I’m a permaeverything. Not a permabear. Not a permabull. A permaeverything. What the hell does that mean? It means I try to always maintain a relatively balanced exposure across my financial assets. I am never too heavily leveraged to stocks. Never too heavily leveraged to bonds. Never too heavily leveraged to cash. I am balanced. I am permanently bullish AND bearish about everything to some degree.
The Permaeverything mentality is essentially a type of Permanent Portfolio or All Weather Portfolio. That is, you’re never all in on anything. So you’re never so exposed to any specific allocation that you expose yourself to excess behavioral risk.
I’ve always loved the idea of a Permanent Portfolio because it makes you relatively agnostic to short-term market moves. For instance, in my personal assets I run a version of Orcam’s Aggressive Countercyclical portfolio. That allocation is pretty close to a 50% stocks and 50% bonds portfolio today. I also maintain a healthy cash position in my bank account (for liquidity and emergency purposes) and I am way overexposed to equities through my firm (which is both equity for myself AND exposed to equity due to being an asset management firm). But my personal brokerage accounts are very well balanced despite being overweight equities in various ways (which is fine because I am relatively young, working full-time and trying to grow a company).¹
The key point is, I am bullish about most things while also being somewhat bearish about those things. I am relatively overweight the stock market because I am just about always optimistic about the economy (as most of us should be because the stock market usually goes up and the economy usually expands). But I am also always bullish about bonds and cash because they are the ballasts in my portfolio that keep me sane when the stock market is acting insane. You can add other ballasts (like gold and whatnot) but that comes down to personal financial decisions. For me, cash and bonds are a sufficient hedge. But while I am bullish about these instruments I am also somewhat bearish about them by having uncorrelated allocations that hedge their exposure.
Behaviorally sound asset allocation is all about maintaining balance. By being a permaeverything you can tweak your exposure to allocations so that you’re never so bullish about anything that it exposes you to excess bahavioral risk. And by accepting a lower rate of return that creates a more stable return you actually increase your counterfactural returns by maintaining a process you can actually stick with through good times and bad.
¹ – I say I am relatively young, but according to this quiz I am suffering from an advanced case of being old as hell.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.