When it comes to risk, just how sharp is Fletcher?
Welcome to another Fletcher Friday Report. Each week, I put Fletcher's performance side by side with the S&P 500 index to see who's coming out ahead. Spoiler alert: Fletcher is winning. The real question is by how much, so let's dig in.
An Unsettled Market
We're only nine days into the October 1st signals, and so far Fletcher is in positive territory. There are five positions this round, and the past few days have been a bit of a seesaw.
Honestly, the market feels a little unsettled to me right now. Oil prices are in the headlines, there's plenty of chatter about bonds, and the midterm elections are coming up. It just feels like a lot of different forces are pushing the buying and selling these days.
If I didn't have Fletcher giving my investing some structure, I'd probably be making a lot of emotional decisions right now. Actually, let me be more honest than that. "Probably" isn't the right word. I would be making emotional decisions.
I'm grateful for the structure Fletcher gives me, but I still have my concerns about volatility and risk.
Getting Sharpe(r) About Risk
To get a better handle on volatility, I asked Google for some help. Naturally, it pointed me to the Sharpe ratio. That's Sharpe with an "e."
This is a fairly new concept for me, so I like to understand how it's calculated and what goes into it. I plugged in Fletcher's year-to-date results, and the Sharpe ratio came out to 2.0.
Of course, my next question was: is that good or bad? I had no idea. Turns out, it's very good.
Looking closer, I learned a few things:
- The time frame is short. We've had live data since January, and that's what I used. That isn't really enough time to produce a truly accurate number. Still, over a short stretch, I'd much rather see a positive than a negative, right?
- January skews things. January was a big spike in the calculation, with a 66% gain for the month. So I pulled January out and ran February through today instead. The Sharpe ratio for that period was 1.78, which is still very good.
How Does That Compare to the S&P 500?
Naturally, I kept asking Google what all this means and how it stacks up against the index. The S&P 500's Sharpe ratio has ranged anywhere from 0.6 to 1.2, which is to say from "not good" to "good," depending on the time frame.
Of course, the S&P has a much longer history to draw from. Google was looking at this year, three years, five years, and 10 years, which explains the wide range from 0.6 to 1.2.
As time goes on and we can look at longer stretches, we'll get a clearer picture of Fletcher's Sharpe ratio. I'd also like to do a lot more backtesting to calculate Sharpe ratios. Unfortunately, backtesting takes a lot of work, and I haven't had the time to dedicate to it yet. When I do, I'll share the results here.
The Numbers
Now for the actual numbers.
- This week: Fletcher is up 9.5%, while the S&P is up around 1%.
- Month to date: Only nine days in, Fletcher is up 12%, and the S&P is almost at 2%.
- Year to date: As I've said before, this is where things get interesting. Fletcher is sitting at 233% since January, based on live data. The S&P is at about 14%.
Putting the Numbers in Context
I want to spend a little more time on these numbers and add some context.
As I mentioned, live data since January has produced 233% year to date. Even though I don't think it's wise to focus on short time frames, I sometimes look at them anyway. They help with my gut-level sense of how Fletcher is doing, and they also reflect what I've actually been living through.
Here's how the shorter windows look:
- Last six months: Fletcher is up 18%, which is quite a contrast to 233%. That number reflects the big drawdown we had in July, which was negative 26%.
- Last three months: Fletcher is at 42%. So over the past three months, Fletcher has been making up some ground.
What If You'd Started at the Worst Time?
That 26% July drawdown got me wondering: what if I had invested on July 1?
The answer: today we'd be sitting at 5%.
So take the very worst month, start your investment right then, and where are you today? Up 5%.
This is another reason I don't like focusing on short periods of time. It's over the long haul that we win. But all of this does highlight the volatility I keep bringing up.
Is the Ride Worth the Drama?
That's really the question. So far, the answer is a big yes.
Still, I keep doing the gut check. I like to run the numbers, but I'm also an emotional being, so feelings play a part too.
How do you handle volatility? What about risk? Let me know. I'm genuinely curious. And honestly, I could use a little encouragement in that department.
That's it for this week. I hope I didn't throw too many numbers at you. Thanks for reading, and let's do this again next week.