The two charts below capture the main points of interest. (Or, to follow the story-line from the beginning, go back to my June 3 post, What Now: Sell, Rebalance, or Rotate?)
Treasury bonds, by comparison, gave an astoundingly smooth ride, perhaps because the bond-market was less mature than it is now or, more likely, because the U.S. Treasury controlled interest rates in a much different manner than the Federal Reserve has done since the 1950's. Yet, as good as the all-Treasury portfolio might have been, it was easily surpassed by 100-or-0 Rotation, a strategy that went all-in on stocks when their recent trend was better than 10-year Treasuries, and all-in on those same Treasuries when they had lately been the better of the two options. In this analysis, "lately" means, very simply, not last month, but the last several.
Taken together, the four 25-year periods shown in today's and yesterday's posts constitute a statistical sample. Averaging measurements across the four intervals generates an estimate of the outcomes one might expect in future quarter-centuries. For example, an average of the four maximum drawdowns will estimate the expected maximum drawdown in any future 25-year period.
Estimating in this way is more useful than simply calculating the maximum drawdown over the past 100 years. You and I won't be investing for 100 years. The expectation for any 25-years, based on an admittedly small sample of four, is statistically more reliable and pragmatically more relevant than an expectation for 100 years, based on an even smaller sample of one.
Accordingly, the summary chart below shows several expected outcomes for future quarter-centuries. It also compares expectations across the four investment strategies.
My next post will apply the same four portfolios to countries outside the U.S., for the most recent 25-year period.