You are right, profitable is the wrong term.
I considered my trading a success if at the end of the year I did better than SPY, even if both of us were negative.
So, in 2008, we were both negative but I was less negative.
Merry Christmas.
How Do Professional Traders Define Profitablity
- Thread starter ironchef
- Start date
I considered my trading a success if at the end of the year I did better than SPY, even if both of us were negative.
So, in 2008, we were both negative but I was less negative.Merry Christmas.
How best to define risk? This is one question I am really struggled with for a long time and I asked for help here quite a few times. Perhaps you can help me out.
I read about standard deviations, Sharpe ratio, beta.... They made my head spin. To give you and example, RUT has a higher standard deviation than SPY so higher risks according to some definition. But over the long term it almost consistently did better than SPY.
Should I put my 401K money in RUT or SPY if I were a 20 year old just starting out and have a 45 year time horizon and why? Is RUT riskier for the 20 year old with a 45 year horizon?
Merry Christmas.
It is inconceivable to me,
that no one has yet mentioned
The Ferengi Rules Of Acquisition
At any rate, I am simply relieved at seeing RISK make its way back into a conversation about reward.
The Ferengi Rules Of Acquisition
At any rate, I am simply relieved at seeing RISK make its way back into a conversation about reward.
There is no real consensus among the professionals... There is a lot of variation, partly because investors' preferences differ.
How do professionals view profitability in relationship to CAPM?
If my investment strategy results in lower volatility than SPY's, my risk adjusted return is superior, but absolute return is less than SPY, I should be happy?
I look forward to your comments.
Markets are suppose to be efficient. We should think of risk as the size of drawdowns over time.
Over the Long term, where we have/expect bigger drawdowns, we should expect higher returns. The key to achieving those results is time. The longer time we have the greater chance of achieving those results. If RUT is riskier, it should give greater returns over 45 years than the SPY. But remember that the index has survivorship bias but let's ignore that for now.
The important point is that you don't want a fund to punt your money on a risky biotech stock and either blow up or take a big chunk of your profits. If you put my money in a lower risk trade then I am happy with a lower return than the SPY. I will still pay you something and I can sleep at night. Others will say do whatever you want but make me money. Those people should demand much higher returns than the SPY as the watermark. There is no free lunch so higher risk should expect higher returns. You can't take huge risk and compare yourself to the SPY and expect to be rewarded as though my money was not at risk. It's not fair to eat my lunch.
Well, again, it depends...
Some investors care about risk-adjusted returns, while others have a very different set of preferences. For instance, an investor could value liquidity and/or diversification so highly that they could be willing to accept a lower return.
So it's reasonably difficult to generalise.