The Permanent Portfolio, Investing, Finance and Random Thoughts.
Posts by craigr
Hindenburg Omen Re-visited
Remember the Hidenberg Omen from August 2010? A sure sign of doom and destruction that I talked about before:
Hidenburg Omen Goes Up In Flames
How’d it do since then? Not well. Vanguard Total Stock Market is still up +20% since then. That even includes the rather anemic year so far in 2011:
Hindenburg Omen Still Not Getting Off the Ground
Technical analysis doesn’t work. Instead, keep a balanced and diversified portfolio of stocks, bonds, cash and gold at all times and rebalance when needed.
printf(“Goodbye, Dennis Ritchie.\n”);
3 months ago
by craigr
in Miscellaneous
Dennis Ritchie, creator of the C Programming Language and Unix operating system, has passed away. October is not being a very good month.
Goodbye Steve Jobs
4 months ago
by craigr
in Miscellaneous
A very great entrepreneur passed away. Goodbye Mr. Jobs, and thank you.
Vanguard “Treasury” Bond Funds Filled with Mortgage Garbage
4 months ago
EyeDee over at the Bogleheads forum posts the following:
Those who own Vanguard Treasury funds to avoid mortgage-backed securities should probably be aware that as of 08/31/2011, Government Mortgage-Backed securities in Vanguard’s Treasury funds are up to:
17.7% in Short-Term Treasury Fund
17.4% in Intermediate-Term Treasury Fund
16.9% in Long-Term Treasury Fund
These links go over the current composition of these funds:
https://personal.vanguard.com/us/funds/snapshot?FundId=0032&FundIntExt=INT#hist=tab%3A2
https://personal.vanguard.com/us/funds/snapshot?FundId=0035&FundIntExt=INT#hist=tab%3A2
https://personal.vanguard.com/us/funds/snapshot?FundId=0083&FundIntExt=INT#hist=tab%3A2
I went over why I don’t like Vanguard’s Treasury Bond Funds in a previous post on holding cash. Sometimes you just can’t help but use them depending on your situation, but given the choice I recommend avoiding Vanguard’s Treasury Funds.
Now, allow me to vent for a bit.
Vanguard bond managers are adding absolutely no benefit to investors by shifting around 20% of the assets in these funds to what they think adds more value. And if you look at the Total Bond Fund fiasco in 2002, even Vanguard managers can and do make mistakes. They are chasing yield, and chasing yield can cause problems.
I had posted before that running a Treasury bond fund should be the simplest job in the world for Vanguard and they are trying to make it difficult. If I ran the fund I would require a computer and a PlayStation 3.
The computer is to balance the deposits and redemptions each morning and close of business with buys/sells of Treasury bonds.
The PS3 is for the other seven hours a day where I would have absolutely nothing to do.
I don’t understand why they feel like they need to run their Treasury funds with a speculative bent. I recommend you just buy bonds directly and sit them in your brokerage account or at Treasury Direct. This costs you nothing each year in management fees and they just sit there quietly and pay you interest twice a year.
If you can’t do the above, then use the iShares products (Tickers: TLT, SHY, SHV) that are essentially 100% Treasuries and have a prospectus that limits better what they can do behind the scenes.
Vanguard putting mortgage bonds in a Treasury bond fund is completely inappropriate. Mortgages behave much differently than nominal bonds in changing interest rate environments. Why? Well, people refinance mortgages when interest rates are falling for instance but tend to hold onto low interest loans when rates rise. So it’s heads they win tails you lose. Mortgages have no business being in a Treasury bond fund and I recommend avoiding Vanguard Treasury Bond funds if you are able.
Stop Looking at Your Portfolio So Frequently
In response to concerns about the Permanent Portfolio having a bit of a down month over at the forum I posted the following:
I have been running this portfolio for almost five years now. I sleep so much better vs. my older index stock/bond portfolio I cannot put it into words. It has taken me through the 2007 real estate bubble, the 2008 real estate crash, the 2009 stock market recovery, the 2010 “double dip” recession (which was a banner year for stocks BTW), and now the 2011 Quantitative Easing Part III and Euro panic. It has done these things with a stability that I never had before I started using it. If I owned another portfolio over all of this I would have given up a long time ago.
I strongly encourage people not to track their portfolio values over days or weeks. If you can stomach not checking but only once a month that is an OK start. If you can check once a quarter that is great. If you can do it once or twice a year that is fabulous. But emotionally most investors just can’t stomach looking at things frequently. There are powerful psychological reasons why this happens. So, I recommend we just accept it and don’t fall victim to them. The best way to do this is to not look at things too often. Simple!
You will go nuts checking portfolio values frequently. If you don’t go nuts because you think you are losing money, then just wait until your neighbors are bragging about their +20% gains some year at the company Christmas Party. That will drive you insane with jealousy if you maintain a short-term attitude (but of course they never brag about the negative years they have, do they?).
I am perfectly happy with my boring and low volatility 9-10% average returns the portfolio has had through the years. This really is a remarkable thing when you look at what other portfolios put their owners through to get the same results. The Permanent Portfolio is still positive year to date where many stock/bond portfolios are probably well into negative territory by now.
The Permanent Portfolio is not a magic elixir that eliminates all short-term losses, but I haven’t found anything that works better so I’m going to stick to the plan. Part of that plan is not checking the portfolio constantly!
