Most investors are normally fixated at their returns from ordinary asset classes. You take on the risk of equity for 8% returns and moderate your equity position with a bond position which is stable but only gives you only 2%.
Professionals don’t have that luxury.
If market returns from equity are like an act of God then individual returns which deviate from the market benchmark would be the act of Man.
Professionals use Information Ratio (IR) as a measure of their skill – calculated by how much excess return (called alpha) is generated for each unit of residual risk. Most professionals get about 0.5 but an exceptionally good professional manager can get 1.0. As I still am not an accredited investor yet, I have yet to ask professional money managers what has been their information ratio for the past 5 years.
For the other readers, here how you …Read the full article →