Worst 3 year PP performance ever?

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Worst 3 year PP performance ever?

Post by jason » Mon Jun 08, 2015 12:38 pm

According to http://www.peaktotrough.com/hbpp.cgi if you go back 3 years, 6/8/2012 through today, 6/8/2015, the performance is as follows:
Years 3.00
CAGR 2.98%
Starting Capital 10,000
Ending Capital 10,922
Total Return 9.22%
Max Drawdown 7.81% (2012-10-02 - 2013-06-27)
DD > 10% Count 0
Annualized Std. Dev 4.82%
Sharpe Ratio 0.58

Has the PP ever performed worse than 2.98% CAGR over any 3 year period (not calendar years, but any 3 year period)?
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Re: Worst 3 year PP performance ever?

Post by barrett » Mon Jun 08, 2015 12:47 pm

jason wrote: Has the PP ever performed worse than 2.98% CAGR over any 3 year period (not calendar years, but any 3 year period)?
Sure. Remember that the three-year period you gave is still positive in real terms. Assuming that we are only interested in real terms, it was worse 1999-2001 and 2000-2002. Also 1981-1983. Some other three year-periods are also well within range of what you are talking about - and probably worse - depending on what inflation data you use, obviously. I know you said that you weren't talking about calendar years but that's a quick answer with the data I am looking at.
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Re: Worst 3 year PP performance ever?

Post by PP67 » Mon Jun 08, 2015 1:04 pm

As I have mentioned before, if I had the programming prowess of Peak2Trough or many others on this forum, I would develop a program (like Peak2Trough) that you could put your start date and let it show you how your returns for that time period rank with similar time periods over the last 42 years...  That could be very enlightening...

There have been a few rolling average plots posted here in the past but I don't specifically remember a 3yr rolling average but that would give you a much better idea of how your PP investment compares with past history...
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Re: Worst 3 year PP performance ever?

Post by Tyler » Mon Jun 08, 2015 1:53 pm

Having a few rolling years of real returns under 3% a year is nothing unusual.  Just count over three squares from the original diagonal below.  By my calculations, the worst 3-year (calendar) period was between 1999 and 2001, where the portfolio had a real CAGR of -0.37%.

[img width=600]http://i57.tinypic.com/fciird.jpg[/img]

And of course, it's always good to keep perspective.

[img width=600]http://i57.tinypic.com/11bn0jd.jpg[/img]

More info here:  http://gyroscopicinvesting.com/forum/pe ... ic-graphic
Last edited by Tyler on Mon Jun 08, 2015 2:21 pm, edited 1 time in total.
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Re: Worst 3 year PP performance ever?

Post by Tyler » Mon Jun 08, 2015 2:49 pm

Here's another way to visualize the same data above.

[img width=600]http://i61.tinypic.com/156wzgo.jpg[/img]

Multi-year negative returns are rare but do happen.  Note how consistent the compound results get after the first 5 years.  Current short-term returns are nothing out of the ordinary. 

The requisite perspective:

[img width=600]http://i58.tinypic.com/21l8i2h.jpg[/img]
Last edited by Tyler on Mon Jun 08, 2015 3:00 pm, edited 1 time in total.
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Re: Worst 3 year PP performance ever?

Post by Pointedstick » Mon Jun 08, 2015 3:51 pm

Beautiful data as usual, Tyler. It might be instructive to make some for a few typical "conservative" Boglehead-type portfolios as well, since very few people hold 100% stocks.
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Re: Worst 3 year PP performance ever?

Post by Tyler » Mon Jun 08, 2015 4:07 pm

Thanks!  The original charts were quite labor intensive to generate, but I've been working on automating the system to make portfolio experimentation practical.  I'll let you know when I get that up and running.

In the meantime, the board link above (look for rickb's posts) offers some general insight into how bonds affect the stock chart.  The short story is that they tend to mute the highs and lows but do not necessarily alter the overall pattern. 
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Re: Worst 3 year PP performance ever?

Post by Pet Hog » Mon Jun 08, 2015 4:09 pm

Beautiful new charts, Tyler.  Would it be too much work to add a new column for the PP performance in 2014?  Craig wrote about that here:  +9.1 or +8.9% return depending on how cash was invested.

Now you've got me wondering, does "invested in 1972, withdrawn in 2013" mean invested on 12/31/1972 and withdrawn on 12/31/2013; or invested 1/1/1972, withdrawn 1/1/2013; or invested 12/31/1971, withdrawn 12/31/2012?  Or something else?

Pointedstick, do you mean something like this?
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Re: Worst 3 year PP performance ever?

Post by barrett » Mon Jun 08, 2015 4:12 pm

Tyler wrote: Here's another way to visualize the same data above.

[img width=600]http://i61.tinypic.com/156wzgo.jpg[/img]

Multi-year negative returns are rare but do happen.  Note how consistent the compound results get after the first 5 years.  Current short-term returns are nothing out of the ordinary. 
Tyler,

Just to be extra clear, ALL that gray/beige space to the right represents real returns between 3% and 7%, correct?

Also, thanks for reformatting the data. I always think I am pretty good at figuring out what I am looking at but having everything set up this way sure makes it easier to compare the different time periods.

Thank you so much!
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Re: Worst 3 year PP performance ever?

Post by Tyler » Mon Jun 08, 2015 4:22 pm

@PetHog: Think of each data point as a snapshot on Jan 1st of each year.  So invested Jan 1st 1972 and withdrawn Jan 1st 1973.  This way, the first column reflects the real return for the initial investment year.  I understand it's a little confusing on the surface, but the "years held" in the later charts should be clear.  I plan to update the data once I get my automation projects done -- it will make it a lot easier.

@Barrett: Yes, all of the gray/beige space is for real CAGR returns between 3 and 7%.  Stocks eventually get to that same sweet spot over a long enough timeframe.  The PP just settles in faster.
Last edited by Tyler on Mon Jun 08, 2015 4:26 pm, edited 1 time in total.
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Re: Worst 3 year PP performance ever?

Post by Pet Hog » Mon Jun 08, 2015 4:51 pm

Tyler wrote: @PetHog: Think of each data point as a snapshot on Jan 1st of each year.  So invested Jan 1st 1972 and withdrawn Jan 1st 1973.  This way, the first column reflects the real return for the initial investment year.  I understand it's a little confusing on the surface, but the "years held" in the later charts should be clear.  I plan to update the data once I get my automation projects done -- it will make it a lot easier.
Tyler, I get that you are talking about "the return in 1972," but that means investing after the market closed on Dec 31, 1971 (or, if you like, before it opened on Jan 1, 1972), and then selling similarly on Dec 31st, 1972.  So your numbers for "buy 1972, sell 1973" are the year-end data for 1971/1972.  Note from the chart in this post that started it all:  the investment was made on the last day of the year.  So the formatting in your chart is off by a year from that one?

One more related question: The final row in your latest chart is for investing in 2003 and holding for 10 years.  I guess you would say it means, "buy on Jan 1, 2003, and sell on Jan 1, 2013."  If so, could you add two new rows of data?

Once again, thanks for posting these charts.  They are extremely informative.
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Re: Worst 3 year PP performance ever?

Post by Tyler » Mon Jun 08, 2015 5:15 pm

The Dec 31st vs Jan 1st distinction shouldn't really affect results, but I see what you mean about potential shifted years when directly comparing the two charts.  I'll have to study that.

Good catch!  I'll make sure any future work is clear, consistent, and complete.
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Re: Worst 3 year PP performance ever?

Post by jason » Tue Jun 09, 2015 12:10 am

barrett wrote:
jason wrote: Has the PP ever performed worse than 2.98% CAGR over any 3 year period (not calendar years, but any 3 year period)?
Sure. Remember that the three-year period you gave is still positive in real terms. Assuming that we are only interested in real terms, it was worse 1999-2001 and 2000-2002. Also 1981-1983. Some other three year-periods are also well within range of what you are talking about - and probably worse - depending on what inflation data you use, obviously. I know you said that you weren't talking about calendar years but that's a quick answer with the data I am looking at.
Thanks!  When I started the PP, I was so excited to have found something with such strong historical performance of over 9% CAGR with apparently very little downside risk.  But lately, I have been feeling discouraged.  But knowing that this recent, relatively bad period of the PP over the past few years is not outside the historical norm for the PP, I feel a lot better. 

Also, I think we need to be cautious when talking about "real" returns when looking at the PP performance going back many years, at least going back before 1990.  The formula used to calculate inflation/CPI has changed multiple times over the years, apparently making the CPI of more recent years significantly lower than it would have been if they had used older formulas.  So, the CPI of today is not necessarily apples-to-apples with the CPI from the 80s.  No conversation regarding "real" returns is complete without acknowledging this.  If anyone is not familiar with this, there was an article in Time Magazine about it in 2013, which I highly recommend:
http://business.time.com/2013/03/12/if- ... p-so-much/
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Re: Worst 3 year PP performance ever?

Post by MachineGhost » Tue Jun 09, 2015 12:29 am

jason wrote: Apparently making the CPI of more recent years significantly lower than it would have been if they had used older formulas.  So, the CPI of today is not necessarily apples-to-apples with the CPI from the 80s.  No conversation regarding "real" returns is complete without acknowledging this.  If anyone is not familiar with this, there was an article in Time Magazine about it in 2013, which I highly recommend:
http://business.time.com/2013/03/12/if- ... p-so-much/
I'm pretty sure when they change the CPI to be more realistic they backdate it so you're comparing apples to apples.
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Re: Worst 3 year PP performance ever?

Post by Pointedstick » Tue Jun 09, 2015 9:29 am

jason wrote: If anyone is not familiar with this, there was an article in Time Magazine about it in 2013, which I highly recommend:
http://business.time.com/2013/03/12/if- ... p-so-much/
That article seems misleading to me. Gold rising in price is no more inflation than stocks or bonds rising in price would be. Gold is an investment product, not a consumer product. Same with the commodities he describes. What do I care that the price of cocoa has gone up if the price of chocolate hasn't? The point about gas price inflation seems archaic today, as it's now fallen to below the level indicated in the article. And I don't understand how he can claim that taxes have gone up 9% a year for four years. Did I miss something? I certainly haven't seen my tax rates go up 35% in the past 4 years.

His point about wage stagnation reducing potential purchasing power and keeping price inflation low seems like a correct one, but that's a point orthogonal to inflation. It seems to contradict his point: if wage stagnation is keeping inflation low, how can he argue that inflation is actually higher than reported?

The nature of averages ensures that some costs are going up faster than the rate of inflation, and some are going up slower, or even falling. It may well be that inkjet printer ink (a real racket; buy a laser printer!) is rising faster than CPI, but simultaneously, gas prices may be plummeting.
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Re: Worst 3 year PP performance ever?

Post by Tyler » Tue Jun 09, 2015 3:19 pm

Image

I ditched the bands in favor of annual rebalancing, but gained the ability to compare many portfolios apples-to-apples in the process.  It seems like a reasonable tradeoff.  The data may look a little different from previous charts as a result of different color scale, new source data, better inflation calculations, and the aforementioned rebalancing changes.  But in general, I consider this improved.

Back to the OP, the worst total real return for the PP over any annual 3-year period is zero.  The most recent 3-year period is just below average but nothing that unusual. 

BTW, note that the worst total 3-year return for a 60-40 Boglehead portfolio over the same timeframe is a 31% loss.  How would that make you feel? 
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Re: Worst 3 year PP performance ever?

Post by Pointedstick » Tue Jun 09, 2015 3:21 pm

Superb work, Tyler. I love it.
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Re: Worst 3 year PP performance ever?

Post by Mark Leavy » Tue Jun 09, 2015 3:51 pm

That is really gorgeous.  Not just the portfolio robustness, but also your data presentation.
This is the most concise answer I've seen yet to the question of :

"What indicator can I use to judge whether the portfolio is still functioning as planned?"

For those of us in the drawdown mode,
I like how it also shows that 4 to 5 years of living expenses in cash reserves will get you through any tough time (at least historically).

Funny that.  If your investments are 20 to 25 times your living expenses (4%SWR) then having 25% of them in cash gives you 4 or 5 years of cash.  What a system.
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Re: Worst 3 year PP performance ever?

Post by barrett » Tue Jun 09, 2015 4:00 pm

Tyler,

Add me to the list of folks who are grateful for this work.

Ultimately I think you can get it down to one square!
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Re: Worst 3 year PP performance ever?

Post by MediumTex » Tue Jun 09, 2015 4:05 pm

Tyler,

I hereby bestow on you the honorary degree of Doctor of Chartology.

You are like one of those old school chartisan masters.
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Re: Worst 3 year PP performance ever?

Post by Tyler » Tue Jun 09, 2015 4:13 pm

Thanks, guys!  I think I find way too much joy in Excel.  ::) 

BTW, my favorite way to read these charts is to think like a very reasonable investor who is hands-off and re-evaluates his asset allocation on a set schedule.  Let's say I put all my money in a stock index fund in 1990 and chose to leave it alone and tweak things as necessary every five years. 

> Look at the 1990 row.  Five years to the right, and I've done alright. 

> Skip down to the 1995 row.  Five years to the right, and I'm a genius!

> Skip down to 2000.  Five years to the right, and all hell has broken loose.  Clearly things are different now, and I really want to mix things up.  But I'll stick to the plan for five more years.

> Skip down to 2005.  Five years to the right, and I'm down again.  Screw it -- I'm selling.


Pretty reasonable, huh?  Note that the real CAGR over that 20 years was a healthy 5.4%  But once you account for mid-term fluctuations, even a good plan is hard to stick to. 
 
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Re: Worst 3 year PP performance ever?

Post by Pointedstick » Tue Jun 09, 2015 4:21 pm

5 years would be an eternity for some people. Heck, there are some who can't resist checking multiple times a day. That'll drive you mad with any portfolio!
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Re: Worst 3 year PP performance ever?

Post by Xan » Tue Jun 09, 2015 4:29 pm

Gorgeous charts.  And what's also gorgeous is the PP's worst 10-year results: up 31%, compared to stocks which are down almost that much.  Wow.
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Re: Worst 3 year PP performance ever?

Post by MachineGhost » Tue Jun 09, 2015 7:03 pm

Tyler wrote: Back to the OP, the worst total real return for the PP over any annual 3-year period is zero.  The most recent 3-year period is just below average but nothing that unusual. 
Lovely!  But what happened to 2005-2015?.  I wanna see paint for 9,8,7,6,5,4,3,2,1!
Last edited by MachineGhost on Tue Jun 09, 2015 7:04 pm, edited 1 time in total.
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Re: Worst 3 year PP performance ever?

Post by barrett » Tue Jun 09, 2015 7:25 pm

MachineGhost wrote: Lovely!  But what happened to 2005-2015?.  I wanna see paint for 9,8,7,6,5,4,3,2,1!
Me too! I just didn't want to sound like an ingrate.
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