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Thread: What's your take on Harry Browne's Permanent Portfolio?

  1. #1

    What's your take on Harry Browne's Permanent Portfolio?

    After getting burned by buying commodities about 15% under their peak in 2008, I am now only slightly down on those investments. I have been thinking about a different approach. What do you think of the Permanent Portfolio? I just read HB's book and I agree that there's a lot of value in just not having to worry about your investments, and instead diverting that energy into your career or other aspects of your life.

    http://seekingalpha.com/instablog/36...nent-portfolio

    The basic premise of Harry's Permanent Portfolio is that you divide your money into two parts. That which you can afford to take losses on (discretionary investing) and that which you really can't afford any significant losses on (retirement money etc.). The money you want to be safe but still appreciating in value should be placed in a portfolio divided equally into four asset classes.

    25% Equities

    25% Long Term High End Investment Grade Bonds

    25% Precious Metals (He favored physical over paper metal.)

    25% Cash or Near Equivalent

    The theory is that if the static allocations were maintained through frequent rebalancing the investor would have an all weather portfolio that will keep his money safe while providing a moderate return. Bonds will perform well in a bear market recession when equities generally lag. And cash and bonds will do well in a deflationary environment while gold and equities will protect you from inflation. This is not a path to quick wealth. But it is not a bad plan for investing that part of your money where your risk tolerances are low.

    There have been several studies over the years which have attempted to back test Harry’s theory against historic market performance. All confirmed that his Permanent Portfolio held up well over the passage of time with only a few down years, the worst being 6% in 1981. (These studies all predated the crash of ’08.) Those interested in a real world track record or who like myself favor fund investing, may want to look at the history and performance of the Permanent Portfolio Fund (PRPFX).
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  3. #2
    There is a VERY wealthy RP supporter near where I live and I've become friends with them recently. I was in their living room one day and they were talking about how brilliant Harry Browne was and how he had turned a lot of people into millionaires. Harry Browne used to live a few miles from this person in Williamson County, TN coincidentally enough.
    __________________________________________________ ________________
    "A politician will do almost anything to keep their job, even become a patriot" - Hearst

  4. #3
    Quote Originally Posted by Matt Collins View Post
    There is a VERY wealthy RP supporter near where I live and I've become friends with them recently. I was in their living room one day and they were talking about how brilliant Harry Browne was and how he had turned a lot of people into millionaires. Harry Browne used to live a few miles from this person in Williamson County, TN coincidentally enough.
    Well that is an interesting anecdote, but Harry Browne's own book suggests that any time you find a miraculous money manager to follow that has a flawless track record, as soon as you invest with them they are bound to take a big dive. Saw that with Schiff in 2008 =)
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  5. #4
    Quote Originally Posted by Thrashertm View Post
    There have been several studies over the years which have attempted to back test Harry’s theory against historic market performance. All confirmed that his Permanent Portfolio held up well over the passage of time with only a few down years, the worst being 6% in 1981. (These studies all predated the crash of ’08.) Those interested in a real world track record or who like myself favor fund investing, may want to look at the history and performance of the Permanent Portfolio Fund (PRPFX).
    It's not just back-testing. Harry introduced the concept in the late 1970s, and then wrote a book about it called Inflation-Proofing Your Investments, published in 1981. So the strategy has been in use, real use, by real people, since the late 1970s. And the numbers are in of what their real performance has been. He did refine and simplified the concept over the years, notably eliminating silver, the Swiss Franc, and real estate, but the difference in performance of the original vs. the refined is not very large.

    So it's not just back-testing. It's been in real-life testing since the late 1970s, and certainly since 1980 many thousands have put it into effect. It has proved itself to be an excellent strategy.

  6. #5
    Quote Originally Posted by Thrashertm View Post
    Well that is an interesting anecdote, but Harry Browne's own book suggests that any time you find a miraculous money manager to follow that has a flawless track record, as soon as you invest with them they are bound to take a big dive.
    Right. Although, maybe what this man meant was that Harry's advice to focus on one's career rather than chasing elusive investment-fortune rainbows helped him become a millionaire.

  7. #6
    Here is the chart for the PP mutual fund which mimics Harry's advice:

    https://www.google.com/finance?chdnp...EM69rAGI2YGwDg


    Here is a link to the fund itself:
    http://permanentportfoliofunds.com/
    __________________________________________________ ________________
    "A politician will do almost anything to keep their job, even become a patriot" - Hearst

  8. #7
    Quote Originally Posted by Matt Collins View Post
    Here is the chart for the PP mutual fund which mimics Harry's advice:

    https://www.google.com/finance?chdnp...EM69rAGI2YGwDg


    Here is a link to the fund itself:
    http://permanentportfoliofunds.com/
    PRPFX =/= Permanent Portfolio

    Its performance divergence from a final-version Permanent Portfolio, especially in recent years, is of some interest to me.

  9. #8
    Quote Originally Posted by helmuth_hubener View Post
    PRPFX =/= Permanent Portfolio

    Its performance divergence from a final-version Permanent Portfolio, especially in recent years, is of some interest to me.

    I'm under the impression that it is practically identical to the original portfolio?

    Info on the Fund:
    http://permanentportfoliofunds.com/pdfs/perm/PRPFX.pdf
    __________________________________________________ ________________
    "A politician will do almost anything to keep their job, even become a patriot" - Hearst



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  11. #9
    Of course the SEC does not allow the fund to hold physical gold.
    __________________________________________________ ________________
    "A politician will do almost anything to keep their job, even become a patriot" - Hearst

  12. #10
    Quote Originally Posted by Matt Collins View Post
    I'm under the impression that it is practically identical to the original portfolio?
    Of late they've been light on Long-term treasuries. That helped them out-perform a true, Do-It-Yourself Permanent Portfolio for a few years, but lately it has been making them under-perform. It also is why they took a big hit in 2008, whereas a true PP glided through with less than 1% loss.

    The original portfolio version is not the best version. You've listened to the radio shows, yes? Harry's thinking advanced and progressed. He refined and improved the concept. The final product is a thing of true elegance and beauty, the culmination of a lifetime of work. That's the one you want, not the 1.0 release. That's what gives you this:


  13. #11
    Quote Originally Posted by Matt Collins View Post
    Of course the SEC does not allow the fund to hold physical gold.
    Actually, they kind of do. They have actual warehoused gold, gold which they own. That's the one plus they have over PERM. PERM is a newer ETF that also seeks to be kind of like the Permanent Portfolio, but that uses an ETF for the gold portion rather than vaulting their own.

    I would say either PERM or PRPFX are fine for a starting-out investor with only $1,000 but who has really bought into the PP concept and wants to do it. If you have $10,000 or more, you should set up the 4-way split yourself.

  14. #12
    Quote Originally Posted by helmuth_hubener View Post
    I would say either PERM or PRPFX are fine for a starting-out investor with only $1,000 but who has really bought into the PP concept and wants to do it. If you have $10,000 or more, you should set up the 4-way split yourself.
    I've heard that... going back to the post above this one... was his final version just 4 ways?

    25% stocks
    25% bonds
    25% cash
    25% gold

    Or was it slightly more complicated than that?


    Also I'm under the impression that bonds are a complete waste of time now?
    __________________________________________________ ________________
    "A politician will do almost anything to keep their job, even become a patriot" - Hearst

  15. #13

    Question

    Quote Originally Posted by helmuth_hubener View Post
    Of late they've been light on Long-term treasuries. That helped them out-perform a true, Do-It-Yourself Permanent Portfolio for a few years, but lately it has been making them under-perform. It also is why they took a big hit in 2008, whereas a true PP glided through with less than 1% loss.

    The original portfolio version is not the best version. You've listened to the radio shows, yes? Harry's thinking advanced and progressed. He refined and improved the concept. The final product is a thing of true elegance and beauty, the culmination of a lifetime of work. That's the one you want, not the 1.0 release. That's what gives you this:
    The radio show can be downloaded here:http://www.crawlingroad.com/blog/har...olio-archives/


    Is there somewhere I can read up on the refined version of the PP?
    __________________________________________________ ________________
    "A politician will do almost anything to keep their job, even become a patriot" - Hearst

  16. #14
    Matt, I thought you had actually listened to the radio show archive (given posts like this, this, this, and this.) Is that not true?

    You can gain a good foundation of understanding about the Permanent Portfolio by simply listening to the first three episodes of the radio show archive.

    If you do so, you will hear advertised the following book:

    Fail-Safe Investing: Lifelong Financial Security in 30 Minutes

    You could read that book for more information.

    Then, for more nitty-gritty details on how to implement it, you could read this 2012 book:

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

    The authors are not as brilliant and intelligent as Harry Browne, but they have done their homework in depth and the book is full of lots of practical advice, most of which is good. They tell you exactly how to implement the strategy today, using the modern financial vehicles such as mutual funds and ETFs which we have available.

    For the hard-core, in-depth research and theory behind it all, you could then read:

    Why the Best-Laid Investment Plans Usually Go Wrong: And How You Can Find Safety and Profit in an Uncertain World

    Or, I myself would be happy to tell you more about it, if you are going to actually stick around and listen this time.

  17. #15
    I'm going to take a look at the Permanent Portfolio. Looks very interesting.

  18. #16
    Quote Originally Posted by Thrashertm View Post
    The theory is that if the static allocations were maintained through frequent rebalancing the investor would have an all weather portfolio that will keep his money safe while providing a moderate return.
    You don't want to rebalance frequently, though, in my opinion! Otherwise, you don't get this effect:



    Harry's recommendation is to rebalance whenever one of the four assets falls below about 15%, or rises above about 35%. Once every few years is usually sufficient to achieve that. Using those rebalancing bands allows you to take advantage of bull markets and decrease exposure to bear markets. It slightly weights the winning assets. It automatically makes you do the smart thing: buy low and sell high.



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  20. #17
    Quote Originally Posted by helmuth_hubener View Post
    Or, I myself would be happy to tell you more about it, if you are going to actually stick around and listen this time.
    Echo, echo.....

  21. #18
    So what do you think, Matt? Are you coming back to this thread to engage in a conversation? Or am I wasting my time? I see you've posted in several other threads.

  22. #19
    fascinating information, thank you for posting.
    __________________________________________________ ________________
    "A politician will do almost anything to keep their job, even become a patriot" - Hearst

  23. #20
    How has it been performing lately? Lost 12% since peak value in 2011.



    http://finance.yahoo.com/q?s=PRPFX

    How has the DOW done in that time? Up about 35%.

    http://money.cnn.com/data/markets/dow/

    Personally, I would not be putting 25% of my money into long term Treasuries. If you intend to keep them, you are locking in very low returns for a very long time. You want to do that when Treasury rates are high- not low (like they were in 1980). If rates get to double digits, buy up lots of 30 year Treasuries. 30 year notes currently yield about three percent.

    If you trade them, rising interest rates could lead to large losses. Lots of risk going forwards in them.
    Last edited by Zippyjuan; 09-22-2014 at 02:22 AM.

  24. #21
    Quote Originally Posted by Zippyjuan View Post
    How has it been performing lately? Lost 12% since peak value in 2011.
    I am wondering what accounted for that dip at the first of the year?
    __________________________________________________ ________________
    "A politician will do almost anything to keep their job, even become a patriot" - Hearst

  25. #22
    I think there's a huge risk having 50% of your investments in US dollars. That strategy has worked so far in the US because the US has never has a currency crisis.

  26. #23
    Quote Originally Posted by Matt Collins View Post
    I am wondering what accounted for that dip at the first of the year?
    I can't find anything.

  27. #24
    LibForestPaul
    Member

    Why not real estate? Income producing plus working off someone else's money (leverage)?



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  29. #25
    Quote Originally Posted by Matt Collins View Post
    fascinating information, thank you for posting.
    You're welcome. You should consider subscribing to the threads you're interested in. Then it would notify you if there's a reply. Did I answer your questions? Any other questions?

  30. #26
    Quote Originally Posted by Matt Collins View Post
    I am wondering what accounted for that dip at the first of the year?
    On December 27th they made a large distribution of about 9.9% of NAV (Net Asset Value).

    Thus, the share price dropped by 9.9% the next business day. 47.79 - 4.73 = 43.06 (and then maybe it was up .01 by the end of the day, or somebody rounded a little differently than me.) Why would they do this? Because the fund is and always has been managed with a very strong and aggressive stance towards tax minimization. 2013 was one of the few calendar years when the fund was down on the year. And that means: tax harvesting time! Tax minimization is a really, really important thing to long term returns and one that's not at all considered enough by most investors nor by most mutual fund managers.

    The best thing would be to not believe information coming from people who have ABSOLUTELY ZERO IDEA what they are talking about.

  31. #27
    Why would they do this? Because the fund is and always has been managed with a very strong and aggressive stance towards tax minimization.
    Thanks for the explanation for what occurred but a distribution causes a capital gains tax burden on those invested in the fund (unless they are offset by losses in other investments and note that they do not often issue distributions like some funds). They do have low turnover of their holdings which helps keep their expenses low.

    It is overall a pretty low cost investment. Costs reduce returns.

  32. #28
    Everything a certain poster has said in this thread has been said in complete, embarrassing ignorance and is utterly worthless. Just thought I should point that out. If one wants to have opinions on something, one should have a clue.

  33. #29
    Perhaps you can help me out. Are you saying that there are no capital gains taxes on distributions? Or was I incorrect about them being a low cost fund? Thanks.

    https://www.fidelity.com/taxes/tax-topics/mutual-funds

    Whenever a mutual fund company passes earnings and other payouts to shareholders, it’s known as a distribution. The major distribution for most funds comes at the end of each year, when net amounts are calculated—capital gains and other earnings minus the expenses of running the funds.

    It’s up to you to report mutual fund transactions on your tax return, as well as pay the appropriate taxes on each type of fund income.

    Distributions and your taxes

    Certain accounts, such as individual retirement and college savings accounts, are tax-advantaged. If you have mutual funds in these types of accounts, you pay taxes only when earnings or pre-tax contributions are withdrawn. This information will usually be reported on Form 1099-R.

    If you hold shares in a taxable account, you are required to pay taxes on mutual fund distributions, whether the distributions are paid out in cash or reinvested in additional shares. The funds report distributions to shareholders on IRS Form 1099-DIV after the end of each calendar year.

    For any time during the year you bought or sold shares in a mutual fund, you must report the transaction on your tax return and pay tax on any gains and dividends. Additionally, as an owner of the shares in the fund, you must report and potentially pay taxes on transactions conducted by the fund, that is, whenever the fund sells securities.
    Last edited by Zippyjuan; 09-23-2014 at 08:50 PM.



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