The best laid plans...

The best laid plans...
Commentary: Don’t bet all or nothing on any adviser or system
By Mark Hulbert, MarketWatch

CHAPEL HILL, N.C. (MarketWatch)

Rchard Russell made a remarkable confession earlier this week.

He said that he finds the financial markets to be so inscrutable that trying to time them is close to futile. He says that he’s therefore decided to invest a good chunk of the accounts he manages in a mutual fund that has a static allocation to several uncorrelated asset classes.

Russell, of course, is the grandaddy of the investment advisory industry, having continuously published his Dow Theory Letters advisory service since 1958, more than 50 years ago. He has seen more bull and bear markets than almost any of the rest of us, and he has the cynicism that is borne of witnessing innumerable new strategies and approaches that have come onto the investment scene to great fanfare and then ultimately failed.

As an illustration of the mixed and divergent signals the market is sending, Russell writes: “I recently read the works of A. Gary Shilling and Bob Prechter’s Elliott Wave Forecast, and they provide really convincing reasons as to why we’re going into deflation. I read Larry Edelson and a dozen other advisors and they provide excellent reasons why we’re heading into hyperinflation.”

I sympathize with Russell’s argument. As fate would have it, I read his comments while at the World Money Show in Orlando, where I will be giving a couple of workshops. After listening to some of the other workshops at this conference, I was convinced that I’d be a fool to have any exposure whatsoever to the equity markets. Upon listening to other workshops, in contrast, I concluded that I should mortgage the house to put everything into the stock market.

Unfortunately, examining these advisers’ track records goes only so far in helping us decide which of these viewpoints is correct. Even among the advisers with the very best long-term performances, there still is widespread disagreement.

The first step towards wisdom in this business is to recognize that your chosen adviser might get it all wrong — no matter how good his track record and how cogent his reasoning. This seems like an utterly banal thing to say, and yet if we are willing to follow its logic, you reach a very provocative conclusion.

The late Harry Browne, the one-time investment newsletter editor who became the Libertarian Party’s candidate for president in the 1990s, was one adviser who was willing. In his book “Why The Best-Laid Investment Plans Usually Go Wrong,” Browne pleaded with readers not to bet all or nothing on any one adviser, no matter how good his or her record, or any sure-fire market timing system that allegedly “can’t” go wrong.

Browne continued: “Almost nothing turns out as expected. Forecasts rarely come true, trading systems never produce the results advertised for them, investment advisers with records of phenomenal success fail to deliver when your money is on the line, the best investment analysis is contradicted by reality. In short, the best-laid investment plans usually go wrong. Not sometimes, not occasionally — but usually.”

Browne’s idea was to invest in a basket of asset classes, each one of which has a low correlation with the others. As a result, when any one of the asset classes is performing poorly, there is a good chance that the others will at least be holding their own — if not actually appreciating in value. Brown coined the name “permanent portfolio” to describe this approach, since it makes no changes other than periodic rebalancing.

Brown’s idea eventually manifested itself in a mutual fund, the Permanent Portfolio Fund /quotes/comstock/10r!prpfx (PRPFX 45.94, +0.05, +0.11%) . It is into this fund that Russell says he’s putting a good deal of the accounts he manages.



Seven best funds for 2011
Commentary: Consider these standouts when freshening your 401(k
By Jeff Reeves

Best conservative fund

What if you are one of the many investors who doesn’t want to take more risk than necessary with their retirement cash, settling for a little less profit in the boom times to keep you safe when things go south? If that’s the case, consider a mutual fund with a name that says it all: the flagship Permanent Portfolio Fund /quotes/comstock/10r!prpfx (PRPFX 45.94, +0.05, +0.11%)

Permanent Portfolio is a family of funds, but the PRPFX fund is their most conservative offering. The investment seeks to preserve your retirement funds in tough times while cashing in on hard assets and income investments. The portfolio’s top holdings include gold, silver, Swiss francs and bonds, foreign real estate and natural resource stocks. As you can see, your money isn’t going to evaporate in these picks — unless some disaster wipes away nearly every investment option out there, and then we all will have much bigger problems.

In fact, if you want to know how stable this fund is, look at its worst three-month return on record — an 18% decline recorded as the U.S. economy cratered, while index funds like Vanguard Total Stock Market /quotes/comstock/10r!vtsmx (VTSMX 33.23, +0.05, +0.15%) tallied losses of more than 30%.

The Permanent Portfolio Fund is open to new investors with a mere $1,000 buy-in and boasts Morningstar’s top five-star rating. Its expense ratio is a reasonable 0.82%.