Market Sense and Nonsense: How the Markets Really Work (And How They Don't) by Schwager Jack D

Author:Schwager, Jack D. [Schwager, Jack D.]
Language: eng
Format: epub
Tags: Business
ISBN: 9781118494561
Google: 0uFrngEACAAJ
Amazon: 1118494563
Barnesnoble: 1118494563
Publisher: Wiley
Published: 2012-11-06T00:00:00+00:00

The average of all the points in the 2DUC chart would, in fact, be the risk measure used in the return retracement ratio (the average maximum retracement). The underwater excursions for Manager E become significantly more extreme in the 2DUC chart (Figure 8.12), widening from an average monthly value of 21 percent to 30 percent (the AMR). The underwater curve for Manager F remains subdued in the 2DUC chart with a still very low average value of 3 percent. The 2DUC chart implies that the average worst-case scenario for investors with Manager E is 10 times worse than with Manager F; that is a lot of extra risk for a 1.3 percent difference in the average annual compounded return. Based on performance, it would be difficult to justify choosing Manager E over Manager F, even for the most risk-tolerant investor.

Figure 8.12 2DUC: Manager E versus Manager F

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