46 Years of the PP

[MachineGhost]

[align=center][img width=800]http://i59.tinypic.com/11weqtj.png[/img]
7.83% CAR, -26.50% MaxDD (rebalanced annually)[/align]

[MachineGhost]

Americans couldn't own gold until 1975, so the first 7 years or so shouldn't be included.

Yes, but we want to see the PP rirsk and performance under every possible economic condition that we can expect in the future.  Gold was freed to float in 1968.  You could have bought and stored gold legally overseas, though I imagine you had to be pretty wealthy and savvy to do so.

[annieB]

Darn,that's a nice chart!

[modeljc]

The Federal Reserve Bank Minneapolis Dollar calculator has $1.00 worth $6.79 after 46 years.  That is a inflation rate of 4.3% or a real bogey of 3.5% for the PP.  Craig would be happy and I would be happy also. 

The problem is most of us can't sit still and manage our own monies.  I know I like to chase returns!

[Reub]

Isn't it great on a bad stock market day like today to have a fantastic vehicle like the PP to not only keep you from sinking but to actually provide a sizeable gain?

[MachineGhost]

Isn't it great on a bad stock market day like today to have a fantastic vehicle like the PP to not only keep you from sinking but to actually provide a sizeable gain?

It really, really hurts the PP when bonds or gold goes the wrong way.  That's what caused the 26.50% MaxDD.  And it was not just a singular event, but quite regular in the 15%-25% range several times in the 46-years.  Ught.  The only way I can deal is to have my bonds duration-managed and give up some downside protection, and time gold and stocks.  I need to be able to sleep at night.

This forum is like a ghost town.  If just -3% last year did that, I shudder to think of what -26.50% will do.

[Tyler]

This forum is like a ghost town.  If just -3% last year did that, I shudder to think of what -26.50% will do.

No worries -- The next stock market drop at or above that amount will have people flocking back.

[stuper1]

Yes, and don't forget that the recovery time for the PP after a drawdown is much shorter than for a stock/bond portfolio.

[MachineGhost]

I forgot to mention that stock dividends are accounted for and reinvested starting in 1973.

Meanwhile, the relatively low unemployment of the postwar period meant that, by the 1960s, most active workers had no direct experience (or ingrained fear) of mass unemployment. In the late 1960s, the unemployment rate actually dipped lower (below 4% for each of the four years from 1966 to 1969). Marglin argues that low unemployment, along with the cushion offered by the welfare state in the event of unemployment, resulted in a declining “cost of job-loss.”? Declining fear of unemployment emboldened workers to demand larger wage increases while reducing capitalists’ authority on the shop floor, their ability to enforce a high pace of work, and therefore the rate of productivity growth. Radical economist James Crotty points to the combined effects of rising wages and declining productivity growth in driving large increases in labor costs per unit of output. Unit labor costs, constant in the first half of the 1960s, grew at nearly 2% per year from1966 to 1967, and at over 6% per year from 1968 to 1969. These rising costs, in turn, ate into capitalists’ profits—the “full employment profit squeeze.”?

http://www.dollarsandsense.org/archives ... reuss.html

The Recession of 1969–1970 was a relatively mild recession in the United States. According to the National Bureau of Economic Research the recession lasted for 11 months, beginning in December 1969 and ending in November 1970,[1] following an economic slump which began around 1966 and by 1968 had become serious, thus ending the second longest economic expansion in U.S. history which had begun in February 1961 (only the 1990s saw a longer period of growth).

At the end of the expansion inflation was rising, possibly a result of increased deficit spending during a period of full employment. This relatively mild recession coincided with an attempt to start closing the budget deficits of the Vietnam War (fiscal tightening) and the Federal Reserve raising interest rates (monetary tightening).[2]

During this relatively mild recession, the Gross Domestic Product of the United States fell 0.6 percent. Though the recession ended in November 1970, the unemployment rate did not peak until the next month. In December 1970, the rate reached its height for the cycle of 6.1 percent.[3]

https://en.wikipedia.org/wiki/Recession ... E2%80%9370

[modeljc]

Isn't it great on a bad stock market day like today to have a fantastic vehicle like the PP to not only keep you from sinking but to actually provide a sizeable gain?

It really, really hurts the PP when bonds or gold goes the wrong way.  That's what caused the 26.50% MaxDD.  And it was not just a singular event, but quite regular in the 15%-25% range several times in the 46-years.  Ught.  The only way I can deal is to have my bonds duration-managed and give up some downside protection, and time gold and stocks.  I need to be able to sleep at night.

This forum is like a ghost town.  If just -3% last year did that, I shudder to think of what -26.50% will do.

I don't want to pick on you.  But I don't think you be able to sleep with any allocation!  You will never, never time gold or stocks as you be late to buy and real late to sell.  Sorry.

[MachineGhost]

I don't want to pick on you.  But I don't think you be able to sleep with any allocation!  You will never, never time gold or stocks as you be late to buy and real late to sell.  Sorry.

We'll see.  My backtesting suggests it doesn't matter if you don't get the exact tops or bottoms.  I'm willing to give up a bit of gain for a dramatic reduction in MaxDD.  I'm not greedy, I'm risk averse!

[Kshartle]

Isn't it great on a bad stock market day like today to have a fantastic vehicle like the PP to not only keep you from sinking but to actually provide a sizeable gain?

It really, really hurts the PP when bonds or gold goes the wrong way.  That's what caused the 26.50% MaxDD.  And it was not just a singular event, but quite regular in the 15%-25% range several times in the 46-years.  Ught.  The only way I can deal is to have my bonds duration-managed and give up some downside protection, and time gold and stocks.  I need to be able to sleep at night.

This forum is like a ghost town.  If just -3% last year did that, I shudder to think of what -26.50% will do.

I don't want to pick on you.  But I don't think you be able to sleep with any allocation!  You will never, never time gold or stocks as you be late to buy and real late to sell.  Sorry.

“I will tell you my secret if you wish.  It is this:  I never buy at the bottom and I always sell too soon.”? – Baron Rothschild

[iwealth]

I don't want to pick on you.  But I don't think you be able to sleep with any allocation!  You will never, never time gold or stocks as you be late to buy and real late to sell.  Sorry.

Did you backtest this? Because my backtesting strongly disagrees. Mind you I'm not trying to avoid dime a dozen 10-20% corrections, just long, drawn out bear markets.

If it's just your gut feeling saying you can't time, well, it's hard to take that any more seriously than the gut feelings of all those PP detractors who claim the portfolio is doomed over time.

[modeljc]

I don't want to pick on you.  But I don't think you be able to sleep with any allocation!  You will never, never time gold or stocks as you be late to buy and real late to sell.  Sorry.

Did you backtest this? Because my backtesting strongly disagrees. Mind you I'm not trying to avoid dime a dozen 10-20% corrections, just long, drawn out bear markets.

If it's just your gut feeling saying you can't time, well, it's hard to take that any more seriously than the gut feelings of all those PP detractors who claim the portfolio is doomed over time.

I did not backtest.  It is from my experience and I guess we can call it my gut feeling.  In the past things have worked for periods of 4 years or so, than stopped working.  If we consider the PP as a index than I believe it is hard to add value over the index over long periods of time.  My feeling is timing does not work.

I also like what XAN and Craig said:

See following from XAN and Craig:

http://gyroscopicinvesting.com/forum/pe ... /#msg69636

[LC475]

-26.50% MaxDD

I may be dumb, but... am I missing something?  I thought "well, maybe there's some extreme short-term volatility" and so I looked through each cell in your chart, but I did not see a single cell containing "-26.50".  Obviously no such annual draw-downs.  What -26.5% draw-down are you talking about?  And happening "quite regularly in the 15%-25% range several times in the 46 years"?

What am I missing? 

[LC475]

Ahh, never mind, I found the answer:

Not to rain on your parade, but 7% is really nothing to the PP.  The worst MaxDD is around -25% which is a scary chunk of your wealth to lose.  I don't know if that was less harsh in real terms.

And historically the PP experienced a -25% peak to trough MaxDD on a daily granularity basis and can certainly blow past it in the future on new "macroeconomic events" never seen before in history, like stock and bonds being simultaneously overvalued and dropping.

So there was a 26.5% drop in one day at some point, and a few (how many?  What days?) other 15-25% drops.  Could you share the data where you're getting this?  Thanks.

[Peak2Trough]

It really, really hurts the PP when bonds or gold goes the wrong way.  That's what caused the 26.50% MaxDD.  And it was not just a singular event, but quite regular in the 15%-25% range several times in the 46-years.  Ught.  The only way I can deal is to have my bonds duration-managed and give up some downside protection, and time gold and stocks.  I need to be able to sleep at night.

Can you tell us when exactly you found a 26.50% MaxDD?  Since 1972 the MaxDD according to my data is 18.4%, and that's using *daily* data, which can only make drawdowns larger than less granular data.  Can you give us more specifics please?

Also, my research shows exactly 2 drawdowns of 15% or more since 1972.  I'm not sure I would classify that as "quite regular"... when are you seeing those and how many exactly?

Thanks,
P2T

[frugal]

Hi,

can you post the same study for EUROPE?

The PP has +- the same performance worldwide?


Thank you!!!