Headline:
“Thinking” = Irrelevant + Meaningless + Worthless…Without Conforming Actions.

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Consider How Many Times Per/Day You Begin A Verbal Expression With “I Think…”

Which Implies That Your Thought[s]…At That Moment…Are Merely PASSIVE OPINION[S]…

Defined As…

“A View Or Judgment Formed About Something…Not Necessarily Based On Fact Or Knowledge.”

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So Then…Unless Specifically Asked For Your Opinion…

Why Do So Many/So Frequently….

Volunteer The Worst Type Of Opinion?

That Is…The Dreaded “Unsolicited Opinion...”

Dreaded For 2 Primary Reasons =

1. Unsolicited = Nobody Likes To Be Lectured.
2. Opinions = Not Necessarily Based On Facts And/Or Knowledge.

Thus…Most Unsolicited Opinions = Best Suited For The Trash…

Since They Are Likely…Both Annoying + Inaccurate.

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In Contrast…Most Successful ACTION[S] Result From The Following Sequence:

1. Curiosity/Interest +
2. Fact Based Research +
3. Outline Course Of Action[s] +
4. Execute Project/Task

…Rather Than The Predominantly…

1. Imprecise +
2. Righteous +
3. Sloppy +
4. Uninformed

Unsolicited OPINION[S].

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Notably…The Opinion[s] Are Subsequently Displaced By Passivity…

Since Unsolicited Opinion-ators =

Largely Incapable Of Transmitting Opinion[s] Into Legitimate + Productive Action[s] Solutions…

As Their Intellectual Ammunition…Customarily…Lacks A Firing Pin.

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Yet…For Some Reason…The Opinion-ators Keep Opinion-ating…

Seemingly Believing/Perceiving Their Opinions Provide Some Value.

Because…Why Else Share The Opinion[s]?

Perhaps The Social Media Engagements…

1. Emojis +
2. Forwards +
3. Hashtags +
4. Likes…

Embolden And Validate Their Opined Views.

But A 1 Character Stamp Of Approval…

Does Not Necessarily Imply Value.

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Especially Because Opinion-ator Views Are Usually Offered For Free.

And If “It” [The Opinion] Is Offered At No Cost…

Then Those Giving “It” Away…Do Not Value “It”.

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In Fact…The Unsolicited Opinion Is Worth Even Less Than The Di Minimis Merit Assigned To It By The Opinion-ator…

As…The Opinion…Actually Produces Negative Value…

Since The Substantially…

1. Annoying +
2. Inaccurate +
3. Proffered 

Opinion[s]…Selfishly Consume Finite + Prized Time Of The Listener[s] …

And…Time = Money.

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Not Surprisingly…Unsolicited Opinions Rage Like A Swollen River On Wall Street.

Endless + Redundant Speculations Regarding Future Price Directions Of Financial Assets…Primarily…

1. Bonds +
2. Commodities +
3. Equities +
4. Real Estate

…And Are Delivered…Almost 24/7…

By Both The Buy Side + The Sell Side.

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The Vast Financial Media Then Piles On…

Repeatedly Regurgitating Retreaded Opinions By…

1. Hosting +
2. Interviewing +
3. Parsing

The Opinions Of The Vain Opinion-ators…

To Principally Fill “Air-Time” With A Tsunami Of Tiresome Platitudes.

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So…Will You Or Won’t You…

Filter Out ALL The B.S. + Noisy “Unsolicited Opinions” On Wall Street?

And Just Boldly + Judiciously… Commit L/S Capital.

Because Simply Having An Opinion + “Thinking” About Future Price Directions Of Financial Assets…

Bereft Of Monetary Action =

A SENSELESS WASTE OF BRAIN-POWER.

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Headline:
U.S. Monthly “Net Interest” Payments Exceed Defense Spending & Equal To Healthcare Expenditures.

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Dual U.S. Deficit + Debt Dilemmas = Well Understood By Financial Market Actors…

But Are Typically Dismissed As Illegitimate Concerns…Both Fiscal + Monetary.

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Nevertheless…Sharply Higher U.S. Debt Trends = Not Sustainable…

As “Net Interest” Payments For July ’23…Illustrated In Title Graphic = 4th Largest Monthly Federal Debit.

Monumentally Bloated U.S. Fiscal Deficits For 20+ Years…Continually Build + Stack The National Debt Burden…

Though The Burden Was Masterfully Obfuscated By U.S. Federal Reserve “Debt Monetization” Policies…2009-2022.

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Thus…As U.S. Sovereign Debt Careens Higher…

Interest Costs To Service Debt…Coincidingly Bite + Ramp.

Federal Reserve Actions Compound The Fiscal Predicament By Bleeding Its Swollen Balance Sheet Into The Financial Markets…

All Of Which Increasingly Weigh On Fixed Income Asset Prices.

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Interest Payments To Service Debt = Sunk Costs…

Offering No Productive/Residual Value…

As Debt Is Nothing More Than A Debentured Tool…

Facilitating Demand Shift…From The Future…To The Present.

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Headline:
Harmonizing High Absolute Returns + High Sharpe Ratio.

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All Professional L/S Money Managers Desire To Maximize Absolute Investment/Trading Returns.

However…2 Critical Factors Escape Many =

1. The Quantified Risk Required To Obtain Returns…

Which Is Particularly Tricky…As Risk Can Only Be Precisely Measured In Hindsight…

+

2. The Time Period Required To Generate Returns…

As Extremely Lengthy Holding Periods Can Offer Broad + Challenging Portfolio Implications…Such As Decreasing Return Per/Increment Of Time.

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Further…These 2 Crucial Features …Risk + Time…Provide The Cornerstone For…

The Most Supreme…Yet Under-Appreciated Return Metric =

SHARPE RATIO.

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The Sharpe Ratio Is Nothing More Than A Simple Quotient…

Absolute Return – Risk Free Return / Standard Deviation of Returns

…That Brilliantly + Simply Illustrates Portfolio Risk-Adjusted Return Profiles.

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Even Then…The Sharpe Ratio Proves To Be An Even Tighter Metric With The Inclusion…

In The Denominator…Of The Square Root Of The Time Period To Achieve Returns [as originally articulated by William Sharpe in 1966]…

Absolute Return – Risk Free Return / Standard Deviation of Returns * Square Root [Time Period]

…But Excluded By Most Contemporary Calculations…

Primarily Because It Softens The Quotient’s Result…

By Increasing The Value Of The Denominator.

Thus…Most Present Day Indications Of Sharpe Ratio = Severely Misleading + Over-Stated.

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Interpretation Of The Sharpe Ratio = Elementary…

As A Higher Absolute Result Is Preferred.

Sharpe Ratios Of 1.25 Are Generally Considered Good….1.75 = Excellent…2.00 + Greater = Superb.

As A Basis For Comparison…The Annualized Average Sharpe Ratio For The S&P 500 [1934 – 2022] = .45

…Which Includes The Square Root Of The Time Period In The Denominator.

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Despite Its Attributes…One Of The Greatest Criticisms Of The Sharpe Ratio =

The Ratio Is Not Necessarily Correlated To Higher Absolute Returns…

And That Is True…

But It Is Also True That High Absolute Returns Do Not Always Come At The Expense Of A Depressed Sharpe Ratio.

So…While Concurrently High Absolute Returns + Sharpe Ratios Are Nearly Impossible To Consistently Achieve…

They Are Attainable Over Truncated Time Frames.

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Thus…These Dual Objectives…Of High Absolute Return + High Sharpe Ratio…

Ought Not To Be Abandoned Due To Their Infrequency…

Because The Legitimate +  Persistent Pursuit Of These 2 Elevated Quantitative Goals…Also Yields Significantly Positive Qualitative Consequences.

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Consider The Following Investment/Trading Scenario…For The L/S Money Manager…

Long Position: Initiated At $50/Shr.
Long Position: Liquidated At $65/Shr.

So…A 30% Return = Great Investment/Trade.

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Now…Contemplate 2 Different Pathways To $65/Shr.

Scenario I:
Long Position: Initiated At $50/Shr.
Price Draw-Down To: $40/Shr.
Revert To $65/Shr.

Scenario II:
Long Position: Initiated At $50/Shr.
Price Draw-Down To: $47/Shr.
Revert To $65/Shr.

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The Ultimate Profit…In Both Scenarios…Is Identical.

However…The Sharpe Ratio Impacts Are Quite Different…

As Scenario II Sharpe Ratio Towers Above Scenario I…

Because A Higher Sharpe Ratio = Lower Capital Draw-Down.

Even Better Sharpe =

If Scenario II Trotted A Shorter Time Path To $65/Shr. Than Scenario I.

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Contemplate Also…For Each Scenario…

The Psychological Impact On The Investor/Trader…

As Capital Draw-Down = Concern/Stress = Poor Decision Making.

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For Scenario II Investor/Trader…The Concern/Stress Level = Low…

Freeing Up Mind-Share To Focus On Capital Management + Portfolio Composition = Sharp/Sound Decisions = Increasing Confidence = A Virtuous Cycle.

For Scenario I Investor/Trader…The Concern/Stress Level = High…

Consuming/Diverting Mind-Share + Impulsive/Sloppy Decisions Can Follow = Decreasing Confidence = Negative Feedback Loop.

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Naturally…Only The Confident Investor/Trader Is Capable Of Producing…

The Exceedingly Rare…And Very “High Class” Problem Of…

High Absolute Returns + High Sharpe Ratios.

And Only The Confident + Humble Trader…

Accepts + Understands The Tangential Features Of This “High Class” Problem.

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Contact The Author: [email protected]