25 years: Investment management
In this video, Ali highlights the importance of examining the key metrics that impact a portfolio manager's performance - from how they make decisions for long-term positive performance, to assessing explicit or implicit behavioural patterns that can indicate biases.
In this video, Ali highlights the importance of examining the key metrics that impact a portfolio manager's performance - from how they make decisions for long-term positive performance, to assessing explicit or implicit behavioural patterns that can indicate biases.
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13 mins 11 secs
When examining the portfolio managers' decisions, two key metrics play an important role - The Hit Ratio, and The Win/Loss Ratio. Similarly Ali outlines assessing explicit or implicit behavioural patterns that can indicate biases which we need to be aware of.
Key learning objectives:
What metrics can be used to assess the research and investment decisions of the portfolio manager?
What are some biases that lead to a suboptimal sell discipline?
How can we analyse a portfolio manager's skill level?
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When the Hit Ratio is below 50% it means that we have more negative investment ideas than positive ones. When this number is above 50% we have a more favourable situation with more positive outcomes and of course the higher the Hit Ratio is, the more effective and successful the portfolio manager’s decisions will have been.
If the Win Loss ratio is above 1 or 100%, we can say that when we make a positive gain it’s on average much bigger that negative one. In this case, even if we have the same number of winners and losers i.e. a Hit Ratio of 50%, the portfolio will have total positive performance as winners will outsize losers. When this number is below 1 or 100%, it means that on average, a loss is much bigger than a gain.
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