There are no guarantees with investing. Best you can do is widely diversify because nobody knows what may or may not happen. Past returns can disprove theories, but can't prove them going forward. Something could happen that would impact the portfolio assets all at once and cause a large loss, but then again most other portfolios are probably in the same boat.
Last edited by craigr on Tue Oct 30, 2012 12:44 am, edited 1 time in total.
Using the PP return data on the website, the arithmetic mean return is 9.945% with a standard deviation of 7.99%. A return of 0% is 1.244 standard deviations below the mean. That roughly translates to the 10.7th percentile. So from a purely statistical perspective, I'd say there's a 10.7% chance of a negative nominal return.
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While it's not a guarantee, when the permanent portfolio had a bad year, it was always preceded and followed by years with greater than 10% nominal returns.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
The problem is choosing the end points of the year.
Your question is based on the common fallacy of caring about what happens from Jan 1 through Dec 31.
If you look at 2008/2009, the PP did something like +0.2% one of those years (I forgot which was the really bad one).
However, Long Term Treasuries bonds gained around 40% in the last 2 months of that bad year. Thus, if you calculated a year return as from Oct 1 through Sep 31st of that time period, the PP might have been down 15% (I don't know, I'm speculating/estimating). It was carried by LTTs in the last couple of months for that calendar annual year.
Since you're interested (or should be interested) in holding the PP for a long period of time, then it shouldn't matter.
If you flip a coin once a day for forty years, and every day it come up heads, what are your statistical odds of it coming up tails tomorrow? 50/50. The future is unpredictable. If you're using the PP for all or most of your money, yes you will have an occasional down year. History suggests that those down years will be rare and shallow. So relax and enjoy the ride.
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Ad Orientem wrote:
If you flip a coin once a day for forty years, and every day it come up heads, what are your statistical odds of it coming up tails tomorrow? 50/50.
Or as Fat Tony would say, "That coin’s gotta be loaded. . .”? and bet appropriately.
Ad Orientem wrote:
If you flip a coin once a day for forty years, and every day it come up heads, what are your statistical odds of it coming up tails tomorrow? 50/50.
Or as Fat Tony would say, "That coin’s gotta be loaded. . .”? and bet appropriately.
Amen! In investing the odds are not that of a casino. Your primary defense is wide diversification, and even then it can't guarantee against all negative outcomes. It can just put the odds (!) in your favor that something very bad happening in this world won't wipe you out entirely. There are no guarantees in investing!
TripleB wrote:
The problem is choosing the end points of the year.
Your question is based on the common fallacy of caring about what happens from Jan 1 through Dec 31.
If you look at 2008/2009, the PP did something like +0.2% one of those years (I forgot which was the really bad one).
However, Long Term Treasuries bonds gained around 40% in the last 2 months of that bad year. Thus, if you calculated a year return as from Oct 1 through Sep 31st of that time period, the PP might have been down 15% (I don't know, I'm speculating/estimating). It was carried by LTTs in the last couple of months for that calendar annual year.
Since you're interested (or should be interested) in holding the PP for a long period of time, then it shouldn't matter.
I used a sample size of 40, which should be enough. Adding hundreds of additional samples will improve the data but the results shouldn't be materially different. I thought I saw that someone ran the histogram over rolling 12-month periods, but maybe that wasn't on this site.
TripleB wrote:
The problem is choosing the end points of the year.
Your question is based on the common fallacy of caring about what happens from Jan 1 through Dec 31.
If you look at 2008/2009, the PP did something like +0.2% one of those years (I forgot which was the really bad one).
However, Long Term Treasuries bonds gained around 40% in the last 2 months of that bad year. Thus, if you calculated a year return as from Oct 1 through Sep 31st of that time period, the PP might have been down 15% (I don't know, I'm speculating/estimating). It was carried by LTTs in the last couple of months for that calendar annual year.
Since you're interested (or should be interested) in holding the PP for a long period of time, then it shouldn't matter.
I used a sample size of 40, which should be enough. Adding hundreds of additional samples will improve the data but the results shouldn't be materially different. I thought I saw that someone ran the histogram over rolling 12-month periods, but maybe that wasn't on this site.
Is there another site looking at the PP at the molecular level?
I thought it was just us.
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