(I'm going to stay out of the MG feud, but it would be nice to see calmer heads prevail).sophie wrote: Yes, I saw the spicy language but I've seen it from plenty other people on the board too. OK point taken...MG AND OTHERS please tone down the criticisms.
I thought the issue was settled by Gosso's charts, posted in another thread? It showed at least one 25% drawdown. I believe daily data was required to find it, but monthly data came close.
The 25% drawdown is the result of the extreme volatility of gold during its parabolic move in late 1979 and early 1980. I doubt something that extreme would occur again in one of the PP assets in our life time, but it might. IMO a reasonable expectation for a nominal PP drawdown (measured with daily data) is in the -15% neighborhood.
From May 1969 to May 1970 there was a -15% nominal drawdown in the PP. However I converted 20 year bonds into 30 year bonds, which may not be appropriate, but gives us a rough look into how a PP might have performed.
Just for fun I calculated multiple max drawdowns for the PP by changing the month of annual rebalancing:
Jan -22.6%
Feb -22.0%
Mar -26.3%
Apr -26.1%
May -25.1%
Jun -25.3%
Jul -24.8%
Aug -24.3%
Sep -22.4%
Oct -22.5%
Nov -21.9%
Dec -20.2%
Bands 15/35 -19.7% (during gold's parabolic move the 15/35% rebalancing bands rebalanced on Sept 5, 1979 and Jan 2, 1980)
The max drawdown always ended on March 27, 1980.
In all honesty I'm not sure how much the max drawdown really tells us, I much prefer to measure rolling real returns since I believe the risk of not producing a real return is far more damaging than a blip of extreme volatility. Although the extreme volatility might cause investors to sell and then realize their paper losses, in which case it is a real risk.