Investing with certainty in an uncertain world

Last week I caught snippets of the three-hour long CNBC interview with Warren Buffett. He was talking about “uncertainty” and said “The world – there’s always uncertainty. Now the question is, what do you do with your money”? In typical Buffet fashion he stressed the value of buying good businesses and holding them, not letting the uncertainties of the world knock you off course. Then in a tone of mild reproach, he spoke disparagingly about the trading mentality so common among investors today. To paraphrase: If there’s trouble in Europe, would you sell your farm, would you sell your house or your business? “But, for some reason, people think if they own wonderful businesses indirectly through stocks, they’ve got to make a decision every five minutes.” That bit of folksy wisdom got me thinking.

Without a doubt, this has been a frustrating and uncertain market environment. With new headlines out of Europe each day, it’s hard not to act like a squirrel crossing the street, darting first in one direction, then reversing course halfway across. Am I the only investor longing for an investment where I can park my dollars, one that will create wealth whatever uncertainties might arise and that will grow in value over time with tolerable volatility?

If such an investment appeals to you, you might consider the Permanent Portfolio Fund (PRPFX). Recently selected by TheStreet Ratings of CNBC for its list of the 10 Best Mutual Funds for 2012, PRPFX has maintained an A+ rating since 2007. With a mandate to preserve the purchasing power value of its shares over the long term, while seeking to achieve growth at low risk, the fund is positioned to succeed in a variety of market environments. PRPMX is an asset allocation fund with the following targets: Gold (20%), Silver (5%), Swiss Franc Assets (10%), U.S. and Foreign Real Estate and Natural Resource Stocks (15%), Aggressive Growth Stocks (15%), U.S. Treasury Bills, Bonds and Other Dollar Assets (35%). The fund is rebalanced on a regular basis to adhere to these weightings. Fund manager, Michael Cuggino, provides a compelling argument for an asset allocation strategy in a January 10, 2011 interview with the Wall Street Transcript.

As of Oct. 31, 2011, PRPFX’s top 10 holdings (primarily gold and silver bullion and coins, and Treasury bonds) accounted for just over 30% of assets. Cash accounted for an additional 16.3%. The fund is well-diversified with 75 individual stocks, 51 bonds and 43 holdings in the “Other” category. It has zero exposure to Euro zone assets. Managed with an eye towards minimizing tax consequences, PRPFX is appropriate for both taxable and tax-deferred accounts.

PRPFX has an enviable performance record. $10K invested in the fund on 11/19/2001 would have grown to just over $29K on 11/19/2011. That’s an annualized return of roughly 10% even after paying taxes. In both 2009 and 2010, the fund achieved a return of 19%. Its worst “down” year was a negative 8.33% in 2008. Since its inception in 1982, the fund has only had three other “down” years (1984, 1990, and 1994).

While Morningstar has yet to assign one of its new forward-looking ratings to PRPFX, the fund’s past performance has earned it the coveted 5-star rating used by so many investors in selecting mutual fund investments. Categorized as a “Conservative Allocation” fund by Morningstar, it ranks #1 in its category on a total return basis over 1, 5, 10, and 15 years. Beyond its top-notch risk-adjusted performance, PRPFX is a no-load fund sporting a reasonable expense ratio (.77%), low portfolio turnover (9.1% annually), and proven stable management. Aptly subtitled “A Fund for All Seasons” in its quarterly report, PRPFX is just what the doctor ordered for investors suffering from indigestion as a consequence of this roller coaster market.

Founded on the premise that no one can predict the future, this fund offers an alternative to investor paralysis. Whatever market outcomes materialize, this fund includes an asset class that will generate profits. To protect against dollar debasement and high or hyperinflation, PRPFX has gold and silver. Should ongoing deleveraging develop into a deflationary spiral, PRPFX has U.S. Treasurys and cash. In anticipation of a gradual economic recovery, PRPFX holds stocks. In a scenario where commodity prices continue to rise, PRPFX offers exposure to natural-resource companies. PRPFX did underperform during the bull markets of the 1980s and 1990s, but one glance at its consistently upward trending chart will convince most conservative investors that PRPFX has “core holding” written all over it.

Disclosure: The author does not currently own Permanent Portfolio (PRPFX) fund, and will not purchase shares in this fund for at least 72 hours after publication of this article. The author has no affiliation with Permanent Portfolio fund.

Judy Mariuz