[Wiki] Callan periodic table of investment returns

[LadyGeek]

The Callan Periodic Table of Investment Returns is a popular topic, but it was never in the wiki. Thanks to a suggestion by Peter Foley, this has been fixed.

Wiki article link: Callan periodic table of investment returns

I got stuck in one area: Callan refers to this table as consisting of eight asset classes, but I count nine entries. Can someone please break this down?

Comments / questions / concerns are welcome.

[Peter Foley]

LadyGeek - Thanks for your efforts. You do a lot to make this site as good as it is.


There was a thread in 2012 about the Callan table and links to a couple other tables: The other tables include cash, real estate, bonds, commodities, etc. Similar concept but differerent asset clases. A quote from that thread:

by CABob » Mon Jan 16, 2012 4:38 pm

If anyone knows of other, similar charts please post them.


Janus link several years old https://ww4.janus.com/SiteObjects/publi ... -15-09.pdf

Allianz link http://www.allianzinvestors.com/Marketi ... _ACO33.pdf

[baw703916]

I got stuck in one area: Callan refers to this table as consisting of eight asset classes, but I count nine entries. Can someone please break this down?

I seem to recall that it didn't use to include Emerging Markets.

[LadyGeek]

There was a thread in 2012 about the Callan table and links to a couple other tables: The other tables include cash, real estate, bonds, commodities, etc. Similar concept but differerent asset clases. A quote from that thread:..

The links were broken in your quote. It's best to use the "Quote" feature to capture the links instead of copy-n-paste. Here's the post: Re: Callan Periodic Table of Investment Returns

I dug into the websites and came up with more recent publications, which are now added under "External links": Callan periodic table of investment returns

There's another variant, but it's for bonds. I purposely did NOT add this to the wiki, as I think bonds don't belong with this type of comparison. From this post:

Bogleheads: PIMCO has a similar Table for bonds: The Benefits of a Diversified Bond Portfolio

Later in the thread, someone was wondering if their bond portfolio was diversified enough, based on this report. Bonds are debt instruments - you will get your principal back + some interest at maturity. Stocks vary with business conditions, there are no guarantees. (response in this post)

Unless someone thinks that the PIMCO report should be added to the wiki? I think it can mislead investors.

I got stuck in one area: Callan refers to this table as consisting of eight asset classes, but I count nine entries. Can someone please break this down?

I seem to recall that it didn't use to include Emerging Markets.

You've got a good memory. I checked the publications from prior years. If you go back to 2009, there were indeed 8 asset classes. In 2010, there were 9. What was added? Emerging markets. I updated the wiki with a note about the change.

I guess someone should ask Callan to fix their website?

[Occupier]

I am really glad this got added. Looking at the table I was fascinated to see that either Emerging Markets or Ag. Bond alternated being in first or last place on most years. Nothing better illustrates the concepts of volatility and staying the course better. Dave

[zebrafish]

Thank you for adding this to Wiki.

I think this table is one of the most powerful visual arguments that made me make the switch to indexing.

[shawcroft]

Zebrafish:
I agree..The Callan Tables are an excellent example of the logic for index investing.
Simply stated: Determine your investment philosophy (active or passive), establish your strategy (your asset allocation), set the asset allocation and stay the course you have set- with occasional rebalancing.
Easy to say....having the discipline to stay the course is the challenge.
Shawcroft

[Garco]

I've found the Callan periodic fascinating for several years. It's a bit tricky to interpret if you focus only on the rank order of the asset classes because it doesn't take account of the absolute changes in TR magnitude, just the relative ranks. But since those percentages are there in the table, it would be interesting to calculate the mean and standard deviation of the % for each category over the years. This could provide useful information for comparing the risk component for each asset class. (I haven't done it, but if somebody has, please post here.)

[Barry Barnitz]

I've found the Callan periodic fascinating for several years. It's a bit tricky to interpret if you focus only on the rank order of the asset classes because it doesn't take account of the absolute changes in TR magnitude, just the relative ranks. But since those percentages are there in the table, it would be interesting to calculate the mean and standard deviation of the % for each category over the years. This could provide useful information for comparing the risk component for each asset class. (I haven't done it, but if somebody has, please post here.)

Hi Garco:

I have added footnoted tables to the Callan page: Callan periodic table of investment returns - Bogleheads

regards,

[Garco]

Thank you, Barry. Very helpful!

ADDED COMMENT: One statistic that's sometimes informative is the "Coefficient of Variation" (CV), which is simply the standard deviation divided by the mean. This is sometimes called the "coefficient of relative variation." It is the inverse of a signal-to-noise ratio, thus it's a noise to signal ratio. (See Wikipedia.)

If you calculate that using the std. dev. and the simple average return for the 20 years, you get (quick hand calculations): highest CV=Russell 2000 Gr (2.64). Lowest CV=Agg Bond (0.72).

In order from lowest CV (least volatile) to highest CV: Agg Bond (0.72), Russell 2000 V (1.56), Russell 2000 & SP500 V (tied) (1.85), SP500 (1.91), SP500 G (2.11), EM (2.49), EAFE (2.51), Russell 2000 G (2.64). No surprise which are the most volatile, except maybe that R2000 G is more so than even EM and EAFE.

[Clive]

I've found the Callan periodic fascinating for several years. It's a bit tricky to interpret if you focus only on the rank order of the asset classes because it doesn't take account of the absolute changes in TR magnitude, just the relative ranks. But since those percentages are there in the table, it would be interesting to calculate the mean and standard deviation of the % for each category over the years. This could provide useful information for comparing the risk component for each asset class. (I haven't done it, but if somebody has, please post here.)

Not what you were looking for, but :

Looking at the assets from a yearly equal weighted angle, then with 9 assets that's no different to having 11.1% weighting in the best asset each year, 11.1% weighting in the worst asset ...etc.

For 1993 - 2012 inclusive

Averaging the top and bottom two (22.2% weights each)

Top 2 (22.2% weighting)
Average 26.64
Stdev 18.87
Annualised 25.27

Bottom 2 (22.2% weighting)
Average -4.62
Stdev 16.04
Annualised -6.14

Which is no different to having a single asset, 22.2% weighted, that annualised 25.27% and another asset 22.2% weighted that annualised -6.14%. Whilst it would be nice to just hold the better performing asset in isolation and compound at that rate, in practice we can't know what asset that will be, so we have to equally weight all assets each year in order to capture that characteristic.

As a guide, comparing those figures with a 4x25 Permanent Portfolio comprised of 25% in each of TSM, LTT, STT (2 year) and Gold that over the same period had

Average 22.2
Stdev 8.76
Annualised 21.9

Average -5.575
Stdev 10.96
Annualised -6.26

respectively for the best and worst assets (25% weighting each).

One perspective might be to say - look, the Permanent Portfolio achieved much the same averages as a much more (diverse) stock heavy portfolio (constitutes of the Callan), another might say - look the Permanent Portfolio had much the same multi-year risk as a more diverse stock heavy portfolio.

Similarly extending the concept to Cap weighted versus equal weighted indices, Cap weighted is like substituting (averaging) several categories into a single (more heavily weighted) entity/value. Such that if that single entity performs well then the overall result is better, if it performs poorly the overall result is worse.