Let’s say you are looking to invest your money in a hedge fund - what is the minimum information that you would ask for before parting with a single paise? Michael Covel talks about this in his book - Trend Following - and criticizes several commonly-used measures such as standard deviation, Sharpe ratio, etc.
Here in India, we have a much bigger problem. Amongst all the financial gurus, TV channels, “tips” sellers, recommendation providers, and other such fine folk, how many have you come across that will share (or even themselves know) the following performance metrics:
Here in India, we have a much bigger problem. Amongst all the financial gurus, TV channels, “tips” sellers, recommendation providers, and other such fine folk, how many have you come across that will share (or even themselves know) the following performance metrics:
Historical period over which they have been making “calls”
Number (%) of winning & losing weeks/months/years
Number (%) of winning & losing calls
Average win & loss percentages
Maximum win & loss percentages
Absolute returns (especially during bear markets)
Worst-case drawdown (can you sleep at night if your portfolio is down to 50% of its initial value, before it bounces back?)
Number of subscribers, or assets under management (is there serious money betting on your expertise, or is it just your mom & your neighbors?)
Unless each & every trading recommendation is recorded, tracked, measured and disclosed, how do we know whether to shell out money for these “tips”? Do we even know whether a single “guru” has consistently beaten the market - hopefully not by sheer luck?
And if you do know of someone who discloses all of the above, do they have a strategy for money management? If you have 1 lakh rupees to invest over a period of 3 months in the stock market, how will you know how much to invest in each position? People generate tons of trading recommendations - witness the number of SMS’ sent by brokers in a single day - “Buy this”, “Sell that”, “Trade more” Do they tell you to have “x” positions open at any given time, and allocate a % to each depending on some methodology?
How about when a “guru” on TV gives gyan on why one should definitely be long a stock (fundamentals, technicals, whatever . . .) and finally says “I hold no position in the stock”. Why not?
We need better.
