Last updated April 30, 2009

(Transactions since March 31, 2009)

For the month of April, my portfolio declined by 1.4%. For the year 2009 to date, I am down 3.5%. As I’ve previously reported to you for the year 2008, I gained one-third of 1%. For the eight years preceding that (roughly the period of the current secular bull market in commodities), my portfolio gained approximately 17% per year, or a gain of 251% for the eight-year period. Since for all of 2008 and the first 4 months of 2009 I am down 3.2%, that means I stand ahead by 228.8% for the full period of nine years, four months. This brief summary of my portfolio over the last nine and one-third years has brought to mind something I consider so important that I have decided to share some observations with you before I show how my portfolio is allocated as of April 30, 2009.

Observations on the power of the permanent portfolio strategy
Every time I think about what could have happened to my portfolio had I not taken a hard look at what my experts were doing in March of 2008, and reallocated my portfolio accordingly, I pause and thank the Lord. Since last November, hardly a week goes by without some friend or loved one telling me they have lost a third or half the retirement money they have built up, in some cases over decades, in less than a year. Some of the stories are heart breaking.

From 2000 through 2007, the people whose investments I managed were riding the first wave up in the secular bull market in commodities, both physical commodities (primarily gold and silver), and the common stocks of companies who produced commodities (primarily energy and mining companies). We were averaging 17% per year, and I admit I had become complacent about the level stocks had reached in my portfolio, over 40%, not because I invested that much in them, but because the commodity producing stocks I owned were going up so much. 

In Letter 19 (March 13, 2008), I wrote about the in-depth survey I made of my experts. What I learned was that all of them had high allocations to cash and low allocations to stocks. All of them use a variation of the permanent portfolio strategy, which is a simple strategy which protects against high inflation and severe deflation at all times. The number one protection against a deflationary crash is safe cash and long US Treasury bonds. Harry Browne’s original permanent portfolio was 25% cash (T-bills) and 25% long treasury bonds. The other half was his inflation protection, including 25% gold. If you haven’t read his book, FailSafe Investing, I highly recommend you do so.

Within 48 hours after writing Letter 19, I reduced my stocks from over 40% to 12%, and increased my cash to over 36%. I suggest you look at the following link which shows my portfolio on March 28, 2008: 
     http://somehelpful.info/Money/Jay-Portfolio/Jay-portfolio-2008-03-28.htm 

You can also find my portfolio allocations for most of the months since January 2008 here: 
     http://somehelpful.info/Money/Jay-Portfolio/ 

This allocation change saved my portfolio from major damage in 2008, and I want to make a key point about that. One of the most important keys to long term investing success is avoiding major losses of capital. From top to bottom in 2008, both the Dow and S&P 500 indexes were down over 50%. At that point, an investor who rode the full decline down was faced with the difficult task of earning 100% on his portfolio just to get even. That will most likely take several years. Add to that the fact that at the bottom, stocks were still nowhere near the valuations usually seen at bear market bottoms – under 10 times earnings with dividend yields of 6% and higher. At its high of 14,000, the Dow was selling at thirty times earnings, and a dividend yield of about 1%. At that point the public had a huge percent of its retirement money in the market, having driven the prices to extreme over-valuation. Today the valuations are somewhere in the middle, and I would guess that the bear market might be about half over. I would guess the final bottom will come 5 to 7 years from now, at which time stocks will be at bargain prices and a new secular bull market will begin about the time the secular bull commodity market is ending (all this gleaned from my experts and discussed in past writings).

No doubt you have noticed that the stock market has recovered over 30% from the bottom, and there is much talk in the investment world that a new bull market has begun. Could it go higher? Yes it could, and I hope it does. That will be ideal for those who want to follow the plan I suggested recently in What My Experts Are Saying Now (under the last section – SUMMARY – JAY’S TWO CENTS WORTH.)

I suggest that rather than a new bull market, we are experiencing a typical bear market rally, which will suck many investors back into the market in time for the next big leg down. There are still too many investors with too much of their retirement money in the market. When the next scare occurs, many will be waiting in line to sell. What might trigger the next sell-off? I have no idea, perhaps another unexpected bankruptcy of a major company, another wave of foreclosures of houses, or the first major fall in commercial real estate prices – due to over-building of retail space or lodging space, an unexpected rise in unemployment…just a few guesses. 

I don’t know the future, nor does anyone else. I had no idea 2008 would play out as it did. If I had known, I would have been far more emphatic in my warnings than the wording of Letter 19 might have suggested to you. But I acted immediately to get my portfolio allocations in line with what I learned from my experts. I praise God for that. The Permanent Portfolio Fund (PRPFX) protected the capital our investors had in it, producing double digit returns for 2001 through 2007, and sustaining a loss of only 8.4% in 2008. I suggest you consider it for capital you can’t afford to lose (following the plan suggested above). I think we could be very near to another strong up leg in the commodity bull market. I will be suggesting some higher risk speculations with greater potential you might consider for money you feel comfortable exposing to higher risk. Or, you can follow my portfolio which is blend of the permanent portfolio and variable portfolio tilted toward the conservative side.

Be assured that I am thinking and praying for all of you, asking God to guide us in the difficult decisions which lie ahead … and thanking Him in advance.

My portfolio as of April 30, 2009:

As you can see, my largest single stock holding is SSRI, for reasons explained in the article, SSRI - A Rare and UnExpected Opportunity.