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Subject:  Re: Optimizing Blends with Sharpe/(GSD^x) Date:  11/18/2007  3:24 PM
Author:  JeffLandon Number:  204032 of 270551


I simply point out that every time you explore a function that you haven't looked at before (say, CAGR/GSD^x), you have the opportunity to see what it might be good at measuring.

I still have not been convinced that shooting for high Sharpe is somehow safer than shooting for high CAGR, if we had a way to predict CAGR that rivaled how well we can predict GSD).

Note that's NOT the same as chasing screens with high CAGRs historically--we know that CAGR is a relatively poor predictor of CAGR. Some people seem to think I would like to chase screens with high historical CAGR when I'm saying that I would like to chase high future CAGR.

If I could predict CAGR as well as I could predict GSD, I'd go for the CAGR, not GSD or Sharpe. I realize we don't have such a tool now. That's why I'm saying, "When you pick up a new tool, don't always assume it's a hammer. try it out. See what it's good for."

My strategies are of many types. Many are low in GSD. I'm not talking about wise current practice given what we know, I'm talking about how we think about research.



A Question (for anyone, not just Moe)

There were screens that acted great for 30 years until they hit 2000. Is there a way to know that some market event WON'T pick on low GSD screens catastrophically? Might it be worth diversifying among screens with a wide range of GSDs?
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