PRPFX and Stock Holdings

For those who follow me, you know I am a big advocate of setting up your own permanent portfolio as described by Harry Browne in the book Fail-Safe Investing.  Since investments are dependent on human action, nobody can predict with absolute accuracy what stocks and other investments are going to do in the future.  It is even harder in trying to time such investments.  Therefore, I suggest that you put at least half (for risk takers) or closer to all (for conservative investors) of your investments into a setup like the permanent portfolio.  This would not count investment real estate.

I recently wrote a piece about the mutual fund PRPFX and its performance.  I said that it did not do a near perfect job of emulating the actual permanent portfolio, particularly because of the holdings in Swiss francs.

There is another aspect of PRPFX that differs from the permanent portfolio as described by Harry Browne.  The fund invests in individual stocks instead of the broad stock market.  For example, PRPFX holds BHP Billiton, FedEx, and Wynn Resorts, among others.  To be fair, none of these holdings make up over 1% of the fund.  However, it should be noted that according to the regular permanent portfolio setup, only 25% should be in stocks.  Therefore, if a stock had only a 0.5% weighting in PRPFX, it would actually be about 2% of the stock portion.

If any one company were to go bankrupt overnight, then it would not hurt PRPFX by any more than 1%.  This is really the purpose of mutual funds.  It diversifies risk, particularly with individual companies.

The main reason I point this out is because I want people aware that PRPFX is not the same as the permanent portfolio as described by Harry Browne.  The fund is actually speculating in stocks, even if it is in small amounts.  If it were true to the permanent portfolio, then the stock portion of the fund would just invest in the overall S&P 500 or even a broader stock market fund.  It would not be trying to pick individual winners.

I'm sure the managers at the PRPFX fund have done their research and found these individual holdings to be solid companies.  You may benefit with a higher return if you are invested in PRPFX.  However, I just want to reiterate that it is a form of speculation, even if much less so than the average mutual fund.

I still believe PRPFX is a simple and easy way to put at least some of your money into a setup that is at least close to the actual permanent portfolio.  It is just important to know what you are buying when you do so.