As traders, whether we be tasty or not, what we’re all concerned with in the end is our portfolio’s return. The ultimate goal of trading is to generate some kind of return on the capital we’ve invested. In today’s Skinny, we wanted to offer up two fresh ways to view those portfolio returns: as multiplicative in nature, and with special attention paid to their sequence over time.
By looking at our returns in a Geometric way, as products and not sums, we are better able to capture the compound nature of returns from one period to the next, and we can better appreciate how powerful consistent, small returns can be over the long-term. Furthermore, as tastylivers, we are not held hostage to the sequence of returns in the overall market like a passive investor might be. This is shown so clearly in our comparison of two different starting points, March 1, 2008 and March 1, 2009.
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