![]() ![]() We can find the same information on the Equity Chart. ![]() This number assumes that all gains stay invested they are continuously compounded. Our Pick Me Up strategy grows by slightly more than 12% per year over the simulation period. ![]() This number expresses the growth of our investment as an annual percentage. To address this issue, we calculate the Compound Annual Growth Rate, often abbreviated as CAGR. The lazy investor, who simply invested on a random day in the past 20 years, but held for five years, would have made 122.6%.While these absolute numbers are very intuitive, they are not always easy to compare. On average, that strategy returns 115.4% over five years. A thoughtful investor might realize she is unlikely to be either of the above and decides to invest on the day MLPs have fully recovered. Admittedly, the investor with the brass and crystal balls to invest at the trough would have made an average of 167.8% over the next five years. On a technical or statistical basis, the unlucky but wise investor who had bought at every single peak in the past 20 years, but held on for the following five years, despite the drawdown, would have made an average of 85.7%. The fastest I’ve heard of a pipeline being completed, from ideation to in-service date, was 18 months, but two to three years is a more typical time period, if there are no delays. Fundamentally, infrastructure assets simply take time to build. However, everyone at Alerian will tell you that an investment in MLPs should be a long-term investment. Then again, even when MLPs as a whole are healthy, some have not survived.) Past performance may not be indicative of future results, but no one at Alerian has any reason to believe that current performance will lead to dissolution of the structure. Good news! MLPs have survived drawdowns 100% of the time. A change in political environment, a move in interest rate expectations, a sustained change in production levels, or general market contagion could all impact (positively or negatively) the length of the recovery. Recoveries depend on too many factors to make accurate predictions. To return to last year’s all-time high, MLPs will need to climb an additional 60.2%. Those periods are perhaps not representative, since MLPs took more than 16 months to reach the trough during the financial crisis but only four weeks surrounding 9/11. Of the 11 periods studied, recovery times ranged from over a year (post-financial crisis) to just two weeks (post-9/11 recovery). Alerian never provides market predictions, but the consensus is that we are closer to the trough than the peak. This question presumes that the worst is over. The average loss was just over 20%, and MLPs took a little less than six months to fall. In the past 20 years, there have been 11 times that MLPs saw a maximum drawdown greater than 10%. “Not as bad as it could be” doesn’t actually provide much comfort in the moment, however, because it’s so easy to see how many other times it wasn’t as bad as this. It recovered just as quickly-by October 5th. More dramatically, from September 21st to September 29th, in just over a week, the AMZX fell 17.3%. From February 20th to March 16th, the AMZX fell 8.5%, and recovered by the end of April. During the recent slump, we have seen two micro drawdowns. ![]()
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