I know Clive is perfectly capable of defending himself, but I thought I might try to reframe the discussion here a bit. Rather than take what he's saying as an attack on the PP, I hear him expressing a concern that there have been periods where the PP has not done so well. Yes, the 1981-2005 time period is cherry picked but no more so than any example interval chosen to prove a point. Does the PP do fine over most periods you can pick (from 1971 on)? Absolutely - and I don't think Clive disagrees. Are there periods where it hasn't done so well? Well, clearly, yes. I think the questions Clive is exploring are
1) what are the characteristics of periods where the PP hasn't performed very well
2) have similar periods occurred before (even before 1971)
3) is there anything that can be done to increase performance during such periods (that doesn't hurt during other periods as well)
These all sound like perfectly reasonable questions to me - questions that I suspect Harry Browne would be pondering if he were still alive.
Were the conditions at the end of 1980 unique in history (gold in a bubble, long term rates very high, stock market P/E very low)? From there gold went down, long term bonds went up, and the stock market went up - but yet the PP didn't even match ST bonds for the next 15 years (i.e. during this time you would have been better off with 100% ST bonds rather than the PP).
How about year by year? From
1972 through 2008, the PP underperformed ST bonds in
1980: stocks up, LT bonds down, gold up
1981: stocks down, LT bonds up, gold down
1983: stocks up, LT bonds up (but basically flat), gold down
1984: stocks up, LT bonds up, gold down
1988: stocks up, LT bonds up, gold down
1990: stocks down, LT bonds up, gold down
1992: stocks up, LT bonds up, gold down
1994: stocks down (but basically flat), LT bonds down, gold down
2000: stocks down, LT bonds up, gold down
2001: stocks down, LT bonds up, gold up
2002: stocks down, LT bonds up, gold up
2008: stocks down, LT bonds up, gold up
This is 12 out of the 37 years from 1972 to 2008 inclusive. Is there anything these have in common?
It's once out of the 4 times stocks were up, LT bonds were down, and gold was up (80).
It's 3 out of 3 times stocks were down, LT bonds were up, and gold was down (81, 90, 00).
It's 4 out of the 11 times stocks were up, LT bonds were up, and gold was down (83, 84, 88, 92).
It's once out of one time all 3 assets were down (94).
It's 3 out of 3 times stocks were down, LT bonds were up, and gold was up (01, 02, 08).
Looking for commonalities, it's 7 out of the 10 times stocks were negative including all 6 times stocks were down and LT bonds were up (regardless of whether gold was up or down).
If the goal is "don't lose money", the standard PP does very well (two losing years since 1972). If the goal is "beat ST bonds", the standard PP comes up short about 1/3 of the time - quite often if the stock market is negative for the year. Can this be improved?