Sunk cost fallacy

Il faut imaginer Sisyphe heureux.

 

You?

99.7% of this board has not beaten the 5Y SPX return. A few have. Even fewer on a risk-adj basis.

 

Can you explain in terms a 5th grader can understand what a risk adjusted basis means.
I manage risk by taking small losses. How do I adjust my risk?

 

Just as measured by SPX peak to trough. I was stating that some will beat SPX but with worse DDs.

 

The best practice is to buy stops (cheap puts) in durations = your expected hold (synthetic long call conversion) or bear risk reversal (synthetic bull vertical).

 

What 5th grader can understand that?

 

Long stock -> rallies -> sunk cost in cheap (notional) put buy = synthetic long call conversion.

Long stock -> rallies -> short OTM call, buy OTM put ~ zero prem outlay = edge on bull vertical spread.

 

Thanks really! But options are way above my pay grade.
If you can measure risk with the Calmar ratio, (return / Max DD) mine is consistently above 2.5

 

Last five years S&P has averaged 15% a year with a 30% drawdown.

Not hard to beat that horrible ratio if you are profitable/know what you are doing.

 

That's a pretty big IF