Wizardry, from Kim Zussman

September 4, 2010 |

One often admires investors "without any down years" (months, weeks, nanoseconds, etc). Here is an update on compounded weekly SP500 return (SPY, with div), 1993-present - successively skipping down weeks starting with the largest drop through the 50th largest. (918 weeks total)

The attached chart shows the compounded return curve, which for the entire series is 3.415 (ie, an initial 10,000 compounded to 34,150). The red line shows compounded return altered by successively skipping big down weeks, which rapidly increases as down weeks are omitted.

Similarly skipping big up weeks reduces compounded return, but at a slower rate than it increases by skipping down weeks. This is shown in the following data, where compounded return doubles by missing the worst 6 weeks, but is cut in half by skipping the top 8 up-weeks.

bigups  bigdns
3.42    3.42
3.01    4.26
2.71    4.74
2.45    5.28
2.28    5.78
2.12    6.30
1.98    6.83
1.85    7.40
1.73    8.00
1.62    8.58
1.53    9.20
1.43    9.86
1.36    10.54

Now where is that pointed hat?


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