On: Telling people to leave finance

[zzleeper]

Just a tidbit: The market is about 15% up this year, so his investors are probably worst off that if they just invested in an index fund.

[tome → zzleeper]

It depends what the volatility is. The S&P hasn't dropped below about 14% vol this year, and looks to have been about 18% on average.

If a hedge fund returns 15% at 10% volatility that is much, much better than the market.

[fbru02 → tome]

why is the volatility a factor ? My intuition say that you with high volatility is a lot easier to pick the wrong equities. Is that correct ?

[tedunangst → fbru02]

There are two ways to compare returns. Higher returns at the same risk or the same returns at lower risk. Either is better.

[jnewell → fbru02]

volatility is the de facto measure of risk for a portfolio/trading strategy (there are more measures but vol is common). People tend to measure performance on a risk-adjusted basis (for example the Sharpe or Information Ratio) because in an ideal world an investor could theoretically lever/delever a portfolio to a level of risk they are comfortable with. All things being equal a higher Sharpe ratio would give you more returns for the same amount of risk as a portfolio with a lower Sharpe ratio.

[Tycho → zzleeper]

But to be fair this fund might be market neutral, so his investors might be enjoying lower volatility than an index fund, yet with similar gains.