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Portfolio Intuition

Download as a PDF Introduction There’s a short preference test in this paper that most readers, if not all, will answer incorrectly. It’s a “preference test” (and not a quiz) because selections should be made without calculation or computation. I’m looking to test your intuition. Below I argue for why we should care about where our intuition is leading us, why it might be creating blind spots and how we can do better. Specifically, I attempt to demonstrate the limitations of financial judgement based on return to risk ratios (i.e. Sharpe ratios) and how using the following formula might lead to better outcomes:

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