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Subject:  Re: Optimizing Blends with Sharpe/(GSD^x) Date:  11/17/2007  8:04 PM
Author:  Zeelotes Number:  204001 of 271023

Jeff wrote:
After all, again, optimizing for CAGR is already optimizing for smoothing returns out, as CAGR does best when absolute returns vary least.

Elan replied:
No. A high CAGR is not necessarily a smooth CAGR. You're creating an incorrect rule by extending the fact that, given two series with equal average returns, the series with lower volatility will produce a higher CAGR.

That cannot be emphasized enough. A high CAGR is more often than not, far from smooth. When you compare the Jensen yearly returns with the Sharpe/GSD yearly returns you see a vast contrast -- the former is one bumpy, bumpy road.
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