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Subject:  Re: Risk-Adjusted Returns: Relevant? Date:  2/23/2002  12:28 AM
Author:  jrr7 Number:  177 of 297

I define risk as "time until early retirement". For me the operative number is not the number of dollars in the account, it's the time (or maybe the reciprocal of the time, or (my_life_expectancy - the time).

My point being that risk-adjusted returns are meaningless for me because they measure only volatility, which is an entirely different risk than the one I'm interested in.

No particular time horizon. That's the dependant variable in my situation, not a parameter.

A 40% drop in the value of my portfolio this instant just means I need to work an additional year. It isn't permanent.

How does one know the probability of a large loss? LTCM thought they had a surefire system, and they were making good money for a while. They edidn't think they were acting in a risky manner; they thought they had their positions completely hedged and were just profiting from market inefficiencies. They were experts at risk measurement and management....or so they (and the Nobel committee) thought.

IMO, Enron was (and is still) primarily a vehicle for "artists" to conceal assets and debts. [Didn't you see the report in the paper today that Enron North America, declared bankrupt, has been transferring billions of dollars out of its accounts, to points unknown?]

In neither of those situations was it possible to calculate the risk beforehand. Again I say: Why should I pay any attention at all to risk-adjusted numbers?
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