

If you live outside the US, you will find ideas in here to implement the portfolio where you live with locally available investment products in places like Canada, Europe, Australia and other regions.

Much More...

Thanks!
IMPORTANT NOTE: My old website crawlingroad{dot}com is no longer available or run by me. | | Please refer to archive.is or archive.org for old links in my post.

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

Post by Pres » Mon Oct 01, 2012 7:30 am

My copy is on its way... Looking very much forward to reading your work.

Thank your for your efforts!

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

Post by lifeisagame » Tue Apr 23, 2013 4:33 am

I'm wondering about the weight of each economics states (Deflation/prosperity/Inflation/Tight money or recession) since 1972 or since the date where all the result from each portofolio are compare.

Maybe it would enlighten some recent bias ?

Is Harry Browne recommend an emergency fund ?

Is the Cash allocation can be used for ?

Is the cash allocation is like a saved account ?

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

Post by Call_Me_Op » Tue Apr 23, 2013 5:31 am

lifeisagame wrote:I'm wondering about the weight of each economics states (Deflation/prosperity/Inflation/Tight money or recession) since 1972 or since the date where all the result from each portofolio are compare.

Maybe it would enlighten some recent bias ?

Is Harry Browne recommend an emergency fund ?

Is the Cash allocation can be used for ?

Is the cash allocation is like a saved account ?
HB did not recommend an emergency fund, because the PP holds nominally 25% in cash - which is plenty for any emergency. The cash allocation is meant to be used for living expenses (if needed) and rebalancing. The cash allocation is recommended to be in the form of US treasury bills (T-Bills) but can also be in short-term (~ 2 year) treasury notes. (This latter idea was not recommended by Browne, but is used by some PP holders to juice returns a bit.) Bank accounts and CD's were not recommended by HB due to their lower level of safety compared to T-Bills.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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

Post by lifeisagame » Tue Apr 23, 2013 5:42 am

I'm french and i don't think i have what you call a T-bill but not so sure about it.

Is the return of investment is around the same as saved account ?

How do you evaluate the safety ? what i have to look for ?

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

Post by Call_Me_Op » Tue Apr 23, 2013 5:57 am

lifeisagame wrote:I'm french and i don't think i have what you call a T-bill but not so sure about it.

Is the return of investment is around the same as saved account ?

How do you evaluate the safety ? what i have to look for ?
A T-Bill is basically a US government note with a maturity of 1 year or less. It returns about the same as a savings account - which today is close to zero. The T-Bill is probably the safest security on the planet, being guaranteed (by statute) by the full faith and credit of the United States. I assume in France you can buy short-term government debt and that it is considered fairly safe. Or you can always buy US T-Bills.

Seems to me that if you are interested in learning about the Permanent Portfolio, you should pick-up a copy of Harry Browne's book "Fail-Safe Investing."
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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

Post by StdDeviant » Wed May 08, 2013 12:59 pm

Hi Craig and J.M.,

I bought your book as soon as it was published. Nice work! Thanks!

A couple questions:

1. Collectibles tax on a gold ETF (GLD or IAU, I own both). I currently have these in a rollover IRA.

a.) I assume if I were to sell all or a portion of these, there would be no collectibles tax since it's in the IRA and there are no income taxes due on dividends, interest, and capital gains while in the IRA, and when I withdraw, I'm just withdrawing cash and it's taxed as ordinary income. Correct?

b.) If I were to own a gold ETF in a Roth IRA, would there be any tax issues at all? I assume any gold ETF gains in the Roth IRA would also be non-taxable events at the time of sale, and any cash I withdraw from the Roth IRA is tax-free, regardless of whether or not there was ever any capital gains on a gold ETF, i.e., a "collectible." Correct? (I'm fuzzy about this whole collectible tax, mainly because it's so ridiculous!)

2. I'm on Social Security, which isn't taxed at all at either the state or federal level, and my current income needs are very low, so my taxable income this year will be negative (well, I know they want me to put zero on the 1040, but in reality my AGI is less than the sum of my deductions and personal exemption). I see this as an opportunity to convert several thousand dollars per year from my rollover IRA to my Roth IRA. As long as I only convert enough to move my taxable income UP to zero [smile], I won't have to pay any federal income tax on the Roth conversion. I will still owe state income tax of about 5-3/4% on the conversion, but oh well. The only downside I see to this strategy is the possibility that someday I might live in a state without an income tax, but with no such plans to do so, I'll just take that "risk," and consider that it's more than offset by the advantage of building up the Roth so that if and when I need to withdraw an amount from my pair of IRAs large enough that some of it is federally taxable, I'll be able to withdraw some from rollover IRA and some from Roth, and hopefully the flexibility can help me minimize or eliminate federal income taxes on the withdrawals. (I hope that awkward sentence is understandable!) So the question I have in this regard is: which asset class would you recommend I convert from rollover IRA to Roth right now? According to your book (and my common sense), bonds would be the logical candidate--in normal times, at least. But with bond yields at such minuscule levels, and the seemingly high probability of bond yields rising in the coming years, which would result in capital losses in the bond funds, I'm wondering if I wouldn't be better off converting stock funds now to the Roth. It's an interesting problem to have, since we normally adhere to the mantra that we can't predict the future, so don't try to outsmart anything or time anything, just stay 25-25-25-25 and sleep soundly. But in balancing between traditional and Roth IRAs, I can keep the aggregate total in the 25-25-25-25 sweet spot, while still attempting to do the smartest thing from a tax perspective. So I'm interested in hearing one or both of you authors comment on this. Note that I could find little in your book addressing this concept. It might be there, but if so, I had trouble putting my arms around it.

Thanks so much!

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Re:

Post by Index Fan » Wed Jan 15, 2014 10:57 pm

MediumTex wrote:This is where it is important to have a strong grasp of what Harry Browne based the PP on. He based it upon owning assets that will perform well under any imaginable economic conditions. The economic conditions he described cover every economic environment. All I am betting is that in the future we will have either prosperity or recession and either inflation or deflation.
For an all-conditions approach to investing, there seems to be very little talk about the Permanent Portfolio these days- some years ago, there were quite a few threads going on at the same time discussing it. Any updates or thoughts?
"Optimum est pati quod emendare non possis." | -Seneca

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Re: Re:

Post by foglifter » Thu Jan 16, 2014 12:02 am

Index Fan wrote:
MediumTex wrote:This is where it is important to have a strong grasp of what Harry Browne based the PP on. He based it upon owning assets that will perform well under any imaginable economic conditions. The economic conditions he described cover every economic environment. All I am betting is that in the future we will have either prosperity or recession and either inflation or deflation.
For an all-conditions approach to investing, there seems to be very little talk about the Permanent Portfolio these days- some years ago, there were quite a few threads going on at the same time discussing it. Any updates or thoughts?
PP has a dedicated forum where many PP followers including myself are hanging out. :beer

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

Post by steve roy » Thu Jan 16, 2014 12:58 am

William Bernstein had a nice analysis of the Permanent Portfolio on his Efficient Frontier site titled "Wild About Harry."

http://www.efficientfrontier.com/ef/0adhoc/harry.htm

Dr. Bernstein writes favorably about the PP, but after you read the article, you'll understand why people aren't talking about it much.

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

Post by Call_Me_Op » Thu Jan 16, 2014 6:59 am

Excellent analysis by Dr. Bernstein - and in my opinion right on the money.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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

Post by technovelist » Thu Jan 16, 2014 10:24 am

I'm pretty sure there will be a lot more discussion of the HBPP when gold resumes its ascent, just as we have seen a lot more discussion of the wonders of 100% (or more) equity allocations recently. :oops:
In theory, theory and practice are identical. In practice, they often differ.

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

Post by steve roy » Thu Jan 16, 2014 2:56 pm

As Dr. Bernstein says: "Skating where the puck was."

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