Sublime

Back in 1966, a goateed Stanford professor named Bill Sharpe developed a formula that has since become as common in investment-speak as RBIs are in baseball-speak. The formula looks like this:

The risk-free rate is simply the return of Treasury bills. A higher Sharpe ratio is better, and a good rule of thumb is that risky asset classes have Sharpe ratios that cluster around the 0.20 to 0.30 range.

So, the Sharpe ratio measures risk-adjusted returns. And, the higher the number, the better. Also, the riskless rate of return that we use as a comparison to what we’re actually getting is the yield on 3-month T-Bills. So, if an investment gets a 10% return when the yield on 3-month T-Bills was 5%, we’re down to 5% of excess return. If the standard

The Sharpe ratio is a measure of risk adjusted returns, and is calculated as: (returns – risk free rate)/volatility.

Warren didn’t mind substantial variations in market prices over months or even a few years because he believed that in the long run the market would be up strongly and by regularly beating it during its fluctuations his wealth would grow over time much faster than the overall market.