Portfolio Boss

Why you DON’T want strategies with high win percentages — probably the most counterintuitive thing you’ll ever hear

Corona Del Mar, CA


Howdy Friend,


I always found it strange that the folks working at Jim Simon's Ren Tech kept talk about a 51% win rate. While they're closed to new investors, it did seem odd that they kept going on and on about that number. After accidentally adding a strange rule to a Meta ML multi-strategy, it all makes sense.


So here's what happened...


I was having a problem where my Meta ML was hanging on to a few trading strategies for several months at a time. They were doing so well that they were taking up a larger percentage of the portfolio than makes me comfortable. So I added a rule to the Meta that says "if you're in a strategy for more than three months, get out." That seemed to smooth results, but there was a period in 2020 that suddenly had a massive 31% drawdown.


How does a Meta go from a 6% drawdown to 31% when the rule just moves the money into cash? It suddenly dawned on me that there was WAYYYYYY more hedging going on behind the scenes than I thought. And the key to unlock this mystery was sitting there in my head...it was the reason the fellas at Ren Tech were so proud of a 51% win rate.


Here's why that's such a great thing when most amateurs and pros alike would say that sucks. If 51% of your trades make money, that means 49% are positioned incorrectly. That also means that if some rare event occurs, a Black Swan, you're hedged automatically because so many of your trades are unprofitable. After building thousands of strategies with The Boss, I can tell you that a typical win rate that maximizes profitability is around 65%.


That means 35% of the time, the trades don't make money.


Yet it helps make the gains buttery smooth because it absorbs sudden shocks like the suspension in a dune buggy.





That's the whole freakin' point of this newsletter...giving YOU knowledge to help YOU become profitable, consistent, and relaxed. It just so happens that can only occur using counterintuitive information.


Now get back to the mines and make some money slacker! 😉

Trade smart,

Dan "Prince of Proof" Murphy


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