Investing, economics, finance and random thoughts.
Posts tagged harry browne
Sour Grapes…
May 19th
The Permanent Portfolio allocation sometimes gets criticized for not following standard investing dogma. One critic stated:
Why not wonder why none of the financial authors or academics endorse it?
Because they’re too busy defending their own pet portfolios and theories. I’ve seen plenty of bad advice from financial authors and academics. And the thing is, they will never admit they are wrong no matter how much money they lose for people who listen to them.
In fact, last year I disposed of a pile of investment books that were chock full of bad advice. They were going to the recycler because I felt it better they be turned into toilet paper than have them wreck the hard earned savings of someone who happened to read them.
Fundmentally I’m an index fund investor. Harry Browne’s advice has many aspects to it that differ somewhat with what many people read from other index fund authors and academics:
- He advocates fixed allocation percentages with rebalancing bands instead of altering stock/bond mix as one ages.
- He advocates using gold in the portfolio for inflation protection instead of Treasury Inflation Protected Securities (TIPS).
- He advocates using Treasury Long Term bonds in the portfolio instead of short/intermediate bonds or the Total Bond Market index.
- He advocates only holding US Treasury bonds to avoid credit risk.
- He advocates holding a good amount of funds in cash to buffer during recessions.
However there are similarities with what many index fund authors and academics state:
- He advises using only index funds for the stock allocation.
- He advises to never try to time the markets.
- He advises that the future is unpredictable and you should ignore market prognosticators.
- He advises to “stay the course” and stick to your rebalancing bands no matter what you think may happen in the markets.
- He advises to have an investment plan so you can deal with market uncertainty and not have your money run your life because you are worrying about it all the time.
Overall I’ve never seen anything in Harry Browne’s advice that I would call “bad”. His advice may be conservative, but it’s not going to get someone into big trouble.
When I read posts on the Internet that criticize Harry Browne and the Permanent Portfolio I have to ask why? Because he was right? Because he advocated a portfolio allocation for many years that was basically unchanged? Because he allowed people to invest and earn acceptable returns with low risk? Because gold sometimes outperforms stocks in a diversified portfolio when academic theory says it shouldn’t? Because people who took credit risk on their bonds instead of owning Treasuries weren’t rewarded as they thought they should be? Because a portfolio that equally weights different assets can match the returns of a conventional stock-heavy allocation with significantly less risk and volatility?
Their criticisms basically amount to: “I don’t care that the portfolio allocation works. All I know is that these academics and authors say it shouldn’t, therefore it’s bad.”
Sounds like sour grapes to me.
Permanent Portfolio Results 2008 – A Disaster Averted
Jan 1st
UPDATED: This posting now lists (mostly) finalized 2008 total returns information (interest and dividends included) from the listed stock indices. The final numbers won’t change much.
“The best kept secret in the investing world: Almost nothing turns out as expected.”
– Harry Browne
Investors won’t be forgetting 2008 any time soon. Yet as bad as it was, the Permanent Portfolio survived intact with a profit for the year of about two percent.
The year included oil and other commodities going to record highs. Real estate prices fell at a rate not seen since the Great Depression. Century old banks that were leveraged to their eyeballs blew up and vanished. Iceland, a first-world country, went broke. Bernard Madoff, one of the founders of NASDAQ, admitted his hedge fund was a $50 Billion Ponzi Scheme. The Treasury Secretary and Fed Chairman openly talked about The End of The World As We Know It if we don’t “do something”. That “something” of course meant big bailouts for banks, irresponsible home buyers and automakers (and maybe more — to be continued).
By the time 2008 was over, the markets were down by one of the largest single year amounts since 1931.
A Permanent Portfolio?
Dec 13th
The investing world is full of advice. Some good. Most bad. Stocks, bonds, cash, 401(k), IRA, etc. Up is down. Left is right. And if you only follow the right sage advice you can become an instant millionaire. It’s all too complicated isn’t it? Well, the fact is that investing can be easy and profitable if you avoid the major pitfalls that stalk every investor.
When I first started investing I was drawn into the circus of the stock markets. Educated analysts, sophisticated computer models and wise money managers were advertised as the keys to success. The brochures showed retired couples walking on a sunny beach into the sunset (presumably after they just got off their yacht). Marketers trumped up the past returns of their funds and how much money you would have made if you were smart enough to have invested back then. Yet, the results just weren’t there. Sure, there were some mutual funds that did fine from time to time but it was never consistent. Money would be made, and then unmade, just as fast.
Like many, I invested through the tech boom of the late 90′s only to see much of what I earned evaporate. Remember those days of analysts hocking the IPO of companies like furniture.com? How could that fail! When you want a sofa everyone knows the best way to get it is to order it off the web and have UPS drop it off on your doorstep, right?