Sep 25, 2022Liked by Market Sentiment


1. for each of the quadrants, what are the best strategies (growth vs value, gold vs BTC, local vs global) and how can it be remixed?

2. why are the ratios 25%, and should it be adjusted given the four core assets are pre-defined?

Expand full comment

Hi Brad,

The first question would be an article in itself - You can find more information about the segments and possible investments here - https://mutinyfund.com/cockroach/

As to the second question, Browne's logic was that each quadrant is equally likely. Just because we have been in an environment with high growth and some inflation doesn't mean that it's going to be like that forever. He wanted a portfolio that can sustain everything - hence the equal split (at-least that's my understanding)

Expand full comment

Fellow tennis amateur here, thanks for the book recommendation! If you haven't already The Inner Game of Tennis by Timothy Gallwey is worth a read as well.

Expand full comment
Sep 26, 2022Liked by Market Sentiment

The problem with comparing the CAGRs is that one has to assume that the three portfolios were each held for the full period. Browne and many others have pointed out that investors can't endure the big drawdowns so they typically sell at the lows and buy at the highs. It's likely that the Permanent Portfolio (disclaimer: I own both Permanent Portfolio (mutual fund) and Cockroach Fund) outperforms 60/40 and SP500 over long periods in actual practice because investors can stick with it.

Expand full comment

Got it. Yeah makes a lot of sense. I was going for the purely analytical angle. But, as you said, holding on while having a 12% drawdown is much easier than a 50% one!

Expand full comment

Have you seen the movie "Don't look up"? We live in the same world, till a couple of weeks ago I was looking at charts and economic data for years....

I am neither a physicist nor an economist, but what I see is an imbalance that has come to a turning point, with the perfect storm approaching. Our global economic system is based on the premise that businesses can grow indefinitely with the economy. Growth requires raw materials that are past their peak of extraction today, how can you think that the economic model as we have always known it will continue to grow? As long as people believe that a 2 ton electric car is better for the world, the world is doomed...

I've never been an ecologist, but what I do notice is that the economic model that would provide prosperity doesn't work... The last 50 years you notice the impact of a model that doesn't bring prosperity but war and a worldwide pandemic, we are on a sinking ship, but a lot of people can't see it...

In terms of nature and life on earth, I recently heard that more than 60% has already disappeared, our activity on earth has the impact that, according to physicists, natural disasters will continue to increase and at 50 °C it is no longer livable for us humans etc...

To conclude, you notice that some world leaders are noticing this and are moving towards downsizing production with fiscal and legal restrictions on growth, which means that this model of long-term value investing will no longer work if they succeed to put our planet on #1.

All people with children can't be worried about this, don't you think? We always thought this would not be for our generation nor our children's' but physicists models are catching up from what they predicted, in 5-10yerars we will have natural disasters I would never have thought of...

I'm not worried about my stocks anymore when I read a little more about this instead of economics...

What's for sure is that it isn't sustainable. What is your opinion on this?

Expand full comment

With half the drawdown. You can lever it up 2x to boost performance while matching the drawdown characteristics of S&P500. That would be the right comparison. That would put the CockRoach at 22% to S&P500's 13%.

Expand full comment

Eep, 25% stocks just feels too low for even conservative retirees, at least in my (young, risk-preferring) opinion. 30% or 40% minimum, no? I guess with a very short time horizon, or if you're indexing instead of using stocks for income.

For people comfortable pursuing non-index strategies, my personal belief is that there's plenty of ways to engineer more upside, and/or less downside. Even the 60/40 gets not only much better total return, but also better risk-adjusted returns than the permanent portfolio.

The lack of upside capture is just not great for permanent portfolio, and YTD it is down 15%, making it better than the S&P but quite a bit more downside-y than I might like for such a conservative portfolio.

Expand full comment