How efficient is a given portfolio?

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How efficient is a given portfolio?

Postby letsgobobby » Sun Jan 27, 2013 3:29 am

How does one calculate the efficiency (is that the same thing as a Sharpe ratio) for his own portfolio? Swedroe illustrates this in one of his books. Ie, add some small stocks, add some value, add some REITs, etc., improve efficiency.

For example my portfolio is 60/40, but tilts small/value and half of fixed income is stable value. How do I take that info and calculate its efficiency compared to TSM/TBM in a 60/40 ratio?

The goal is to ensure the highest possible returns for a given level of volatility, or alternatively to maintain a given level of expected returns while ratcheting down volatility.
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Re: How efficient is a given portfolio?

Postby BBL » Sun Jan 27, 2013 8:36 am

This may be far enough in left field as to be OT. I'm assuming you have an intellectual curiosity beyond the mere optimal MV calculation task. You may find this paper enlightening [regarding portfolio efficiency]. It may be beyond what you're looking for but contains methodology that is helpful to the task.

Optimal Four-moment Portfolios:
Effects of Higher Moments and Estimation Errors

http://www.econ.cam.ac.uk/postgrad/ww25 ... tfolio.pdf

This isn't light reading....
To win without risk is to triumph without glory. Pierre Corneille
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Re: How efficient is a given portfolio?

Postby Taylor Larimore » Sun Jan 27, 2013 8:48 am

Bobby:
How efficient is a given portfolio?

Three Proofs That TSM is Efficient

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: How efficient is a given portfolio?

Postby Bustoff » Sun Jan 27, 2013 9:06 am

“There are two times in a man's life when he should not speculate: when he can't afford it, and when he can.” | ― Mark Twain
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Re: How efficient is a given portfolio?

Postby allocator » Sun Jan 27, 2013 9:21 am

You might find this, from William Bernstein,
helpful: http://www.efficientfrontier.com/ef/497/mvo.htm
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Re: How efficient is a given portfolio?

Postby letsgobobby » Sun Jan 27, 2013 12:02 pm

four replies with four links to lots of reading. Thanks! I think...
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