What was your return today?

We splice return data too much and have too much noise in what we hope is data on the construction of a portfolio. Annual returns tell us nothing just like daily returns tell us nothing — without at least one business cycle and preferably a few the quality of the portfolio is not measurable over the long run, which is important because that’s the only way to evaluate a portfolio. A series of short term calls on the top performing stock of each day would have a phenomenal return, but if it was random and lucky selection there is nothing particularly good about the portfolio and there would be no solid advisory suggesting you buy into that. (Yes I recognize that this portfolio would suggest a PM with amazing insider info — let’s assume that’s not the case and move on.)

In the long run, there is only expected return and chance of ruin. If you can eliminate the chance of ruin (Talebs barbell), then it’s just a question of levering expected value on the risky part. Might as well take it all.