In episode one we described an investment arena that is likely to provide the best long-term opportunities. On this second day, we lay out the case for giving as much (or more) credence to portfolio diversification opportunities as is given to a strategy’s investment edge. We believe investors should always seek the highest compensation for the risks they are willing to incur. In other words, their objective should be, as much as possible, to get the most bang (return) for their buck (risk). It can be useful to think of this risk-adjust return (or Sharpe Ratio) as a function of (1) an investor’s skill in generating consistent returns and (2) the amount of true diversification available in the investment universe at their disposal. We believe this second point is the most widely-overlooked aspect of portfolio construction, and we seek to remedy this today.

Reference: https://investresolve.com/blog/the-case-for-tactical-alpha-part-1-the-fundamental-law-of-active-management/

https://investresolve.com/blog/the-case-for-tactical-alpha-part-2-the-fundamental-flaw-of-grinolds-fundamental-law/

https://investresolve.com/blog/the-case-for-tactical-alpha-part-3-the-greatest-trick-wall-street-ever-pulled/