CHAPTER   21

Useful Statistics

Lies, damn lies and statistics

—Samuel Clemens

The selection of a definition for risk and a goal for return is the core of the investment policy in a governance document. These ideas impact and ultimately control the process and methods for investing and establish success or failure. While it is certainly unkind to note, it is also true; if MPT and CAPM really worked for day-to-day investing, then Bill Sharpe (Nobel laureate and originator of CAPM) would be the richest investor, not Warren Buffet, who uses neither.

The key to using and understanding statistics is to know their construction and their underlying assumptions. The assumptions that are built into the statistic are the driver for their results and ...

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