Konstantinos Kousouris @Le_kousou: "How to Choose a Popular..."

United Kingdom

How to Choose a Popular Investor – Part 3 The Metric Most Copy Traders Ignore 𝗠𝗼𝘀𝘁 𝗶𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀 𝗼𝗻 𝗲𝗧𝗼𝗿𝗼 𝗮𝗿𝗲 𝗰𝗼𝗽𝘆𝗶𝗻𝗴 𝗣𝗜𝘀 𝗯𝗮𝘀𝗲𝗱 𝗼𝗻 𝘄𝗿𝗼𝗻𝗴 𝗺𝗲𝘁𝗿𝗶𝗰𝘀! A portfolio showing 40% returns can sometimes be a worse investment than one making 15%. 🤯 Why? Because the real question isn’t: “How much did they make?” It’s: How efficiently did they take risk to achieve it? This is exactly what the Treynor Ratio helps reveal. 📊 And surprisingly, very few investors actually look at it. Let’s break it down simply 👇 1️⃣ What Is the Treynor Ratio? The Treynor Ratio measures how much return an investor generates for the level of market risk they take. In simple terms: 👉 How much reward did the investor produce for each unit of systematic (market) risk? Conceptually: (Portfolio Return – Risk-Free Rate) ÷ Market Risk (Beta) But don’t worry about the formula. What it really answers is this: “Is this investor being efficiently rewarded for the risk they take relative to the market?” 2️⃣ Why It Matters When Choosing Who to Copy When you copy someone, you are not just copying returns. You’re copying: • Their exposure to market movements • Their sensitivity to market crashes • Their overall risk efficiency The Treynor Ratio helps answer a key question: 👉 Is the investor generating strong returns relative to the amount of market risk taken? If two investors generate the same return, the one with the higher Treynor Ratio is usually managing risk more efficiently. 3️⃣ How to Interpret the Treynor Ratio There’s no universal “perfect” number, but general intuition is: • Below 0 → Poor risk efficiency • 0 – 1 → Weak • 1 – 3 → Good • 3 – 5 → Very strong • 5+ → Exceptional (if consistent) A high Treynor Ratio means: ✔ Strong returns relative to market exposure ✔ Efficient use of risk ✔ Smarter capital allocation 📈 For transparency, my Treynor Ratio over the last 2 years is 𝟲.𝟴 4️⃣ What the Treynor Ratio Does NOT Tell You No single metric tells the full story. The Treynor Ratio doesn’t capture everything, such as: • Maximum drawdowns • Volatility patterns • Strategy consistency • Liquidity risks That’s why it should be used together with other metrics, such as: ✔ Jensen’s Alpha ✔ Calmar Ratio ✔ Sharpe / Sortino ✔ Risk Score Each metric shows a different piece of the puzzle. Final Thought The best investors are not the ones who simply chase returns. They are the ones who: • Manage risk intelligently • Stay disciplined during market stress • Generate efficient returns over the long term That’s the difference between performance and sustainable performance. 🎯 Part 4 coming soon. If you found this helpful, let me know what topic you’d like next 👇 And if you have questions, drop them in the comments. $SPX500 $OIL $GOLD $BABA (Alibaba-ADR) $V (Visa)

Not investment advice. The author may have financial interests in the mentioned instruments.

Traynor Ratio is important!

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Traynor ratio is NOT important

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