I Just Sold Stocks and Bought Gold

[helmuth_hubener]

This year has been super for stocks! Yeehah! So, for portfolio balancing I just sold some and bought some gold. I now keep about 25% of my portfolio in gold. But don't worry, I will still have about 25% in stocks as well, so in case the stock market keeps going up, I will continue to profit from that, as well.

That's part of the beauty of the Permanent Portfolio plan I follow, devised by Harry Browne and some associates back in the late 1970s. You rebalance whenever one of the assets gets to be too high of a percentage of the portfolio. That makes you automatically do the smart thing: sell after something has gone way up, such as the stock market in this case, and by doing that you lock in your profits. And at the same time, it also makes you buy an asset after its price has gone way down, which in this case is gold. Buy low and sell high is, of course, exactly what one wants to do if he wants to make profits. Mathematically, it is very clear and straighforward, but actually doing it in real life turns out to be anything but easy! But lucky for me, the Permanent Portfolio that Harry designed makes it so it is very easy -- it's essentially automatic. Stocks have had a big run-up so that they now consist of more than 35% of the portfolio? You sell, and buy whatever is now below 15%, bringing everything back in line to a four-way 25% split. It's simplicity itself! It's brilliant!

It takes a truly brilliant mind and a deep, focused effort to take something that is highly complex and difficult, like investing or handheld computing, and distill it down to something elegant and simple, like the Permanent Portfolio or the iPhone. Thank you, Mr. Browne, and over the years I'm sure my bottom line will thank you, too.

[Danke]

Got Bitcoins?

[Petar]

Got Bitcoins?

Your son figured out that bitcoins make sense long before I did, and I have already made a small pile of money on them.

You better hop on the train before it leaves town captain.

[helmuth_hubener]

Got Bitcoins?

No. Bitcoins do not fit into the Permanent Portfolio strategy.

[jbauer]

It sure sounds like you're pimping PRPFX Permanent Portfolio which is -0.93 YTD.

[Danke]

Your son figured out that bitcoins make sense long before I did, and I have already made a small pile of money on them.

You better hop on the train before it leaves town captain.

Would've should've could've...

[Tod]

it can be frustrating for the public to see a web site pop up that was just taken down.

is this a reference to SR?

frustrating to the public, huh? speak for yourself.

[helmuth_hubener]

It sure sounds like you're pimping PRPFX Permanent Portfolio which is -0.93 YTD.

Hello, jbauer! Good job, finding PRPFX. No, I do not invest in PRPFX. I take a do-it-yourself approach, which I believe is superior for a variety of reasons. The Permanent Portfolio strategy is simple enough that such a do-it-yourself approach is not only possible, but easy.

I could go into the reasons if you are interested. Let me know!

That said, PRPFX could be a good alternative for an investor with a very small amount of money, say just $1,000, who wants the benefits of the protection a permanent portfolio provides.

[dannno]

No. Bitcoins do not fit into the Permanent Portfolio strategy.

Bull$#@!.

If you had your portfolio balanced out at 1% bitcoin you would be doing a lot better.

[helmuth_hubener]

Bull$#@!.

If you had your portfolio balanced out at 1% bitcoin you would be doing a lot better.

Are you familiar, then, with the Permanent Portfolio philosophy, and the reasoning that forms its foundation?

If so, could you explain to me how Bitcoin fits in? Thanks.

[Petar]

Would've should've could've...

It ain't too late man.

Think of it this way:

As long as market adoption is at a minimum, then bitcoin can only still skyrocket.

When these things become mass-market commodities, then their market value will necessarily go through the stratosphere because their scarcity is built-in.

It's either that, or they never become popular for some reason.

The risk to possible reward ratio is still unimaginable, because it's not every day that a new banking paradigm gets invented if you know what I'm saying.

Everyone who could halfway afford it should gamble on owning at least one unit.

If you only have $50 to gamble, hell, just gamble that.

[helmuth_hubener]

it can be frustrating for the public to see a web site pop up that was just taken down.

is this a reference to SR?

frustrating to the public, huh? speak for yourself.

I believe you intended to post this in a different thread.

[dannno]

Are you familiar, then, with the Permanent Portfolio philosophy, and the reasoning that forms its foundation?

If so, could you explain to me how Bitcoin fits in? Thanks.

You make bitcoin 1% of your permanent portolio and as it rises and becomes a bigger percentage you sell some and buy other assets, like I have been doing with silver. Every time bitcoin goes up a whole bunch I buy a little bit of silver. I have more silver than I had $'s from my original investment, and I still have bitcoin.

Do you not have any bitcoin at all, or are you saying that bitcoin is a seperate investment for you that you do not consider into the permanent portfolio investment?

[helmuth_hubener]

You make bitcoin 1% of your permanent portolio and as it rises and becomes a bigger percentage you sell some and buy other assets, like I have been doing with silver. Every time bitcoin goes up a whole bunch I buy a little bit of silver. I have more silver than I had $'s from my original investment, and I still have bitcoin.

What should one do if Bitcoin goes down?

Or do you believe it is inevitable that Bitcoin will continue going up, and so have not bothered to come up with any plan for the unthinkable, impossible, and indeed perhaps you would say laughable scenario in which it goes down?

Do you not have any bitcoin at all, or are you saying that bitcoin is a seperate investment for you that you do not consider into the permanent portfolio investment?

I have no Bitcoins at all. And I see no way in which Bitcoin fits into the Permanent Portfolio strategy. Based on your answer to my question of how it could fit in (which amounts to: "It goes up!"), I infer that you are not familiar with the reasoning behind the PP, dannno. Is that right?

[dannno]

I like the concept of re-balancing, but if the theory does not allow you to invest in bitcoin then it is highly flawed.

Bitcoin is selling for $750, people here have been telling you to buy since it was around $10. I believe bitcoin could possibly go to $10k - $1 mill. per coin some day, which makes what you are doing a waste of time if you can't include some bitcoin in your investments.

[dannno]

What should one do if Bitcoin goes down?

Don't invest more than you can afford to lose.

But I'm tired of people talking down on bitcoin.

[ctiger2]

IF DOW rises from 10-20K and during the same period gas goes from 3-6 and Gold 1200-2400 how much have you gained in stocks? 0

[helmuth_hubener]

What should one do if Bitcoin goes down?

Don't invest more than you can afford to lose.

Well that is very good advice, and I agree, but it does not actually answer my question. What should one do if Bitcoin goes down? Nothing? Just take the loss and lose the money? Or is there something you recommend that one should do in such an eventuality?

What is your plan, dannno? What would you do if in 2014 Bitcoin goes down 75%?

I am not talking down Bitcoin. But if you have made a speculation -- whatever it is -- without considering your exit plan, you could greatly benefit from making such a plan. And if you have not even allowed yourself to consider the possibility that your speculation will experience a long-term downward trend in value, then that is a major, major problem, bordering on delusional. This applies to any speculation, of any kind, in anything, not just Bitcoin.

[helmuth_hubener]

IF DOW rises from 10-20K and during the same period gas goes from 3-6 and Gold 1200-2400 how much have you gained in stocks?

Well, it depends on how much of your personal expenses are devoted to gas and gold. If you are like most people and a relatively small protion of your budget as a consumer is spent on gas and gold products, then you have approximately doubled your money, but it will be somewhat less than double, because then taxes must be subtracted from that, esp. if you want to realize your gains immediately.

Does that answer your question?

[Zippyjuan]

IF DOW rises from 10-20K and during the same period gas goes from 3-6 and Gold 1200-2400 how much have you gained in stocks? 0

Not true. You gained on both. Whether or not you lost real purchasing power will depend on what happened with price inflation during that time. If prices doubled, then you gained nothing on both. And you only gained if you bought at the beginning price and sold it at the higher price. Otherwise your gains only exist on paper.

[oyarde]

Not true. You gained on both. Whether or not you lost real purchasing power will depend on what happened with price inflation during that time. If prices doubled, then you gained nothing on both. And you only gained if you bought at the beginning price and sold it at the higher price. Otherwise your gains only exist on paper.

Paper gains are like a sexy ex girlfriend , smell good, look good , but less useful than the badly dressed guy down the street who will give you a beer on Sunday , lend you a cigarette or help you change a tire when you gave your jack to the ex girl.Paper gains mean nothing , unless they are really there when you need them , cash them in for something real .LOL

[Tod]

Don't invest more than you can afford to lose.

But I'm tired of people talking down on bitcoin.

I think that it is ultimately more important to USE it for its intended purpose....as a currency.....than to use it as an "investment" despite the obvious temptation to ride the rise, because without the use as a currency it will eventually fade in popularity and value. Not that savings to a degree are bad; they are good, but without acceptance as a currency the value cannot be sustained.

[oyarde]

I think that it is ultimately more important to USE it for its intended purpose....as a currency.....than to use it as an "investment" despite the obvious temptation to ride the rise, because without the use as a currency it will eventually fade in popularity and value. Not that savings to a degree are bad; they are good, but without acceptance as a currency the value cannot be sustained.

That is the only reason I never bought any when it was dirt cheap and beyond , I cannot do anything with it that I normally do . I can though with all types of physical, lead , aluminum , copper, silver , gold etc

[tod evans]

Lots of folks much smarter than I am have lost their ass playing in the market.


Lots of folks much more stupid than I am have made money by investing in their own abilities and working their asses off.


Any extra I have gets "invested" in either wood or tooling.

[jbauer]

Hello, jbauer! Good job, finding PRPFX. No, I do not invest in PRPFX. I take a do-it-yourself approach, which I believe is superior for a variety of reasons. The Permanent Portfolio strategy is simple enough that such a do-it-yourself approach is not only possible, but easy.

I could go into the reasons if you are interested. Let me know!

That said, PRPFX could be a good alternative for an investor with a very small amount of money, say just $1,000, who wants the benefits of the protection a permanent portfolio provides.

So your super duper always gonna win strategy that can be had for less than 100bps management fee that is down on the year is still where you think the world should be. I like prpfx but like everything use in moderation.

[helmuth_hubener]

Lots of folks much smarter than I am have lost their shirt playing in the market.


Lots of folks much more stupid than I am have made money by investing in their own abilities and working hard.


Any extra I have gets "invested" in either wood or tooling.

This right here is very wise. I think we all would do well to read it once or twice more and really think about it.

A golden rule of investing is that your fortune does not come from your investments. Your money comes from your career. Investing can help you protect and even grow your wealth, but it will not make you wealthy. Your money comes from your career. It does not come from your investments.

It follows that most of your thought and time should be focused on your career, and also as much of your money should be poured into it as will be beneficial and is wise. Your career is also where you take risks, maybe big risks; you try to not take them in your investments. The investments you have no control over. Your career, you do.

Take Tod's case, for instance. He might buy a new piece of equipment for $1,000, that will save him one or two hours per week. If he is a highly skilled woodworker, this might amount to $100 or $200 extra income per week. Where else, in what traditional investment, can you put your money and get a 10% weekly return?!? Nowhere, that's where.

Focusing on your career makes sense. It makes good sense. Chasing the dream of making an easy, work-free fortune via investing will more often than not lead to foolish decisions and losing what you started out with. Many a boat has been dashed upon those rocks. Play it safe and conservative and boring with your investments, if you have any -- which is not necessarily even essential. Many, many people have gotten rich without investing anything, or anything to speak of; just plowing all their money back into their business. But go all out when it comes to your career.

[helmuth_hubener]

So your super duper always gonna win strategy that can be had for less than 100bps management fee that is down on the year is still where you think the world should be. I like prpfx but like everything use in moderation.

I take it that you are trying to say, via sarcasm, that the Permanent Portfolio strategy is not super at all, much less duper, and your reason for believing it to be a bad and losing strategy is that it is down for the year. Is that correct?

But then you go on to say that you like PRPFX. So does that mean that you think it is a good strategy after all? But then you recommend to use it in moderation. How would one go about using the Permanent Portfolio strategy "in moderation"? What would you moderate about it? In what ways is it too extreme for you?

I find this reply making far too many inferences and assumptions about what you are trying to say. Perhaps you should just say what you mean. That would make communication vastly improved. Thanks!

[oyarde]

So your super duper always gonna win strategy that can be had for less than 100bps management fee that is down on the year is still where you think the world should be. I like prpfx but like everything use in moderation.

I do not feel super duper at all today, the end of last quarter, I was up 5.49 % for that quarter and 14.94 % year to date. at this point anything not a loss and above some selected inflation rate is good enough for me.

[jon_perez]

Not true. You gained on both. Whether or not you lost real purchasing power will depend on what happened with price inflation during that time. If prices doubled, then you gained nothing on both. And you only gained if you bought at the beginning price and sold it at the higher price. Otherwise your gains only exist on paper.

To be precise, you STILL gained money - in NOMINAL terms. In "real" terms, in purchasing power, your gain is zero. But that would still be better than if you had kept money under your bed, in which case you would have had zero NOMINAL gain, and in real terms, you LOST.

[helmuth_hubener]

I like the concept of re-balancing, but if the theory does not allow you to invest in bitcoin then it is highly flawed.

Hi, dannno! Coming back to this thread and this issue to be more clear. I actually think that Bitcoin is a fantastic speculation. If you are going to speculate, you might as well speculate on something with an absolutely, well, spectacular upside. You should take into account the risk-reward ratio and decide accordingly whether to buy, and when to sell.

For example, you say that "I believe bitcoin could possibly go to $10k - $1 mill. per coin some day". So, let's take the $10,000 figure. You have to figure out how likely you think it is that it will go to $10,000, and ideally you should have a time-frame as well, in my opinion. This "odds-making" will take introspection and thought. And you should always consider the possibility you could be totally off, because this is a subjective thing. You're predicting the future, after all, is what it essentially amounts to. But then once you've done this process, you can then make a plan accordingly. If you think that there is, for instance, a 25% chance that Bitcoin will go to $10,000 in 5 years, what is that, about 13 times, then in all seriousness that is a very good risk-reward ratio and you should put 100% of your speculative funds into that, unless you find anything else with a 13x-25% ratio like that, or better, that you want to split your funds into. So you should go all-in on Bitcoin. And then you wait for 5 years (or whatever your target time-frame was). 25% of the time, you then cash out and have 12 times what you started with. 75% of the time, something else happens. A big part of your job as a speculator is determining what that "something else" is. So, when you first buy the speculation, you should put in a stop order. You should decide: if it goes under X amount, I'm selling. I don't know if there are any Bitcoin markets which have the feature of stop-orders, but if there are, you need to put one in! You do not want to have to be wringing your hands and deliberating in a messed-up emotional state at the time of a crash. Just have a stop order. It will be automatic. It will save your hide.

You may also want to put in another, higher stop order as it goes up to lock in your gains at a certain floor. This is optional. It will depend on how volatile you expect the speculation to be whether you want to do this.

This is my advice as to how to go about speculating in Bitcoins, or anything else.

But the more important advice, you already gave, dannno: only speculate with money you can afford to lose! This is essential! The money that's precious to you, the money you've worked hard for, the money that you want to save and protect, you should not speculate that money. You've worked too hard for it to risk it all in some scheme to triskadecatuple it.

The money that you can afford to lose, speculate to your heart's desire. This money is your Variable Portfolio, or your Speculative Portfolio. But you keep that separate from your Permanent Portfolio, which is where you put all the money you want to keep safe.

So there's two piles: Speculative Portfolio, and Permanent Portfolio. I personally have no desire to speculate right now, and thus buying Bitcoin in hopes that it will go up in price is just not appealing to me. Bitcoin belongs in the Speculative Portfolio. For someone that has no Speculative Portfolio, there is no place for buying large amounts of Bitcoins.

~~~

That brings me to why Bitcoin does not fit into a Permanent Protfolio. The Permanent Portfolio is designed to protect your money in all different economic climates. There are four general climates: Inflation, deflation, prosperity, and recession/depression. It has an asset that does well in each climate. Gold does well in inflation. Bonds in deflation. Stocks in prosperity. And cash smooths things out in a recession. Each one is causally linked to its climate. There are solid, logical reasons to believe that they will always perform well in their given climate. Empirically, extensive back-testing shows no times in which they didn't.

So, with 25% in each, you're prepared for whatever comes. And the really nice thing is, it turns out that the assets performing well do it much more powerfully than the ones that do poorly. The asset going up in a bull market might go up 100%, 200%, or even more, whereas the one going down will go down 20%, 30%, or maybe in a bad crash even 50%. But the strong asset will far outweigh the weak ones, and so it will carry the whole portfolio.

So you can see why Bitcoin does not fit in. In which economic climate do we have good reason to believe it will go up? Prosperity? Deflation? Inflation? It's not clear, is it? Nothing against Bitcoin; the same is true for virtually all assets. Only the assets powerfully linked to a particular economic climate are interesting for the Permanent Portfolio.