Sharpe ratio

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Sharpe ratio is a way of comparing two different funds in a very specific way, which is really important.

So that's what it is, and we'll get to the detail in a minute.

Oh, you're a tease.

But if you're comparing two funds which are invested in different stuff.

How do you compare? How do

you compare? And the answer is the Sharpe ratio.

So what Sharpe ratio does, hold this thought, bear with me.

Awesome portfolio adds real estate and it is a major improvement, excuse me, to the permanent portfolio.

The Sharpe ratio goes way up, the returns go up, the volatility comes down.

Real estate like does some very magical things because Real estate doesn't have a lot of volatility.

It doesn't return as much as stocks, but the returns tend to be pretty steady.

Which brings me to this headline number, and I need to explain it before I say it because it's jargon that deserves better.

It's a measurement of what we call the Sharpe Ratio.

It measures return per unit of bumpiness.

Take what you've earned, subtract what cash would have paid you for doing nothing, and divide it by how much the ride shook.

Above 1 is considered strong.

Above 1.5 is considered exceptional in institutional portfolio management.

Alterna's Sharpe ratio was 2.08%.

For context, the long-run Sharpe ratio of the stock market is somewhere between 0.4 and 0.5 across decades.