How an 'eccentric' mutual fund beat Wall Street for a decade

Imagine going from investing zero to superhero overnight.

That is roughly what has happened to Michael Cuggino, manager of Permanent Portfolio. After struggling to stay above $50 million in assets for most of its life, the fund shot past $1 billion in 2007, more than doubled to $3.4 billion in 2008 and swelled to $5 billion last year. So far in 2010, $1.9 billion of new money has come piling in.

In August, according to Morningstar, investors added $327 million to the fund—as much in a single month as Permanent Portfolio had managed to accumulate in the entire first 25 years of its existence. Suddenly, the fund's assets surpass $7.6 billion.

Why? Two words: strong results. In 2008, when the Standard & Poor's 500-stock index lost 37%, Permanent Portfolio lost just 8.4%. In 2009, it lagged behind the stock market but still gained 19.1%; so far this year, the fund is up 6%, versus 2.3% for the S&P 500.

The fund has walloped the stock market by an average of nine percentage points annually over the past five years and 11.2 points annually over the past decade. And it keeps less than a third of its assets in stocks.

Launched in 1982 and based in San Francisco, this eccentric, no-load fund grew out of the ideas of Harry Browne, the author, investment adviser and Libertarian candidate for president. Mr. Browne, who died in 2006, advocated keeping one-quarter of your portfolio in each of four assets: stocks, bonds, gold and cash.

Read the rest at the Wall Street Journal.

I don't usually discuss my personal finances on here, but I am gong to make an exception after reading this article. For about four years I have had all or most of my retirement nest egg in this fund (ticker symbol PRPFX). Back when I first discovered it I had more than a few people snicker at me. That stopped a couple of years ago though. This is not where you go to make a pile of quick money. It's where you go (strictly a long term investment) with money for which you have a low risk tolerance. The emphasis is on return OF capital, not return ON capital. That said, it has a history of modest to better than modest returns. When times are rough it will usually outperform stocks and the long-term downside risks are very low because of its radical diversification among asset classes.

Annualized Returns:
3yr - 7.8%
5yr - 9.3%
10yr - 10.5%

Number of Up vs Down years: 24/4

Disclaimer: This is NOT an investment recommendation. Everyone's individual circumstances are going to be different and you should consult a qualified financial planner and do your own due diligence before investing any money anywhere. Blah blah blah...