“The future is always unlit… but with a body of theory, you can anticipate where the structures might lie. It allows you to step out of the way every once in a while.”
- James Grant, ‘The Trouble with Prosperity’.
“The topic of getting rich versus staying rich is undervalued because the former can be driven by luck, but the latter is almost pure strategy and tactics.”
- Morgan Housel, ‘Humble Exits’.
Get your Free
financial review
“It’s a mess, ain’t it Sheriff?” asks the deputy in Cormac McCarthy’s No Country for Old Men, as the two lawmen stumble on a drugs deal gone badly wrong in the desert of West Texas. Abandoned cars, dying men, dead dogs.. The Sheriff replies laconically, “If it ain’t, it’ll do till a mess gets here.”
That seems a pretty apt description of our financial markets today. The Trump tariffs have thrown multiple grenades into the globalist pond. Gold is signalling incipient chaos. Several governments, including that of the UK, seem hell bent on energy economy suicide. Both debt and equity markets are sending out all sorts of distress signals. China and the US seem to be on the verge of not just trade war but outright kinetic war. But how we choose to respond to the mess – well, that’s up to us.
A human brain that evolved on the savannah over millennia is not well adapted to financial markets that have only existed for a few hundred years. A “fight or flight” response is not a useful strategy when facing a stockmarket rout. However..
One strategy that does serve investors well, especially during periods of marked volatility, is diversification. Harry Browne, who also stood as a presidential candidate for the Libertarian Party in 1996 and 2000, famously created the so-called Permanent Portfolio, which is designed to generate decent returns over time while simultaneously preserving capital when market conditions get tough. The Permanent Portfolio couldn’t be simpler. It consists of equal weightings to:
- Cash
- Long-term bonds (US Treasuries, in his case)
- Stocks
- Gold.
The idea being that each component part is uncorrelated to its neighbour, and can be expected to thrive during different stages of the economic cycle.
Cash can be expected to do well during recessions.
Stocks and bonds can be expected to do well during periods of relative prosperity.
Gold can be expected to do well during periods of inflation.
The problem with the Permanent Portfolio in 2025 is that our economic and financial environment has changed out of all recognition compared to the one with which Browne would have been familiar. Gold and stocks still have a place within a sensibly diversified portfolio, but cash has been largely delegitimised by zero interest rate policy (ZIRP) and rising bank counterparty and inflation risk, and bonds have been largely delegitimised by ZIRP and quantitative easing (QE). Bonds are now so expensively priced, in our view, that they have become largely return-free risk.
For these reasons, the portfolio approach we advocate now is, effectively, a modified version of Browne’s original creation.
As a starter for ten, and assuming that, like us, you wish to pursue a twin-track policy of capital growth and capital preservation simultaneously, we suggest the following broad asset exposure:
Cash (and very short term government debt);
Unconstrained value stocks;
Absolute return funds (i.e. uncorrelated systematic trend-following funds);
Real assets, notably the monetary metals, gold and silver, and related equity interests.
Why hold cash at all, given that deposit rates remain at unattractive levels given attendant risks ? Because cash acts as dry powder, and it gives you a degree of optionality. With an allocation to cash, you can start to “pound cost average” into assets that are falling in value. Right now, those assets would be stocks.
Unconstrained (i.e., not benchmarked to any given index) “value” stocks should speak for themselves. The chances are that every investor will have their own appetite for risk and their own sense of risk aversion.
Absolute return funds aren’t a specific asset class – that reference to “absolute return” is more of an aspiration than a guarantee. Our favourite type of absolute return fund is a type of price momentum fund known technically as a systematic trend-following fund.
We acknowledge that these type of funds can be difficult to purchase, either because the minimum investment thresholds can be punitively high, or because certain fund platforms are seemingly allergic to them. Nevertheless, if you can buy these types of fund, we think you should consider doing so.
Systematic trend-following funds offer the prospect both of decent long-term returns and in particular the potential to generate good returns even and especially in falling markets (because, unlike traditional long-only managers, they can go short any asset class they like).
Real assets, notably the monetary metals, gold and silver, offer the potential to provide portfolio insurance against both inflation and financial crisis. We still think it makes most sense to hold a mixture of physical bullion and high quality precious metals mining stocks, with the caveat that price volatility in the latter is likely to be higher.
You might ask why property doesn’t feature. It clearly could. It’s a real asset, after all. The reason we don’t explicitly use property or property funds is a) because we think the domestic UK market’s still overvalued but more importantly b) because most private investors already have a meaningful portion of their net worth in the form of their primary residence, and the whole purpose of an investment portfolio is to provide genuine asset diversification, in order to offset the risk of catastrophic capital loss.
When faced with volatile markets, the natural human response is to feel like one should be doing something (even if that something is just panicking). The beauty of a sensibly diversified approach is that one doesn’t have to do anything at all. We can, of course, tweak these allocations higher or lower and replace certain component parts from time to time.
Like the man says, strategy and tactics.
A longstanding friend, the fund manager Tony Deden, recently published the transcript of a presentation given at the Grant’s Conference in New York.
Like us, Tony is primarily concerned with capital preservation. Unlike many managers, Tony has thought long and hard about what this topic really means in a world of dishonest money. There are no easy or glib solutions, but among possible answers are three qualities that Tony values above all others: independence, scarcity and permanence. But each of us may require a somewhat different mixture:
“Firstly, let me start with the notion that there is no such thing as objective value. That is, all value is subjective to the person doing the valuing—and specifically insofar as he acts toward a desired end. What is valuable to me, must be suitable to my ends. Therefore, that something has value, economic or otherwise, to someone, does not necessarily mean that I find it valuable. Conversely, something that I myself find valuable is not necessarily suitable or even interesting to others. And furthermore, what I consider valuable remains so irrespective of what others think about it or how others price it. Whether we like it or not, all of us, in every aspect of our lives, every single day, weigh different means towards our desired ends. The deployment of our savings, whether in the capital structure of a business, or as minority shareholders in some enterprise, is, by necessity, part and parcel of the same process.
“Instead of taking our cues from financial types, let’s consider the owner of a longstanding enterprise. He wants to avoid going out of business (and so do I); he is entirely uninterested in what others do (and so am I); he wants to remain competitive, relevant and enduring (so do I). Yes, he aims to be profitable, but he really knows that, in the long run, profit is the result of being successful at what you produce, not the result of chasing higher securities prices. He, too, deploys irreplaceable capital. He, too, considers the scarcity of his resources and the value they reflect in all his actions. He knows the difference between something that has financial value and something that has true economic value (so do I) and he wishes to leave something meaningful to the next generation (so do I and so should all of us).
“Modern wealth and investment management, as it is with corporate management, with every bit of its pseudo-scientific razzle-dazzle, can never be a substitute for the very idea that a prudent man’s action rests on the principle that his personal and very subjective judgment is responsible to the ends he considers important. In the financial world, there is a bear market in prudent men as there is in real owners. If you look for prudent men, skip the boardrooms of the world of finance.
“Secondly, consider the idea of scarcity—something that exists regardless of our material wealth—and the very thing our monetary masters have sought to abolish in money and pretend that we have permanent prosperity. Scarcity is simply the fact that there is never enough of any good to satisfy all human wants that we know depend on it. But something scarce, say, a Stradivarius violin, is not necessarily valuable for everybody. And something valuable for somebody, say, breathing air, is not necessarily scarce. On the other hand, what is valuable to me as an investor, is always scarce.
“Scarcity can be seen not only in quantifiable and material considerations but also in a company’s culture and ability to endure, survive and adapt. Or it could be its competitive advantage or the aggregate technical skill in some particular field of endeavour that is difficult to duplicate. These are highly subjective but necessary considerations.
“Furthermore, value must have a context—a reference, if you may, to a subjective advantage. That is, the goods or securities we consider valuable must be consistent as means to our individual aims.
“Lastly, to the extent my savings are deployed in the capital of other companies in which I am a minority owner, I am faced with another issue, and that is the motivation, the character and the objectives of those persons who actually own and run this corporation. Their actions, both seen and unseen, ultimately have an impact on the monetary value of my savings and on their enduring characteristics. Thus, I must come to judge these men as if they were working for me. And it is here, ladies and gentlemen, that scarcity reigns supreme. There are far more original multi-million-dollar Picasso artworks out there than there are company CEOs in whose enterprises I would be willing to deploy the savings of our shareholders.
“Today’s headlines are full of ominous signs. I need not elaborate. Yet, at the root, we eagerly look to authorities to find solutions to the very problems they created in the first place.
“Indeed, many of the problems we face, whether in gigantic financial distortions and imbalances, or in investment practice and in social coordination in general, are intractable. Their ultimate and inescapable resolution is too painful to contemplate. But we do know that the ultimate undoing of massive and compound errors is unavoidable.
“How we view investment value must be reassessed in the light of the scarcity of our capital and in the light of what we, individually, consider valuable, as a means to our specific ends.
“Two hundred years from now, our descendants will surely laugh at the collective foolishness of our era, just as we laugh at John Law and all the assorted monetary charlatans that have followed in his footsteps.
“I believe that in the fog and distorted noise of a world of booms and busts, the sanctity of our savings demands an escape from what is merely financial. The only one I know is that of seeking to find what is scarce and valuable to me. And so it is, subjectively, for each one of us, in his own judgment, and commensurate with his duty to his family and to others—subjective value about what is real and what is enduring..”
So, acknowledging the gravity of ‘the mess’, we leave you with five answers in total by way of attempting to deal with it:
Strategy. Tactics. Independence. Scarcity. Permanence.
………….
As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio – with no obligation at all:
Get your Free
financial review
…………
Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com.
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and also in systematic trend-following funds.
“The future is always unlit… but with a body of theory, you can anticipate where the structures might lie. It allows you to step out of the way every once in a while.”
“The topic of getting rich versus staying rich is undervalued because the former can be driven by luck, but the latter is almost pure strategy and tactics.”
Get your Free
financial review
“It’s a mess, ain’t it Sheriff?” asks the deputy in Cormac McCarthy’s No Country for Old Men, as the two lawmen stumble on a drugs deal gone badly wrong in the desert of West Texas. Abandoned cars, dying men, dead dogs.. The Sheriff replies laconically, “If it ain’t, it’ll do till a mess gets here.”
That seems a pretty apt description of our financial markets today. The Trump tariffs have thrown multiple grenades into the globalist pond. Gold is signalling incipient chaos. Several governments, including that of the UK, seem hell bent on energy economy suicide. Both debt and equity markets are sending out all sorts of distress signals. China and the US seem to be on the verge of not just trade war but outright kinetic war. But how we choose to respond to the mess – well, that’s up to us.
A human brain that evolved on the savannah over millennia is not well adapted to financial markets that have only existed for a few hundred years. A “fight or flight” response is not a useful strategy when facing a stockmarket rout. However..
One strategy that does serve investors well, especially during periods of marked volatility, is diversification. Harry Browne, who also stood as a presidential candidate for the Libertarian Party in 1996 and 2000, famously created the so-called Permanent Portfolio, which is designed to generate decent returns over time while simultaneously preserving capital when market conditions get tough. The Permanent Portfolio couldn’t be simpler. It consists of equal weightings to:
The idea being that each component part is uncorrelated to its neighbour, and can be expected to thrive during different stages of the economic cycle.
Cash can be expected to do well during recessions.
Stocks and bonds can be expected to do well during periods of relative prosperity.
Gold can be expected to do well during periods of inflation.
The problem with the Permanent Portfolio in 2025 is that our economic and financial environment has changed out of all recognition compared to the one with which Browne would have been familiar. Gold and stocks still have a place within a sensibly diversified portfolio, but cash has been largely delegitimised by zero interest rate policy (ZIRP) and rising bank counterparty and inflation risk, and bonds have been largely delegitimised by ZIRP and quantitative easing (QE). Bonds are now so expensively priced, in our view, that they have become largely return-free risk.
For these reasons, the portfolio approach we advocate now is, effectively, a modified version of Browne’s original creation.
As a starter for ten, and assuming that, like us, you wish to pursue a twin-track policy of capital growth and capital preservation simultaneously, we suggest the following broad asset exposure:
Cash (and very short term government debt);
Unconstrained value stocks;
Absolute return funds (i.e. uncorrelated systematic trend-following funds);
Real assets, notably the monetary metals, gold and silver, and related equity interests.
Why hold cash at all, given that deposit rates remain at unattractive levels given attendant risks ? Because cash acts as dry powder, and it gives you a degree of optionality. With an allocation to cash, you can start to “pound cost average” into assets that are falling in value. Right now, those assets would be stocks.
Unconstrained (i.e., not benchmarked to any given index) “value” stocks should speak for themselves. The chances are that every investor will have their own appetite for risk and their own sense of risk aversion.
Absolute return funds aren’t a specific asset class – that reference to “absolute return” is more of an aspiration than a guarantee. Our favourite type of absolute return fund is a type of price momentum fund known technically as a systematic trend-following fund.
We acknowledge that these type of funds can be difficult to purchase, either because the minimum investment thresholds can be punitively high, or because certain fund platforms are seemingly allergic to them. Nevertheless, if you can buy these types of fund, we think you should consider doing so.
Systematic trend-following funds offer the prospect both of decent long-term returns and in particular the potential to generate good returns even and especially in falling markets (because, unlike traditional long-only managers, they can go short any asset class they like).
Real assets, notably the monetary metals, gold and silver, offer the potential to provide portfolio insurance against both inflation and financial crisis. We still think it makes most sense to hold a mixture of physical bullion and high quality precious metals mining stocks, with the caveat that price volatility in the latter is likely to be higher.
You might ask why property doesn’t feature. It clearly could. It’s a real asset, after all. The reason we don’t explicitly use property or property funds is a) because we think the domestic UK market’s still overvalued but more importantly b) because most private investors already have a meaningful portion of their net worth in the form of their primary residence, and the whole purpose of an investment portfolio is to provide genuine asset diversification, in order to offset the risk of catastrophic capital loss.
When faced with volatile markets, the natural human response is to feel like one should be doing something (even if that something is just panicking). The beauty of a sensibly diversified approach is that one doesn’t have to do anything at all. We can, of course, tweak these allocations higher or lower and replace certain component parts from time to time.
Like the man says, strategy and tactics.
A longstanding friend, the fund manager Tony Deden, recently published the transcript of a presentation given at the Grant’s Conference in New York.
Like us, Tony is primarily concerned with capital preservation. Unlike many managers, Tony has thought long and hard about what this topic really means in a world of dishonest money. There are no easy or glib solutions, but among possible answers are three qualities that Tony values above all others: independence, scarcity and permanence. But each of us may require a somewhat different mixture:
“Firstly, let me start with the notion that there is no such thing as objective value. That is, all value is subjective to the person doing the valuing—and specifically insofar as he acts toward a desired end. What is valuable to me, must be suitable to my ends. Therefore, that something has value, economic or otherwise, to someone, does not necessarily mean that I find it valuable. Conversely, something that I myself find valuable is not necessarily suitable or even interesting to others. And furthermore, what I consider valuable remains so irrespective of what others think about it or how others price it. Whether we like it or not, all of us, in every aspect of our lives, every single day, weigh different means towards our desired ends. The deployment of our savings, whether in the capital structure of a business, or as minority shareholders in some enterprise, is, by necessity, part and parcel of the same process.
“Instead of taking our cues from financial types, let’s consider the owner of a longstanding enterprise. He wants to avoid going out of business (and so do I); he is entirely uninterested in what others do (and so am I); he wants to remain competitive, relevant and enduring (so do I). Yes, he aims to be profitable, but he really knows that, in the long run, profit is the result of being successful at what you produce, not the result of chasing higher securities prices. He, too, deploys irreplaceable capital. He, too, considers the scarcity of his resources and the value they reflect in all his actions. He knows the difference between something that has financial value and something that has true economic value (so do I) and he wishes to leave something meaningful to the next generation (so do I and so should all of us).
“Modern wealth and investment management, as it is with corporate management, with every bit of its pseudo-scientific razzle-dazzle, can never be a substitute for the very idea that a prudent man’s action rests on the principle that his personal and very subjective judgment is responsible to the ends he considers important. In the financial world, there is a bear market in prudent men as there is in real owners. If you look for prudent men, skip the boardrooms of the world of finance.
“Secondly, consider the idea of scarcity—something that exists regardless of our material wealth—and the very thing our monetary masters have sought to abolish in money and pretend that we have permanent prosperity. Scarcity is simply the fact that there is never enough of any good to satisfy all human wants that we know depend on it. But something scarce, say, a Stradivarius violin, is not necessarily valuable for everybody. And something valuable for somebody, say, breathing air, is not necessarily scarce. On the other hand, what is valuable to me as an investor, is always scarce.
“Scarcity can be seen not only in quantifiable and material considerations but also in a company’s culture and ability to endure, survive and adapt. Or it could be its competitive advantage or the aggregate technical skill in some particular field of endeavour that is difficult to duplicate. These are highly subjective but necessary considerations.
“Furthermore, value must have a context—a reference, if you may, to a subjective advantage. That is, the goods or securities we consider valuable must be consistent as means to our individual aims.
“Lastly, to the extent my savings are deployed in the capital of other companies in which I am a minority owner, I am faced with another issue, and that is the motivation, the character and the objectives of those persons who actually own and run this corporation. Their actions, both seen and unseen, ultimately have an impact on the monetary value of my savings and on their enduring characteristics. Thus, I must come to judge these men as if they were working for me. And it is here, ladies and gentlemen, that scarcity reigns supreme. There are far more original multi-million-dollar Picasso artworks out there than there are company CEOs in whose enterprises I would be willing to deploy the savings of our shareholders.
“Today’s headlines are full of ominous signs. I need not elaborate. Yet, at the root, we eagerly look to authorities to find solutions to the very problems they created in the first place.
“Indeed, many of the problems we face, whether in gigantic financial distortions and imbalances, or in investment practice and in social coordination in general, are intractable. Their ultimate and inescapable resolution is too painful to contemplate. But we do know that the ultimate undoing of massive and compound errors is unavoidable.
“How we view investment value must be reassessed in the light of the scarcity of our capital and in the light of what we, individually, consider valuable, as a means to our specific ends.
“Two hundred years from now, our descendants will surely laugh at the collective foolishness of our era, just as we laugh at John Law and all the assorted monetary charlatans that have followed in his footsteps.
“I believe that in the fog and distorted noise of a world of booms and busts, the sanctity of our savings demands an escape from what is merely financial. The only one I know is that of seeking to find what is scarce and valuable to me. And so it is, subjectively, for each one of us, in his own judgment, and commensurate with his duty to his family and to others—subjective value about what is real and what is enduring..”
So, acknowledging the gravity of ‘the mess’, we leave you with five answers in total by way of attempting to deal with it:
Strategy. Tactics. Independence. Scarcity. Permanence.
………….
As you may know, we also manage bespoke investment portfolios for private clients internationally. We would be delighted to help you too. Because of the current heightened market volatility we are offering a completely free financial review, with no strings attached, to see if our value-oriented approach might benefit your portfolio – with no obligation at all:
Get your Free
financial review
…………
Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com.
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and also in systematic trend-following funds.
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