A note from the frontier before we get to our permanent portfolio discussion today…
I attended my daughter’s dance recital at the old Masonic Theatre in Clifton Forge, VA over the weekend.
I highlighted this building a few weeks ago – the first time I visited it – because I find it fascinating. It’s a historic Appalachian opera house that opened its doors in 1906. Apparently it once hosted everything from presidential speeches to old western performances.
What strikes me most are the elevated opera boxes on the second level of the building – just overlooking the stage. Nobody seems to sit in those things today… so my son and I went up there to check them out.
Here’s a picture I snapped of our view from the box just before the curtains opened:
These opera boxes strike me as a relic from the Victorian era… and there’s something oddly nostalgic about that.
Getting back to the world of finance and economics…
We talked last week about the changing dynamic of global trade and Triffin’s dilemma. When we left off, we asked a key question – what’s it all mean for us? And how should we position our finances given all the uncertainty out there?
The answer is that we need to focus on the fundamentals. Since we don’t know exactly what kind of future the global economic reordering will bring… we need to prepare for any future.
This was the key insight that inspired Harry Browne to develop his Permanent Portfolio concept back in the 1980s.
Browne was probably best known for his presidential campaigns in 1996 and 2000. Running on the Libertarian Party ticket, he advocated the virtues of individual liberty and free markets with both clarity and charisma.
However, Browne was prominent in the world of business and finance for decades prior to those presidential runs. He was known to jot down the ideas that came to him as he went about his days. Then he would sit down and develop those ideas at night – often by writing. That’s how he became a prolific writer and a best-selling author.
It was during one of those late nights spent thinking and writing that inspiration struck. Browne realized that there might be a way to protect personal wealth from economic chaos—not by predicting the future, but by preparing for any future.
That research sowed the seeds of Harry Browne’s Permanent Portfolio. He envisioned a portfolio so balanced that it could perform well during periods of inflation, deflation, prosperity, and recession.
It was an idea that was brilliant in its simplicity. And Browne went on to help construct a mutual fund based on the concept.
The Permanent Portfolio mutual fund (PRPFX) launched in in 1982. It was designed to maintain an equal weighting of 25% stocks, 25% bonds, 25% gold, and 25% cash.
And it worked. That fund went on to produce average returns of 7% a year for several decades – demonstrating the validity of Browne’s vision.
At The Phoenician League, we employ some of the same principles that Browne laid out in his Permanent Portfolio concept – with some modern additions. We’re able to employ a wider range of assets today thanks to technological advances.
But the idea is the same – we seek to build a bulletproof investment portfolio that will thrive regardless of what happens with the economy and the monetary system.
The key here is a concept called asset allocation. More on that tomorrow…
-Joe Withrow