Card 3 | Lesson + CTA

RupeeCase

Education . Sharpe Ratio . 3 of 3

The Lesson

A high CAGR with a low Sharpe is a strategy you cannot stay invested in.

Three honest questions to ask any strategy or fund before you put your money in.

Has the brochure shown you the Sharpe, or only the CAGR?

CAGR by itself can be earned with terrifying volatility. Two strategies can both print 35 percent CAGR and one of them can be unholdable through the dips. Sharpe is what tells you whether the return was earned cleanly or earned by sitting through cardiac drawdowns.

Test . Find the Sharpe number on the factsheet. If it is not there, ask why.

Could you have actually stayed invested through the volatility this Sharpe is built on?

A Sharpe of 1.79 still rode through a 21.35 percent peak-to-trough drawdown that took 371 days to recover. The number on paper assumes you sat there the entire time. Most retail investors do not. They exit at the bottom and the realised Sharpe collapses.

Test . Look at the worst drawdown alongside the Sharpe. Imagine your real corpus going through it.

Is the strategy paying you for skill or paying you for taking more risk?

Anyone can get a higher CAGR by taking more risk. Leverage. Concentration. Smallcap-only. The hard thing is getting a higher CAGR per unit of risk. That is the whole game. The Nifty does Sharpe 0.79. Anything below that is paying you less for more.

Test . Run the strategy's Sharpe against the Nifty's Sharpe. If lower, the manager is taking more risk for less reward.

CAGR tells you how much. Sharpe tells you how cheap. The compounder cares about both. Most factsheets only show one.

The strategy with the highest Sharpe in the marketplace at 1.79. Open methodology, 2-week rebalance.

rupeecase.com / strategies / allcap-multi-asset