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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 253116  
Subject: Re: Depth vs Breadth Date: 12/29/2007 4:51 AM
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Is there a better pain metric than the UI?

Two cents' worth--

UI is a good risk metric, but a few things are important to remember.
- It's most meaningful only over long time periods, so that the data have
a chance to reveal the frequency and magnitude of cyclical ups and downs.
In this decade-long test, it's maybe still not quite long enough to be a really solid number.
UI is great for estimating the 50-year risk of holding the S&P.
- It's meaningful for an entire portfolio, but less so in evaluating
individual components of a portfolio. Not a problem in this test.
- UI intrinsically allows for the idea that there is meaning in the
order of monthly returns. This is probably partly true, in that many
kinds of things have winning an losing streaks, or cyclical advantages.
But, a good companion to this would be a metric which does not place
very much weight on ordering.
I like rolling-two-month downside deviations, a metric which ignores
ordering on a scale longer than two months. But, of course, it won't
give you any information about larger scale phenomena, such as being
a continuous loser in a long bear market. So, I look at rolling-year
statistics as well.

All that being said, you're right, the low UI is quite impressive.

Jim
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