Is a 4% monthly gain likely to be followed by a monthly loss?
Posted: Tue Jan 20, 2015 6:02 pm
As of today my PP is already up 4% YTD. While gratifying, it is also a bit scary — are these gains merely temporary? To see what has happened in the past, I took data from peaktotrough.com and ran some numbers. Looks like the historical answer is that a 4% monthly gain is not particularly likely to be followed by a loss, but perhaps by a slight underperformance.
Since January 1, 1972, there have been 35 months in which the PP (35/15 bands, dividends reinvested) has gained 4% or more. Of these, the following month has been negative just 13 times. The average return of the following month has been +1.05%. These numbers are skewed a bit by the results from the 1970s, where each of the first 12 instances was followed by a gain in the next. Considering the numbers from January 1980 onward, there have been 22 months with >4% return; of them, 12 were followed by a negative month; the average return of the subsequent month has been +0.36%. For comparison, this PP's average monthly return for the entire 516 months since January 1972 has been +0.76%, with gains in 328 months (63.6% of the time).
# months with >4% return / # negative following months (avg. return)
1970s: 13 / 1 (+2.22%)
1980s: 13 / 7 (+0.58%)
1990s: 2 / 1 (-0.19%)
2000s: 6 / 3 (+0.28%)
2010s: 1 / 1 (-0.95%) [not including January 2015]
Total: 35 / 13 (+1.05%)
I also looked at the numbers for the opposite scenario: What happens after a loss of greater than 4%? There have been only seven such monthly losses in 43 years, five of which were followed by a winning month, with an average return of +1.48%.
Just thought I'd share my findings with you all.
Since January 1, 1972, there have been 35 months in which the PP (35/15 bands, dividends reinvested) has gained 4% or more. Of these, the following month has been negative just 13 times. The average return of the following month has been +1.05%. These numbers are skewed a bit by the results from the 1970s, where each of the first 12 instances was followed by a gain in the next. Considering the numbers from January 1980 onward, there have been 22 months with >4% return; of them, 12 were followed by a negative month; the average return of the subsequent month has been +0.36%. For comparison, this PP's average monthly return for the entire 516 months since January 1972 has been +0.76%, with gains in 328 months (63.6% of the time).
# months with >4% return / # negative following months (avg. return)
1970s: 13 / 1 (+2.22%)
1980s: 13 / 7 (+0.58%)
1990s: 2 / 1 (-0.19%)
2000s: 6 / 3 (+0.28%)
2010s: 1 / 1 (-0.95%) [not including January 2015]
Total: 35 / 13 (+1.05%)
I also looked at the numbers for the opposite scenario: What happens after a loss of greater than 4%? There have been only seven such monthly losses in 43 years, five of which were followed by a winning month, with an average return of +1.48%.
Just thought I'd share my findings with you all.