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Risk and volatility measures used to evaluate funds............... Which are most useful?
I guess this discussion assumes I'm not buying a cap-weighted index.
First things I look at are expense and turnover. Expenses are a drag on return. And I don't think there are all that many genius stock pickers that can make me more money with rapid turnover in the portfolio. Turnover also generates expenses.
I also look at the quality of the fund family. I'm always leery about the long term success of the solo stand-out fund in an otherwise mediocre/poor fund family.
After those screens I look at correlation, deviation, capture ratio, and the eponymous ratios in about equal measure. They all tell part of the story when I compare them to the managers' investing theses.
Max draw-downs are also looked at out of curiosity. But they don't tell me as much about the ride while the fund is generating returns.
One of the advantages to mfopremium is the ability to see capture ratios in any screen result. You can screen on them specifically if you want to.
WABAC How much importance do you give to the 2008 returns compared to the capture ratios in Morningstar volatility section under RISK?
The shape of the capture ratios are more important to me than the max drawdown, But if I'm interested in a fund I'll check to see if the managers lived through that debacle.
Check Fidelity Med Tech and Devcs (FSMEX) for some ideal capture ratios. I was able to get it into my IRA, and taxable, accounts before it closed. Zowie!
While all of the listed measures are useful to some extent, they all fail to provide the most meaningful measure of any portfolios real risk; it’s survival probability. Survival says it all.
Monte Carlo analyses yields that measure. Please don’t be intimidated by the name, Numerous Monte Carlo codes are available on the Net, and are easy to use. Here is a Link to one I have used many times.
Please give it a try. Input your portfolio and explore possible outcomes as you vary returns, volatility, drawdown rates, survival changes as a fund weighting function, or portfolio additions. An endless array of what ifs scenarios can be explored in short time. These codes run fast. And. the outputs from these what if calculations are survival estimates. That’s exactly what is needed.
Monte Carlo codes are superior tools when uncertainties exist. That precisely defines the investment world.
While all of the listed measures are useful to some extent, they all fail to provide the most meaningful measure of any portfolios real risk; it’s survival probability. Survival says it all.
Monte Carlo analyses yields that measure. Please don’t be intimidated by the name, Numerous Monte Carlo codes are available on the Net, and are easy to use. Here is a Link to one I have used many times.
Please give it a try. Input your portfolio and explore possible outcomes as you vary returns, volatility, drawdown rates, survival changes as a fund weighting function, or portfolio additions. An endless array of what ifs scenarios can be explored in short time. These codes run fast. And. the outputs from these what if calculations are survival estimates. That’s exactly what is needed.
Monte Carlo codes are superior tools when uncertainties exist. That precisely defines the investment world.
Good luck and Best Wishes
Portfolio Visualizer has reduced it's functionality for the free version.
Yes, free website options have been reduced, but many still exist to probabilistically address important what if survival questions. What if returns are only 80% of expected returns, if volatility is twice earlier values, or if an alternate investment option is exercised. An unlimited what if scenarios can be explored to test the survival robustness on any input portfolio.
The Monte Carlo methodology is a powerful tool for questions such as these. It is certainly not perfect, but nothing in the investment world is. It is useful to address uncertainties, but It is indeed useful to also know its limitations.
Comments
See https://www.member.mfopremium.com/greatowls/
or MFO Screener (here)
I like to look at high performers + lower SD. That is a great start, with that in mind, sharpe+sortino will follow and so is martin ratio.
First things I look at are expense and turnover. Expenses are a drag on return. And I don't think there are all that many genius stock pickers that can make me more money with rapid turnover in the portfolio. Turnover also generates expenses.
I also look at the quality of the fund family. I'm always leery about the long term success of the solo stand-out fund in an otherwise mediocre/poor fund family.
After those screens I look at correlation, deviation, capture ratio, and the eponymous ratios in about equal measure. They all tell part of the story when I compare them to the managers' investing theses.
Max draw-downs are also looked at out of curiosity. But they don't tell me as much about the ride while the fund is generating returns.
One of the advantages to mfopremium is the ability to see capture ratios in any screen result. You can screen on them specifically if you want to.
How much importance do you give to the 2008 returns compared to the capture ratios in Morningstar volatility section under RISK?
Check Fidelity Med Tech and Devcs (FSMEX) for some ideal capture ratios. I was able to get it into my IRA, and taxable, accounts before it closed. Zowie!
While all of the listed measures are useful to some extent, they all fail to provide the most meaningful measure of any portfolios real risk; it’s survival probability. Survival says it all.
Monte Carlo analyses yields that measure. Please don’t be intimidated by the name, Numerous Monte Carlo codes are available on the Net, and are easy to use. Here is a Link to one I have used many times.
https://www.portfoliovisualizer.com/monte-carlo-simulation
Please give it a try. Input your portfolio and explore possible outcomes as you vary returns, volatility, drawdown rates, survival changes as a fund weighting function, or portfolio additions. An endless array of what ifs scenarios can be explored in short time. These codes run fast. And. the outputs from these what if calculations are survival estimates. That’s exactly what is needed.
Monte Carlo codes are superior tools when uncertainties exist. That precisely defines the investment world.
Good luck and Best Wishes
Yes, free website options have been reduced, but many still exist to probabilistically address important what if survival questions. What if returns are only 80% of expected returns, if volatility is twice earlier values, or if an alternate investment option is exercised. An unlimited what if scenarios can be explored to test the survival robustness on any input portfolio.
The Monte Carlo methodology is a powerful tool for questions such as these. It is certainly not perfect, but nothing in the investment world is. It is useful to address uncertainties, but It is indeed useful to also know its limitations.
Best Regards