Excellent post! Do you actually make a calculation of the sharp ratio for your portfolio in practice and if so how often?

I have a service called TradeStops that you hook up to your portfolios to. It then allows you to turn on different trade stops. He calculates a dynamic trade stop, by determining what he calls a volatility quotient. He essentially calculates the expected range a stock should be in and if it's drops below the lower limit, we get an email telling us it's stopped out and we should sell the position. Dr. Smith has a PhD in math specializing in systems science, statistics and time cycles. He shows each week a clever use for his website. One such use is to create a portfolio based on following the top 10 hedge fund managers and he includes Warren Buffet. It looks at their top 10 position and their performance. If they applied his dynamic stops to their portfolios, their returns are dramatically improved.

He also has a tool to look at your complete volatility quotient of your entire portfolio and then provides a single selection to show you how to balance your portfolio to have equal risk. If there is a low volatile stock, you have a have a larger position and a high volatility you would have a smaller size. This way your portfolio has equal risk. If you couple this with his dynamic stops, the billionaire portfolios are beat by hundreds of percent. It's quite incredible. Here is one example.

He uses a green, yellow and red trend line to indicate the state of the stock. If its green, you stay in the stock. Yellow means the stock has dropped to halfway to its stop limit (the red trend line). This allows you stay in your stocks longer and only exist when the volatility is outside the normal range. You can see how Einhorn would have been stopped out in 2009 and the massive outperformance this would have had using the exact same stocks he had it in his portfolio.