Replies to post #169 on AIM UK

[ls7550]

One aspect of potentially using Permanent Portfolio that troubles me somewhat is that it might be a case of data mining.

Here is one of the most optimal 1972 to 2008 investment blends, comprised of Emerging Markets, Gold and LT Bonds



Perhaps that implies that in the forward time direction that relative out-performer of past might be tomorrows relative under-performer.

LT Bonds have been on a long term mean reversion following excessively low prices in the mid 1974, rising up to present day near 0% current base rate highs and as such may prove to be one of the poorer performers in the forward time as base rates start to rise again.



Gold price was de-fixed in 1971, leading to exceptional performance in the the 1970's.

Gold does serve as a domestic currency risk counter, but that can be easily achieved by holding non-domestic currency based stock investments. It's easier for US investors as when their currency slides the rest of us slide down with it, so in import/export terms (purchasing power) there's little change.

Stocks are an inflation hedge. Yes existing investors suffer as prices crash down to reflect forward time inflation pacing growth and higher yields, however if you've cash to buy stock at the lower price or took steps to protect against downside price slides, then stocks can still serve investors who owned stock prior to the declines.

Gold and LT Bonds seem a bit of a risky play, supposedly riskier stocks might be the safer approach, especially if we're about to enter (or are in) inflationary or sideways ranging market conditions and we're using AIM-like investment methods.

When many see a performance graph such as the first one shown above the reaction can be a temptation to buy into that in expectation of future performance matching the historic performance. More often that turns out to be a buy-high event. Better perhaps to look for relative under-performers, and buy into those instead. Accordingly I'm seriously thinking about ditching the concept of using PP as part of my defensive ('cash') set.