Book Editing: “Making Good Decisions” – Revised Part IV – Section #47
“Calculated Projections” with the Tools of the 21st Century (Part 5 of 10) – The Minimum Holding Period & The Growth Optimal Leverage Ratio
This free, public post shares the edited version of Part IV – Section #47
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Part IV - Section #47:“Calculated Projections” with the Tools of the 21st Century (Part 5 of 10) – The Minimum Holding Period & The Growth Optimal Leverage Ratio – This section introduces two EE calculations that deliver novel, and valuable results for financial planning. EE’s observations about the stability of “Time Average” growth rates from a single trajectory to a bundle of trajectory that remain short of the ensemble enable new calculations that include: (i) The Minimum Holding Period (MHP), and (ii) The Growth Optimal Leverage Ratio L(opt). EE shows that one can only sort out the difference between random noise and “Time Average” signal, once the minimum observation period extends beyond the characteristic time calculated by the MHP formula. However, knowing how long to stay in the market in order to make decisions based on investment signal instead of random noise is one thing, and knowing how much of one’s wealth should be invested during that Minimum Holding Period is another. EE’s Growth Optimal Leverage Ratio, L(opt), similarly to the Sharpe Ratio (S), can be used to measure the quality of a portfolio. The L(opt) formula is similar to the (S) formula but with a difference in the denominator. MHP & L(opt) provides new metrics for rank-ordering the skill of managers and products in a decision-making environment governed by a multiplicative “Growth Dynamic”. MHP shows the minimum amount of necessary data points, and L(opt) provides information not available with the Sharpe Ratio.
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“CTRI by Francois Gadenne” writes a business book, published on Substack for public peer-review, at the rate of one two-page section per day. The book connects the dots of life-enhancing practices for the next generation, free of controlling algorithms, based on the lifetime experience of a retirement age entrepreneur, and continuously updated with insights from Wealth, Health, and Statistics research performed on behalf of large companies as the co-founder of CTRI.