If you lived through 2016, 2008 or even the 1980’s you will be familiar with the periodic baby out with the bathwater nature of the upstream sector.
In this short post I want to highlight the Permanent Portfolio set out by Harry Browne. It provides a way for YPs to navigate the choppy waters of a volatile oil market.
Disclaimer: As ever this is not advice and I owe a debt of gratitude to Jake Desyllas over at The Voluntary Life.
Some careers are the equivalent of US T-Bills barring a Zombie Apocolypse then those in Ed-Med fields are likely to do just fine.
‘‘some people never feel the cold- I however, have never been one of those people’’
Sure wish my Career’s advisor (also a Geoscience graduate!) had warned me…
So back in the heady dot-com boom days of 1999; Harry penned Fail-Safe Investing: Lifelong Financial Security in 30 mins.
Surely us millennials can avoid checking face tweet for that long…
The portfolio is constructed in 4 pieces of equal weight/size.
Let’s tackle each in turn with a shoe horned oil and gas analogy for good measure!
25% Cash Before you shout ‘why cash!’ I know its purchasing power erodes with inflation faster than Karstic Limestone in a Calcimeter. (or think ice statue at a party).
Cash has many advantages you can often buy cars, books or beanie babies on gumtree for a substantial discount with a few Benjamin Franklins.
HB meant holding T-Bills which even UK based readers can do through Vanguard. RIP Jack.
25% Stocks. Owning a share of the biggest companies in the world is great you literally have the world’s best thinkers working for you!
That said you don’t need to go out and try and pick the next Faroe or sidestep Afren. In fact as an oil and gas worker you shouldn’t really own any upstream companies. Anyone old enough to remember Enron?
Rule: Don’t sh**t where you eat.
The Way is Index funds; sure they are labelled as passive, unexciting, un-American.
It is not a scavenger hunt and there is something freeing/humbling about not going up against Mr. Icahn and just buying the whole basket.
Think of your index funds as hitting the pay dirt West of Shetland- risky yes but there is existing infrastructure in place.
Next it is 25% Bonds Essentially these are like your Forties Field in your portfolio you basically know every grain of sand and they give you steady returns through bull and bear markets.
HB says use US long dated bonds which do well during prosperity or deflation. (VUTY )would do the job)
All that glitters…
Last is 25% Gold.
Yup bullion, loot, booty right the way back to the smugglers at Fistral Bay we have been hoarding Gold. An interesting asset because it is sort of negatively correlated to other holdings. Acting as a hedge it basically responds to greed and fear in the wider market.
Remember Gold does not provide dividends but that is ok because you have your stock allocation to put the wind in your sails.
No one can predict the future…
Don’t get fancy
A certain Mr Samuels started his empire selling painted shells 122 year ago and that seemed to work out ok…
Build a Pipeline
There is an argument to be a pipeline operator rather than a company. Michael Lewis tells that story in Flash Boys about the race to get the fastest exchange connections.
Selling shovels in a gold rush works whether you are on Wall Street, St James’s Square or Union Street.
Remember the phrase ‘this too shall pass’. Well, working in oil and gas is a bit like the fortunes of an Oil Major. They are organised into distinct business units. When there is blood on the streets for upstream then downstream part of the company comes to the rescue.
The Permanent Portfolio is not like going to the Bellagio and putting it all on Red.
It is about taking a step back admitting you don’t know what is going to happen next in the public markets and baring a Zombie Apocalypse you will be fine.
Way too many portfolios end up looking like a licence map of the Gulf of Mexico. If you have the urge- then take 10% and put it on the National Lottery!
Keep It Simple.