Permanent Portfolio (Harry Browne)

JohnnyH · Post by **JohnnyH** » Thu Apr 28, 2011 3:33 am

Just rebalanced the PP today, up 6.2% in 5.5 months (not including interest and dividends, but I use a mix of silver for PMs)... Love it, but loathe the USD.
Unfortunately, as as US citizen I have some money that I cannot decouple from the dollar. Notably, the money I must keep liquid for opportunities (real estate, alpha strategy), earned vacation (can be cashed upon quitting), money that I've used to cover a trusted business partner's expenses.
Sadly, those above make up the majority of my 25% currency allocation, marrying me to the dollar. Ideally, I'd like to be in 60-80% non-US currency for the 25% currency allocation.
Perhaps I could use futures, options, leveraged ETF and/or forex to get flat on the USD... Damn that terrible dollar. But on the other hand it was very strong during the last market crash, something I see as fairly likely to repeat.
Could I get you all's thoughts on using next year's future USD savings as part of the cash component? Even at a worst case .6 valuation it would help in my diversification.

AlexOliver · Post by **AlexOliver** » Sat Apr 30, 2011 8:00 am

@JohnnyH: It sounds a little like you're speculating in currencies. If you're living in the US, making and spending money in USD, why keep your money outside of it?
What is the "25% currency allocation" you're talking about? Cash?
"futures, options, leveraged ETF and/or forex" doesn't sound at all like the PP. Are you running a variable portfolio on the side?

JohnnyH · Post by **JohnnyH** » Sat Apr 30, 2011 3:45 pm

@AlexOliver: I want out of the USD because of its deteriorating value. I'm worried about inflation. USD index, is quickly approaching all time (40 yr) lows.
I do have a smaller variable portfolio, just trying to think of ways to put the cash into other currencies...
I think it will be ok to count my next year's salary as USD already earned.
Also, I am using quite a bit of margin in my brokerage account, which is essentially a short dollar position.

AlexOliver · Post by **AlexOliver** » Sat Apr 30, 2011 6:22 pm

In an inflation scenario, gold will carry the portfolio. In a hyperinflation scenario, gold will carry the portfolio. In a deflation scenario, long term treasury bonds and cash will carry the portfolio. I'm worried your compromising the portfolio and introducing more risk into the situation.

johnny555 · Post by **johnny555** » Mon May 02, 2011 3:58 am

I'm looking to start up a Permanent Portfolio. I've saved up some money the past few years, is it recommended to go all in at once or would it be better move in over a few months?

KevinW · Post by **KevinW** » Mon May 02, 2011 6:31 am

@JohnnyH

As AlexOliver said, the PP is already set up to handle currency problems including inflation. In fact the 25% gold allocation is the biggest currency hedge I've ever seen in a lazy portfolio.
The premise of the PP is that "the economy" will be in some combination of four states, there exists an asset that will rally in each of those states, and predicting the future is impossible, so hold all four assets in roughly equal proportions at all times. For this to work "the economy" needs to have the same definition in each corner.
If cash is foreign currency then "the economy" means one thing for cash and a different thing for the other three assets. Such a portfolio may underperform an orthodox PP during a recession, when cash must carry the portfolio. In particular, you'd have problems during a recession coinciding with a strong dollar.

KevinW · Post by **KevinW** » Mon May 02, 2011 6:34 am

@johnny555

This has been discussed a few times on the permanent portfolio forum so you might check the discussions there. I think the consensus is that it doesn't really matter, do whichever you prefer. Going all in at once is probably more rational, but you should do whatever makes you most comfortable.

JohnnyH · Post by **JohnnyH** » Wed Sep 28, 2011 7:34 pm

-4.3% on the week for my PP, the worst week in 1.5 years of data... On the plus side, still about flat for the month.
Also, I just got a new renters insurance policy and they said they cover gold/silver bullion coins, with an appraisal.

palmera · Post by **palmera** » Wed Sep 28, 2011 9:09 pm

Some of you touched on this already, but what are everyone's thoughts on focusing on accumulating the PP assets that are known to decrease in value during recessionary times (i.e. now)?
Example, I'm starting to evolve my portfolio to become fully PP, but I feel like because of the way the economy is now, I'm more apt to open a $USD savings account and put the majority of my money there and in depressed, blue-chip stocks.
Yeah, this is risky because it's true, no one can predict the future, but the same way I believed that the "good times" would soon be over (2007/2008) I believe that the "bad times" will eventually over...though the climb out of this recession will be pretty painful.

JohnnyH · Post by **JohnnyH** » Wed Sep 28, 2011 9:48 pm

@palmera: For the earliest stages of accumulation I think saving cash is best... Trading, finance fees can eat up smaller accounts. Anything over 50k I would want diversified. That amount should be able to weather transaction costs, or better yet, qualify for free [or very inexpensive] trades.
However, it also seems like you are trying to give expression to your personal market opinion. I think it's best not to over think it and just stick to rebalancing on bands of your choice (15/35 or 20/30).
The markets seem to be bipolar about the inflation/deflation debate... USD is seesawing up and down. Dollar is strong with the market decline, but otherwise I wouldn't want to be too heavy USD.

dragoncar · Post by **dragoncar** » Wed Sep 28, 2011 10:14 pm

I'm sort of a purist on the PP... I think it's fine to make any reasoned investment (e.g. cash and blue chips as you suggest)... I just wouldn't call it the PP.

JohnnyH · Post by **JohnnyH** » Thu Dec 29, 2011 11:20 pm

Just chiming in with some anecdotal PP info... A big gold crash like everyone was talking about happened, but the PP overall barely quivered.
Since the end of August my 66% gold 33% silver GOLD component holdings are down 25%.
BUT(!), the PP is roughly flat, down only 0.0036% during this period before dividends... I have not rebalanced during this time.
Hopefully, this will help alleviate some trepidation many have over metal volatility... I am very pleased, even despite 25% gold decline.

LonerMatt · Post by **LonerMatt** » Fri Dec 30, 2011 2:24 am

I've been having information thrown at me on the Pp board, and am almost ready to start one of the first Australian PPs I've read about (I'm sure there are a few people in on it here, but none of them are posting about it anywhere I can see).

dragoncar · Post by **dragoncar** » Fri Dec 30, 2011 1:14 pm

Regarding gold, I'm not PLEASED per se, because the total returns still suck, but I'm satisfied that the diversification strategy works to limit downside. I can't really complain either because I pretty much expected gold to retreat after I bought, but accepted that risk in order to avoid (attempted) market timing.
LonerMatt -- I'd read Clive's posts. He indicated that he's been monitoring/historically analyzing an Australian PP (although he doesn't use PP himself) http://gyroscopicinvesting.com/forum/in ... 7#msg23937

jennypenny · Post by **jennypenny** » Fri Dec 30, 2011 3:04 pm

@dragoncar-- but are you bothered that it's also limiting your upside? (not being obnoxious, really curious) I guess it's whether you prefer calm waters or high surf. I'm starting to think my aversion to the PP is I that I prefer surfing.

dragoncar · Post by **dragoncar** » Fri Dec 30, 2011 8:11 pm

Jenny - When stocks are up, I am bothered that PP limits my upside. When they are down, I'm glad I use it.
That might sound bearish, but really I'd rather limit upside during good times (when my income is secure) than take huge losses during bad times (when I'm more likely to lose my job).
After ERE, I may have a different approach... the PP is really to try to stabilize my funds somewhat during accumulation. I don't want to save for 2 more years and have nothing to show for it (which could totally happen in 100% stocks for instance).

JohnnyH · Post by **JohnnyH** » Fri Dec 30, 2011 9:22 pm

I think dragoncar nailed it... Willing to give up extra performance, not willing to get wiped out.

LonerMatt · Post by **LonerMatt** » Fri Dec 30, 2011 11:54 pm

@ dragoncar - The only reason Clive's been analysing the Australian PP is because he and I have been talking about it. To be fair, his analysis was pretty shallow too (he looked at 2 different strategies, and with the cash component, basically shifted it all into bonds, which I probably wouldn't do myself).
He made some statements with some off data, and I've had to step in and provide sources of correct data which has illuminated a few things.
I do think his aim in investing is substantively different to mine (and plenty of people's on the PP board). He's looking for the perfect balance between risk and reward - most of us (I think) are looking for a lower risk, stable reward, simple to understand, easy to maintain strategy - not necessarily interested in reinventing the wheel.
Edit - you can see my response to him in that very thread!

jennypenny · Post by **jennypenny** » Sat Dec 31, 2011 1:00 am

I guess it also depends on your experience. If you're in your 30s, you haven't really seen much upside in the market in your adult life. I started working/investing right after the '87 crash so my long term returns still look ok. I also had a good year (probably luck) and I'm sure that's clouding my judgement.

KevinW · Post by **KevinW** » Sat Dec 31, 2011 3:15 am

LonerMatt, after you get your Australian PP sorted out, would you mind documenting your implementation in the ERE wiki page?