Callan Periodic Table in 2021: Two Decades in Review

Investing Prediction for the 2021 Based Upon the Callan Periodic Table

Humans are pattern seeking animals. From Rorschach tests to designs in clouds, we seek to impose structure where there is none. So too with investors and the Callan Periodic Table.

Many people, upon first glance, try to predict the future by looking at past performance.

The Callan Periodic table ranks annual returns for different asset classes over the last 20 years. Lessons from the past are plenty for the investor, though the future is thus far insoluble.

Let’s look at the past to see what we can learn about 2021 and beyond.

The Callan Periodic Table 2021

Current Callan table

Above, find the Callan Periodic Table in all it’s glory! Look for trends. Find patterns. Then continue reading.

At first glance, I see the 5 boxes of orange along the top from 2003-2007. This is the golden years for emerging markets. Note how many years after that orange is on the bottom row!

Large cap has done well in the last two decades. Look at the dark blue! The best performing asset class, however, returned best overall only for a single year (2014).

Patterns are everywhere when you look at the table in the traditional view.

Let’s have a different look at the Callan Periodic Table.

The Callan Periodic Table Ranked Relative to Zero

update callan 2021

This is a less-traditional view of the Callan Periodic Table, but more instructive. The black line dominates this figure: positive returns are above and negative below.

It is more difficult to find patterns in the undulating rows.

Three of the years had positive returns for all the asset classes! On the flip side, even the worse years has winning asset classes.

What other patterns do you see?

Callan Periodic Table Update 2021

Callan 2021 updated

Above you can see the 2021 update. I’ll update the pretty graphs in a few months when they are done (meanwhile, credit to banker on wheels for the above). Well, what did we learn this year? It is a similar story to the last 10 years! Cash isn’t paying well, and technology is!

How long can that continue? Well, let’s have a look at the last two decades to find out.

Rank Ordering the Callan Periodic Table

Rank order of the callan periodic table

Figure 3 (Rank Order of the Asset Classes for 10 and 5 Years)

Above, you can see the order asset classes finished during the last decade. In parentheses, is the average spot out of 10. So, for instance, large cap is first and, on average, is 3.6 of the 9 asset classes.

Small cap is next, followed by REITs. Emerging and international equities lag.

It is interesting to note the last 5 years were very similar to the last 10 years. Large and small cap US stocks did even better, and Emerging markets and international equity did even worse.

What about the decade before the last?

Rank Order from 1999-2008

Rank order from 1999-2008

Figure 4 (Rank Order of the Asset Classes for 10 and 5 Years 1999-2008)

Going back another decade we can see the rank order is quite a bit different!

Here, Emerging markets win, followed by Real Estate and Small Cap. Large Cap is last!

The 10 vs 5-year results are a little different as can be seen. During that 5-year period from 2004-2008 international equities did pretty well and US fixed not so much.

Lessons from the Past

So, what can we learn about the future by looking at the past?

Lesson 1:

Nobody knows which horse is going to win this year’s race. There is no future predictive value of the Callan Periodic Table. What does this mean? Past performance doesn’t mean much for the future. Don’t buy last years winners.

Predicting the future is easy: no one can do it. Run from anyone who tries to predict future returns.

Lesson 2:

Diversification leads to lower returns, but higher risk-adjusted returns. People often get this wrong. They think diversification in their assets will lead to higher returns. Concentration—in the right funds—leads to higher returns. This is why owners of winning companies are the richest people around. However, diversification leads to higher risk-adjusted returns. You want to always own all the winners all the time (and, unfortunately all the losers too). And then rebalance.

Lesson 3:

Rebalance! This is a tricky one. Rebalancing too often stunts your winners. But eventually, winners revert to the mean. So, how often should you rebalance? You decide.

Lesson 4:

Chase performance! Unfortunately, most investors follow this advice. They invest in last year’s winners.

Momentum is important. You can get greater returns on the back of last year’s winners. Until a certain point. Then they should revert to the mean. Stay invested in the winners too.

Lesson 5:

Don’t underweight what isn’t sexy! How about that for a triple negative… But, trying not to be prescriptive, a triple negative works best here. Is “overweight what isn’t sexy” or “underweight what is sexy” better?

The lesson here is to stick to your guns. If your programmed asset allocation from your Investor Policy Statement includes international equities, keep it up! This has been a losing decade for international equities, but that’s the point. Will the US continue to out-compete all competitors for the rest of history?

Callan Periodic Table and Retirement

What can retirees learn from the Callan Periodic Table? I think the lessons in retirement are the same as those in the accumulation phase: Diversify, and don’t chase returns.

Fundamentally, retirement is turning assets into income. Preventing reverse dollar cost averaging (sequence of return risk) is huge. Instead of adding to positions to adjust asset allocation, sell the winners.

Rebalancing? You do that once a year when creating cash for next year’s spending. Another possibility is the Rising Equity Glidepaths.

Don’t Underweight What Isn’t Sexy

This is the lesson of the Callan Periodic Table. Keep investing in what performed poorly last year. It will cycle back to the top again at some point. Buy low; sell high.

Investing Prediction for the 2021 Based Upon the Callan Periodic Table

Stocks and bonds will go up and down. Some people will make money, and some people will lose money.

Who knows with more certainty than that?

When looking at Callan Periodic Table, don’t look for trends; rather see principles.

Trends come and go; principled investing stands the test of time.

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2 Comments

  1. Great take on the Callan Periodic table! This is in part why I’m heavy in small-cap value stocks… we’ll see how it works out! But I do have a feeling that all the large-cap growth proponents born out of the recent surge in the FI movement will be very disappointed in their huge large-cap exposure in the near future.

  2. Minor correction? In the Table “…Relative to Zero” for the period 2010-2019:

    Third paragraph; “Three of the years had positive returns for all classes!” as I read it should be “Five of the years…”

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