The Permanent Porfolio Fund: Long Live Harry Browne's "Fail-Safe" Investment Strategy
The Permanent Portfolio Fund: Long Live Harry Browne's "Fail-Safe" Investment Strategy
by Mark Skousen, Chairman, Investment U
Friday, August 25, 2006: Issue #575
"Stocks, bonds, gold and cash combine to provide balance and safety, one that will do well in any economic environment." - Harry Browne
This year has been a year of funerals for me. I've lost three friends in the financial world - Louis Rukeyser, Andrew Westhem and Harry Browne. I've also lost a beloved uncle, W. Cleon Skousen.
He and I became friends on the speaking circuit in the mid-1970s, before he became a political animal, and before his Permanent Portfolio Fund was created. His newsletter was beautifully written and he was known for his impeccable integrity. And his birth date is symbolic: 1933, the year Franklin Delano Roosevelt declared a national bank holiday and made it illegal to own gold.
Harry was destined to be a gold bug.
Harry Browne's Surprise: From Gold Bug To the "Permanent Portfolio"
My first investment was not a stock or bond, but a silver dollar. I still carry it wherever I go to remind me of my financial roots
When Harry entered the investment world in the late 1960s, his instincts led him away from the traditional stock and bond markets and into the gold bugs' trinity of "gold, silver and Swiss francs." It was good timing, as these alternative investments skyrocketed.
But then came the disinflationary 1980s and the election of Ronald Reagan, and the gold bugs went into hibernation.
It was at this junction that Harry Browne shocked the hard-money movement: He gave a "sell signal" for precious metals in 1980, and developed a simple investment formula that was "safe and profitable no matter what happens - good times, inflation, recession, war, or even depression."
- Precious metals
- Growth stocks
- Government bonds
The idea is that precious metals will do well during inflationary times, growth stocks will do well in good times, Treasuries will do well during recession, and T-bills will do well during depression. You can't lose, right?
Testing the Formula Behind Harry Browne's Portfolio Fund
Harry put his money where his mouth is by helping to create the Permanent Portfolio Fund (PRPFX) in 1982. The fund has a mix similar to Browne's original proposal:
- 25% precious metals (20% gold bullion, 5% silver bullion)
- 10% Swiss franc bonds yielding less than 2%
- 15% real estate and natural resource stocks, foreign and domestic
- 15% aggressive growth stocks; and
- 35% in government securities, including T-bills.
How well has the Permanent Portfolio Fund done? Not bad. See the chart below.
Since 1982, the fund has had an average return of 6.38%, and over the past five years, has outperformed the stock indexes. During a period of boom and bust, it's been up 20 years, down only three years. Morningstar gives it a four-star rating for its low-risk formula.
But there's a downside: The fund's long-term performance is poor compared to stocks, or even junk bonds. Its average return of 6.38% is only one percentage point higher than safe T-bills! During the roaring 1990s, the Permanent Portfolio Fund seemed "permanently" in a funk, rising only 1% a year while stocks were exploding at a 20%-30% annual rate.
I suspect that Harry Browne's Permanent Portfolio gives too much weight to hard assets, and not enough in stocks and bonds. I like the idea of a permanent portfolio, but you should adjust it to your own comfort level.
Thanks to Harry Browne, our portfolio can rest in peace.
Good trading, AEIOU,
Investment U Crib Sheet
Uranium Extends Its Red-Hot Streak
by the Investment U Research Team
When the broad market corrected in May and June, nearly every commodity took a hit. Gold, silver, platinum, palladium, copper, aluminum, nickel, zinc Each gave back a portion of their gains. Gold shed 20% in less than two months.
Uranium, however, not only defied the selloff, it continued to move higher. In fact, it has not dropped in price for 38 straight months. In that time, it's up 340%. Take a look at uranium's historical spot prices below.
Source: The Ux Consulting Company, LLC
The uranium run is just getting underway, too
Nuclear energy now supplies 16% of the world's total power; 23 new nuclear reactors are under construction in 10 countries; 441 power plants in 36 countries now depend on uranium to run steel plants, auto assembly lines, mass transportation and thousands of factories; and nuclear power heats, lights and cools an estimated 350 million homes and businesses worldwide, powering computers, bank transactions, telecommunications - and even a third of all the schools in Europe and the industrialized nations.