By the mid-90s, the "gunslingers" in his firm had mostly burned out, victims of their own over-leveraged egos. Elias, however, had turned a modest fund into a powerhouse. He hadn’t predicted every market turn perfectly, but thanks to the formulas Vince codified in 1990, he had mastered the one thing more important than being right: staying in the game.
Instead of using standard deviation, Vince proposes : By the mid-90s, the "gunslingers" in his firm
is the "peak of the curve"—the precise point where growth is maximized before risk begins to erode the compounding effect. Key Frameworks Covered in the Book Instead of using standard deviation, Vince proposes :
Leo began to scribble. He wasn’t looking for a better crystal ball; he was looking for the geometric mean of his equity curve. He realized that his previous wins were accidents of luck, and his losses were mathematical certainties he’d been too blind to see. Vince’s formulas laid it bare: if he over-leveraged—even on a winning streak—the "Optimal f" would eventually turn into a trap, a mathematical cliff that would plummet his account to zero. He realized that his previous wins were accidents
Vince, R. (1990). Portfolio Management Formulas: Mathematical Trading Methods for the Futures, Options, and Stock Markets. John Wiley & Sons.
Vince presents a devastating thought experiment: