A high historical return can come from leverage, one exceptional trade, an omitted cost or selecting the luckiest of many candidates. Evaluation must distinguish those explanations before a portfolio receives capital. This lesson turns the economic simulation into a reviewable evidence package: cash-flow-adjusted returns, drawdowns, concentration, benchmark comparisons, uncertainty and an explicit promotion decision.
Learning objectives. By the end of this note you should be able to:
- compute linked returns without mistaking capital contributions for profits;
- calculate drawdown depth and recovery duration from a wealth path;
- interpret a Sharpe ratio with its sampling and annualisation assumptions;
- separate a predictive score from investable performance;
- combine accounting, selection history and robustness into a defensible conclusion.
In this lesson
- Establish the performance object first
- Risk is a path, not only a standard deviation
- Read the Sharpe ratio with its assumptions
- Explain where the performance came from
- Uncertainty, robustness and the decision record
Before you start
The full lesson, with worked examples and exercise solutions, is for members.
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