How To See Investment Cost Performance Ratio

　　 Investment It is a process in which risks are exchanged for profits, and no risk and no profit are known. But when it comes to investment, everyone takes delight in his earnings, but who knows the risk he is taking? Most investors do not have a rational understanding of risk and lack a quantitative measure.

People are willing to take risks in order to get them. Profit Investors will try their best to understand the income of investment and make clear the risk of investment as clearly as possible. But how can we balance investment decisions with different investment returns and risks? There is no effective theoretical and practical method. Most investors can only consider the benefits and risks according to some priori experience and experience.

In 1952, Harry Markovic (Harry Markowitz) published his epoch-making paper, Portfolio Selection, in which he asked a simple but profound question: what is the selection criterion of portfolio? The greatness of Markowitz is that he proposes that the goal of portfolio selection is to achieve "effective combination" (Efficient Portfolio), that is, the combination of obtaining the greatest return under certain risks.

Markowitz is the first person in financial history to invest. combination The problem of choice raises the risk to the same importance as the income. It establishes a theoretical framework to weigh the benefits and risks, and opens the way for the modern portfolio theory. Markovits and his student SHARP also won the Nobel prize in economics in 1990.

With the concept of risk, we can discuss the first question of investment Revolution: how can the ability of investors and investment managers be reflected and judged? Is it income or risk? The answer to investment revolutions is not just investment income, not just risk, but the ratio of profit to risk. This can be SHARP rate or information rate, and I set a Chinese name for this foreigner concept, which is called cost performance ratio of investment.

Investment cost performance is a definite measure of investment and one of the most important indicators of investment capability, because it does not change with investment leverage and is directly related to the probability of investment loss. The higher the investment cost performance ratio, the lower the probability of loss, the better the investment certainty.

It is said that investors hate losses rather than risks. That's true, but what are the factors that affect the loss of portfolio? So the bigger the risk, the bigger the loss? Is it related to the profit expectation? Modern finance and some advanced mathematics will help us answer this question. As expected, the greater the risk, the greater the risk of loss. The same risk, the higher the expected return, the smaller the risk. But how are the rates of return and risk different?

In fact, the comparison method is the combination of investment cost performance, different returns and risks, and the higher the investment cost performance ratio, the smaller the probability of loss. At that time, the reason is not complicated. Some basic statistical probability and a few minutes of Matlab can be drawn, but the investment cost performance gives us an important yardstick for measuring investment ability. Therefore, the core and primary issue of investment revolution is the issue of investment cost performance.

Which investors want relative benefits? That is, "the bull market helps you earn more, and the bear market helps you lose less"? In fact, which investors and fund managers do not want to make money in the market? But is "absolute income" the only way to earn money? Have we just talked about "no risk but no gain"?

In fact, Absolute Return is not absolute money, but opposed to Relative Return, it is not to win the market, but to make money in the market fluctuation. But this is not "make money", because no risk is no gain, but the probability of losing money is small, that is, the certainty of making money is higher, that is, the higher cost performance of investment.

Absolute income is the goal of every investor and fund manager, but can it be achieved with a goal? Look at the past two years, various types of fund products, including "flexible allocation", "no tracking index" or "bold reduction", have also been used to hedge futures risk with stock index futures. Just like which doctor does not want to "bring death back to life"? The problem is not in the target, but in the absence of tools and capabilities.

In April 16, 2010, an epoch-making day, CICC launched stock index futures, bringing two of the most important functions, leveraging and hedging, to China's capital market. From this point of view, the capital market has changed from a unilateral market to a bilateral market. Various hedging arbitrage strategies have become possible, and the pricing mechanism of the market has also come closer and more effective. Although this is a small step in the CICC, it is a great leap forward in China's capital market and has entered the "hedging era".

Without hedging tools, it is impossible to make a real absolute return product, but can it be done with stock index futures? Can hedge funds really provide the absolute profits that everyone dreams of?

This will be the first practice of investment revolution.