Archive for September, 2009
The Fugger Portfolio
Sep 22nd
An interview with Rob Arnott describes the portfolio of Jacob Fugger (“Fugger the Rich”) who lived from 1459-1525. The portfolio that made him so rich sounded very familiar and I wanted to share this part of the interview with Mr. Arnott:
Rob Arnott: Where do we go from here?
Audience Question: It seems you’re simply promoting a diversified approach to investing. How is this different than basic portfolio theory?
Arnott: There’s nothing new under the sun. Questions: How many people follow a truly diversified approach? How many think of their stocks as ownership of an enterprise (à la Graham & Dodd), rather than as some assemblage of portfolio characteristics? In the 15th century, Jacob Fugger (“Fugger the rich”) put his money in shares, in loans (bonds), in property and in commodities. And he’d rebalance when the mix drifted away from one-fourth each. The shares and the real estate did well when the economy was strong; the loans and commodities did well when it was weak; the commodities and real estate did well when the government was debasing the currency; and the stocks and bonds did well when the government and the currency were sound. Old ideas have a lot of power, and keep getting rediscovered.
(emphasis added)
The Past Does Not Predict the Future
Sep 17th
Johnny Carson as the Amazing Carnac
Have you seen the statement from the SEC that states: “Past performance does not guarantee future results?”
Harry Browne once said that the above was one of the only true things he ever saw come from a government agency. However, it’s also the core belief behind the Permanent Portfolio strategy.
While I have presented an analysis of the portfolio performance from the past, it is important to remember that this does not prove anything about the future. It just shows that the strategy has survived to this point. This means that there is no guarantee in the world of investing no matter what strategy you are using. Whether it’s the Permanent Portfolio or something else.
However, what the Permanent Portfolio attempts to do is give you wide enough diversification so you have a better chance of prospering in an uncertain future. This is not a guarantee, but an attempt to disperse the risks of investing across disparate asset classes so a very bad event that happens to one part of the portfolio is not fatal to the rest. So while nobody can promise the portfolio strategy will always work going forward, what we can do is diversify in a way to try to minimize the impact of the unpredictability of the future. That’s simply what the Permanent Portfolio tries to do.
Over at the Bogleheads forum, Taylor Larimore reminded readers on the massive Permanent Portfolio Thread about this statement. To build upon this idea, I went through the first chapter of Harry Browne’s classic Why the Best-Laid Investment Plans Usually Go Wrong and pulled out quotes that speak directly to the issue:
A Fall 2009 Update – You did rebalance, right?
Sep 16th
Let’s look at how the Permanent Portfolio has done so far in 2009 according to Morningstar. A sample Permanent Portfolio comprised of the following ETFs has these total returns for the year. This assumes you bought in January and held on without touching the assets until today:
Vanguard Total Stock Market (Ticker: VTI): 21.27%
SPDR Gold ETF (Ticker: GLD): 14.31%
IShares Short Treasury Bond (Treasury MMF Equivalent) (Ticker: SHV): 0.11%
iShares 20+ Year Treasury Long Term Bonds (Ticker: TLT): -18.18%
Total Returns 2009 YTD: 6.70%