Permanent Portfolio By A Different Name

Jason Zweig had an article over the weekend that although didn’t say so, offered a variation on the Harry Browne permanent portfolio. Browne advocated for 25% each into stocks (via a broad, domestic index fund), long term bonds, gold and cash with the idea being that this mix would always have at least one thing doing well no matter what came along in the world. The results have generally been quite good looking back but obviously the past 30 years as been a heyday for long term bonds. Zweig found an advisor who uses four different buckets than Browne; expansion where you would have stocks, real estate and commodities, recession where you would have bonds, in the inflation bucket you would have TIPS and commodities again and in the deflation bucket you would have stocks and conventional bonds. Note that the suggestions in the preceding paragraph are from the article not from me. The comments on the article are worth reading. The article points out that allocations like this are not about striking it rich but more about preserving the nest egg and growing it slowly. Any mention of nest egg merits this photo of Albert Brooks and Julie Hagerty from Lost In America. I tend to believe that the best path is a simple stock bonds cash allocation but it is still worthwhile to explore these types of ideas all the same. They can be a useful influence on a simple portfolio and maybe one these alternatives will turn out to be the Holy Grail. The starting point of the article was that the blending together of historically lowly correlated...

Permanent Portfolio By A Different Name

Jason Zweig had an article over the weekend that although didn’t say so, offered a variation on the Harry Browne permanent portfolio. Browne advocated for 25% each into stocks (via a broad, domestic index fund), long term bonds, gold and cash with the idea being that this mix would always have at least one thing doing well no matter what came along in the world. The results have generally been quite good looking back but obviously the past 30 years as been a heyday for long term bonds. Zweig found an advisor who uses four different buckets than Browne; expansion where you would have stocks, real estate and commodities, recession where you would have bonds, in the inflation bucket you would have TIPS and commodities again and in the deflation bucket you would have stocks and conventional bonds. Note that the suggestions in the preceding paragraph are from the article not from me. The comments on the article are worth reading. The article points out that allocations like this are not about striking it rich but more about preserving the nest egg and growing it slowly. Any mention of nest egg merits this photo of Albert Brooks and Julie Hagerty from Lost In America. I tend to believe that the best path is a simple stock bonds cash allocation but it is still worthwhile to explore these types of ideas all the same. They can be a useful influence on a simple portfolio and maybe one these alternatives will turn out to be the Holy Grail. The starting point of the article was that the blending together of historically lowly correlated...

The Evolution of Portfolio Theory

A couple of thought pieces that contribute toward evolution of process. First Nassim Taleb was on CNBC yesterday and his two segments covered a lot of topics including his idea that I have referred to as putting 80% into various currencies (t-bills from various countries) and then going berserk (my word not his) with risk with the other 20%. While that will not be practical for too many folks it is an interesting glimpse into how he thinks about the role that risk should play. With his interview yesterday he appears to have tweaked this slightly. Instead of various currencies he said something that protects against inflation. From the context I took him to mean TIPS not commodities but of course you may draw a different conclusion from his comments. If he did mean TIPS then his idea looks a lot like what Zvi Bodie has been writing about for a long time. The other item was an article run at IndexUniverse by Katrina Sherrerd who is the COO of Research Affiliates. The first point of the article was about the need to keep learning or as she might put it the need to overcome ignorance. The context was investment advisors but it obviously pertains to do-it-yourselfers too. This was particularly interesting; The investment management industry tends to emphasize product—and its invariably linked goal of beating the benchmark—over education and counseling. And I am sure the people who bought the Apple linked debt who now stand to get put the stock a couple of hundred points above the current market would agree with too much emphasis on product. The...

The Evolution of Portfolio Theory

A couple of thought pieces that contribute toward evolution of process. First Nassim Taleb was on CNBC yesterday and his two segments covered a lot of topics including his idea that I have referred to as putting 80% into various currencies (t-bills from various countries) and then going berserk (my word not his) with risk with the other 20%. While that will not be practical for too many folks it is an interesting glimpse into how he thinks about the role that risk should play. With his interview yesterday he appears to have tweaked this slightly. Instead of various currencies he said something that protects against inflation. From the context I took him to mean TIPS not commodities but of course you may draw a different conclusion from his comments. If he did mean TIPS then his idea looks a lot like what Zvi Bodie has been writing about for a long time. The other item was an article run at IndexUniverse by Katrina Sherrerd who is the COO of Research Affiliates. The first point of the article was about the need to keep learning or as she might put it the need to overcome ignorance. The context was investment advisors but it obviously pertains to do-it-yourselfers too. This was particularly interesting; The investment management industry tends to emphasize product—and its invariably linked goal of beating the benchmark—over education and counseling. And I am sure the people who bought the Apple linked debt who now stand to get put the stock a couple of hundred points above the current market would agree with too much emphasis on product. The...

ETFs in the News

IndexUniverse reported that Global X will be closing several ETFs for lack of AUM. Included in the list are the Fishing ETF (FISN) and the Farming ETF (BARN). Both fisheries (although subtle, I think this would have been a better name than fishing) and farming are themes that I have written about many times and I continue to believe are valid. However stocks in both, as I mentioned recently in another post, are far more volatile than the underlying demand for protein. Look at the charts for the companies in the funds and you will see they are difficult to own. The combination of being difficult and unlucky timing is what hurt these funds, in my opinion. At some point the stocks within will again catch fire but obviously at that time investors will only have individual stocks to choose from. The funds got made fun of a lot which I never fully understood. They targeted narrow niches, turned out not to catch on and so they are being closed. Investors were not hurt in any sort of unique or flawed product manner, the funds simply did poorly like any individual stock or narrow fund might. The other bit of ETF news, also reported by IndexUniverse, is that ProShares has filed for a suite of low volatility ETFs. Broad based, low vol ETFs are being issued left and right and attracting a lot of AUM. The PowerShares S&P 500 Low Vol ETF (SPLV) has attracted $700 million in about ten minutes of trading (hyperbolic comment). The funds in the filing are targeted to track the Nasdaq 100, Dow 30,...

ETFs in the News

IndexUniverse reported that Global X will be closing several ETFs for lack of AUM. Included in the list are the Fishing ETF (FISN) and the Farming ETF (BARN). Both fisheries (although subtle, I think this would have been a better name than fishing) and farming are themes that I have written about many times and I continue to believe are valid. However stocks in both, as I mentioned recently in another post, are far more volatile than the underlying demand for protein. Look at the charts for the companies in the funds and you will see they are difficult to own. The combination of being difficult and unlucky timing is what hurt these funds, in my opinion. At some point the stocks within will again catch fire but obviously at that time investors will only have individual stocks to choose from. The funds got made fun of a lot which I never fully understood. They targeted narrow niches, turned out not to catch on and so they are being closed. Investors were not hurt in any sort of unique or flawed product manner, the funds simply did poorly like any individual stock or narrow fund might. The other bit of ETF news, also reported by IndexUniverse, is that ProShares has filed for a suite of low volatility ETFs. Broad based, low vol ETFs are being issued left and right and attracting a lot of AUM. The PowerShares S&P 500 Low Vol ETF (SPLV) has attracted $700 million in about ten minutes of trading (hyperbolic comment). The funds in the filing are targeted to track the Nasdaq 100, Dow 30,...