Permanent Portfolio historical performance - I am confused

[jason]

I was looking at the PP performance stats on Crawlingroad.com at https://web.archive.org/web/20160324133 ... l-returns/. I was curious about the average performance of each asset class, so I averaged each column.  It seems to show very high performance for stocks, bonds, and gold - much higher than I was expecting.  When I average each column, starting in 1972, I get 11.46% average return for the US stock market, 9% average return for 30 year treasuries, 7.03% average return for cash, and 11.97% average return for gold. 

Lower down on the page, CraigR says that the average return for the total stock market since 1972 is 9.7%.  That is almost 2% lower than 11.46%.  So, why is the data broken down by year showing stock market returns that are so much higher?  Did I make an math error somewhere, perhaps related to compounding?  Are the other stats for cash, treasuries and gold accurate?  I'm guessing I am missing something important, but I'm not sure what I am doing wrong.  Is averaging each column the wrong way to determine average annual performance?

Thanks!

[zen]

Averaging doesn't work because the percentages are multiplication factors. If you think about this very simple case, an imaginary investment where in year 1 your money gains +50% and in year two your money loses -50%. You might think that you end up with the same amount you started with, but that's not actually true. If you invested 100$, you would have 150$ after year one, and 75$ after year two.

The correct formula can be found here: http://www.investopedia.com/terms/c/cagr.asp

[AdamA]

I'm guessing I am missing something important, but I'm not sure what I am doing wrong.  Is averaging each column the wrong way to determine average annual performance?

You're confusing the average return and the compound annual growth rate.

http://www.assetplay.net/article/basics ... erage.html

(just a quick example that shows the difference)

[jason]

Thanks.  That makes a lot more sense.  Please excuse my ignorance.