Article Reviews

The All Weather Portfolio

Finally got down to writing a new post after having gone through a couple of websites and added some links (mainly economics links).

Jason Zweig wrote about a fund, Permanent Portfolio (PRPFX), that grew from $50M to $7.6B in 3 years on the back of strong results (full article here).

The fund was launched in 1982, and based on the ideas of Harry Browne who advocated keeping one quarter of the portfolio in each of four assets: stocks, bonds, gold and cash. Once a year, if any of the assets fell below 15% or rose above 35%, you would buy or sell as needed to rebalance back to 25%. Harry Browne believed that such a portfolio a one that can be held for a lifetime and would do reasonably well no matter what happened.

For Permanent Portfolio, gold and long-term bond helped to propel its returns in the past 3 years. Currently the fund seeks to maintain the following:

  1. 20% in gold
  2. 5% in silver
  3. 10% in Swiss francs and bonds
  4. 15% in real-estate and natural-resource stocks
  5. 15% in growth stocks
  6. 35% in cash and U.S. bonds.

In a way, the portfolio aims to hedge a slew of events:

  1. Gold and swiss francs for depreciation,
  2. Silver and natural resource stocks for goods and services inflation
  3. Real estate for asset inflation
  4. Stocks for when the economy does well
  5. Bonds for deflation/recession
  6. Cash to be used when opportunities present themselves (i.e. when the % of a certain asset class goes below its target).

All in all I think this portfolio can work well. Of course it cannot make tons of money through specific bets, the mechanical rules helps to shut out harmful emotions and allows the fund to take advantage of conditions when they happen without needing to make any predictions.



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