You can learn things from the most unlikely sources. When people ask me what it was that got me to start following the Permanent Portfolio I respond with one word: Porn.

Yes, porn. I relate to you the story below that kicked me into gear to re-assess my portfolio strategy and risks I was taking several years ago. This is what got me to discover and start using the Permanent Portfolio allocation strategy.

I was buying some used welding gear off of Craigslist in late 2006(??) and go to this guy’s shop to look at what he had. We strike up a conversation and he tells me that he produces Adult Films but was getting out of the business (his shop had lots of light rigging and camera gear so I had no reason to doubt him). “Why are you doing that?” I ask. Because you’d think that making adult films is probably quite lucrative. I don’t know this, just a suspicion. He replies “I’m going into Real Estate!” He then spends the next 30 minutes telling me about flipping houses, second mortgages, zero down loans, etc. I just sit there and nod my head, buy the stuff he had for sale, and leave.

This bugged me because everyone was talking about Real Estate then and now I meet a porn producer going into it? It was just too much. On the way home I call my wife and say: “Honey, we’re going to sell everything we own relating to real estate. REITs, mortgage bonds, anything holding mortgages, etc. I’m then going to re-evaluate our portfolio from the ground up.”

I’m not a market timer, but that’s what I did. I call it a “Shoe Shine Boy” moment. A phrase I use that relates to a story where a famous investor (Joe Kennedy I’ve been told) was getting his shoes shined in 1929 and the shine boy kept giving him hot stock tips. He immediately went back to his office and sold all his stocks to avoid the big crash later that year. He figured that when the shine boy is giving you stock advice it’s time to get the heck out.

I sold everything that had real estate in it. I also sold all bond funds that had any type of credit risk. I had been an indexer for some years at that point so I knew I wanted an indexing strategy as active stock management just doesn’t work. Yet, I never felt comfortable with the claims of many about how you could own a bunch of stock index funds and take credit risk with bonds and have diversification. It was time I looked into the matter myself without any prejudices.

I looked at all the options and researched everything with a fresh take towards risk and uncertainty. Nothing was off the table no matter how it conflicted with what I’ve read before. Eventually, I ended up with the Permanent Portfolio after loads of research and scrutinizing of the approach.

The biggest thing about this experience is not that it helped me avoid a bad loss (which really was just sheer luck). It’s that it made me seriously explore what risks I was taking with my portfolio and how those risks were being counter-balanced with other assets I own. You can’t invest without risk. But it’s important to be sure you know what risks you are taking and how they can affect your life savings if they ever show up. It took a porn producer to get me to go back and evaluate these things. Life is strange.