|
PureBytes Links
Trading Reference Links
|
Most interesting reading I've done in a while. Much appreciated!
BA
----- Original Message -----
From: "Bob Fulks" <bfulks@xxxxxxxxxxxx>
To: "Mark Johnson" <janitor@xxxxxxxxxxxx>
Cc: <omega-list@xxxxxxxxxx>
Sent: Wednesday, September 20, 2000 8:38 AM
Subject: Re: Sharpe Ratios of CTA's
> At 10:45 PM -0700 9/19/00, Mark Johnson wrote:
>
> >Bob Fulkes writes of Sharpe ratios of mechanical systems.
> >
> >Why not disuss the Sharpe ratios of CTA funds such as John Henry's,
> >David Druz's, and so forth? They are 100% mechanical, they have a
> >proven track record (audited, to boot), they have actually made money
> >for clients as well as themselves.
>
> <snip>
>
> >Get used to it: what can actually be realized using actual trades and
> >actual fills and actual markets, is a Sharpe ratio slightly less than
> >1. Not 3, not 3-to-5, not greater-than-5. Less than 1. That's the bad
> >news. The good news is, you can make >100% profits per year, even
> >with a Sharpe ratio less than 1. Larry Williams proved it. Richard
> >Dennis and the Turtles proved it. Michelle Williams proved it. You
> >and $395 worth of Pinnacle Data, and $3000 worth of Trading Recipes
> >software can prove it too.
>
>
> I do not disagree with Mark.
>
> First, we are talking about slightly different things. I was talking
> about the Sharpe Ratio of a system as backtested by applications such
> as TradeStation. Real life performance is always poorer because of
> missed trades, excess slippage, etc. Assuming you are not curve
> fitting and make realistic assumptions, real results can come close
> to the simulated results, however.
>
> In another post yesterday, I showed that only 4% of the 8538 funds
> with data on the MorningStar.com site had a Sharpe Ratio equal to or
> greater than 1.0 and all 8538 remain in business.
>
> I have not studied CTA funds but I have studied traditional money
> managers, big and small, investing in stocks and mutual funds. Their
> results typically have Sharpe Ratios well below 1.0 and they seem to
> stay in business.
>
> Mark and I both know of a gentleman that has consistently won his
> local futures trading contest year after year by trading Aberration
> on a basket of commodities using daily data. I have tested his
> methods extensively using TradeStation and am pretty sure that the
> Sharpe Ratio he realizes is under 1.0.
>
> I am a member of an trade organization of money managers and have
> been to their annual meetings and discussed with them the systems
> they use. Most such systems are very crude compared with what is
> discussed on these trading lists. Many of these managers would be
> overjoyed to realize a Sharpe Ratio of 1.0, (assuming they even knew
> what it was).
>
> But there are money managers who have turned in real Sharpe Ratios
> over 3.0 for most years. (One of them is managing money for me right
> now.)
>
> And the situation is massively different if you are managing tens of
> millions to billions of dollars. If your system says "sell 100,000
> shares of Microsoft stock", you do not just do that with the click of
> a mouse. This is where the little guy can do a lot better than the big
> guys and realize much better results than they can.
>
> Long ago, I concluded that the commercial success of a money manager
> or mutual fund has more to do with their marketing ability than with
> their technical ability. Most customers only listen to the hype and
> look at last year's returns in deciding where to place their money.
> Once a hot new mutual fund manager makes the Money magazine's top-ten
> list, you can be sure that he will be flooded with far more money
> that he knows what to do with and his next-year performance will
> suffer.
>
> The clients of most funds and money managers do not understand the
> importance of the variability of returns and have never heard of the
> Sharpe Ratio. That is good for us since if we are going to do better
> than average, we need others who are doing worse than average...
>
> "It is wonderous that with so little wisdom, the world is ruled in
> high places."
>
> Bob Fulks
>
|