In March, Jos van den Berkmortel gave a presentation on the subject of ‘the permanent portfolio’ for the HCC computer investor group in Delft.
Jan Roozenburg
The Permanent what? Well, most investors will not be familiar with it. Well, it is a system that works under all market conditions. In both falling and rising markets or markets with high or low volatility. The big advantage is that you don’t have to adjust the portfolio to the market. Hence the name. That gives you peace of mind and investing with this system does not require much attention. And few transactions are needed. The turbulence in the world is great and the future seems more unpredictable than ever. Given all the uncertainties, the idea of ​​a permanent portfolio is therefore quite an attractive idea.
Four assets
Because investors differ in interest and experience, HCC!beleggen has a number of working groups, such as the Computer Investors Group South Holland (CBG-ZH). Since its foundation in 2002, this working group has been helping its members realize their financial dreams with the help of computer investing. Due to corona, there have been significantly fewer opportunities for this in the past two years. The MEB-ZH working group organized meetings in Delft about nine times a year for corona and is happy to pick up that thread again.
The creator of the Permanent Portfolio is the American Harry Brown, who introduced it around 2000. Brown distinguishes 4 possible market conditions: growth, recession, inflation and deflation. A suitable asset is used for each of these 4 market conditions, namely shares, bonds, gold and cash. The capital in the permanent portfolio is divided equally between these 4 assets. Each asset is allocated 25%.
The development of the 4 assets is followed with a moving average of 10 months. If at the end of the month the price of an asset (eg shares) falls below this average, the asset is sold and converted into cash. If the asset rises, it is bought again. In this way, the portfolio is adjusted to market conditions. Rebalancing takes place once a year; each asset is again allocated 25% of the available capital in the portfolio.
The permanent portfolio has been tested from 1973 to 2020 (47 years). The average return is around 5% per year with a maximum interim loss (drawdown) of 11%. Compared to a Buy&Hold portfolio, the return does not differ much, but the drawdown is more than halved. At B&H this is around 23%. That’s a big advantage. Losses of around 10% are bearable as opposed to losses above 20% where most investors give up.
In summary: the permanent portfolio is a robust way of investing. It requires little attention. Only at the end of each month is it necessary to check whether the 4 assets should be sold or bought. The frequency of adjustments is low. The question of where to invest is no longer an issue.
The above only gives a rough idea of ​​the permanent portfolio. More information can be found on the internet under ‘permanent portfolio’ and Harry Brown. But at HCC!beleggen we are also happy to tell you all about it.
Look for more information investing.hcc.nl