Welcome to our new blog – PPCP Article a Day
Today's article tries to demonstrate one risk aspect of investing.
For example assuming;
• A Share Index has a long term return of say 10% pa
• with Standard Deviation of Returns of 20% pa, and
• Returns are normally distributed (to keep things simple).
Then there is over 15% chance that any month has a return lower than -5% and there is over 20% chance that any year has a return of less than -5%.
Whilst the yearly result may not be surprising the monthly result seems high.
The point here is that unexpected returns do occur, they can occur more frequently than you think and investors should be prepared for this to occur during the term of an investment.
These 2 attached articles relate to a recent LIC that has underperformed quite unexpectedly on the downside in the first 2 months of operations. Whether this has been caused by the investment cycle, poor investment selection or a combination it doesn’t matter. Events like this can and do happen.
