The WhoTrades Marketplace’s leading trading strategy at the moment, believe it or not, is not a cryptocurrency strategy. It is still nonetheless very risky as a portfolio that solely invests in micro- and nano-cap stocks. Overall, it’s returned nearly 1,100% over the past year with just a 16.7% drawdown. (Source: WhoTrades Marketplace) If we assume an annual portfolio standard deviation of 20%, that’s a Sharpe ratio of about 55 over the past year, a measure that compares returns against risk, with higher being better. By comparison, achieving a Sharpe ratio of 1 over the long-run – as in one or more complete business cycles – is very difficult to do. Sharpe ratios in US equities over 2017 averaged about 4 but will receded as returns drop and volatility increases. Since 1972, US stocks have provided a Sharpe ratio of 0.42. Asset classes generally have Sharpe ratios between 0.2 and 0.5 to reflect annual returns of assets that are positive (i.e., greater than cash over the long-run) yet volatile. The portfolio is currently made up of five stocks, though two comprise over 90% of the holdings – Costar Technologies (CSTI), with a $14 million market capitalization, and China XD Plastics (CXDC), with a $214 million market cap. Of course having these massive gains isn’t sustainable over the long-run. The one thing you can take away from this is that small and micro caps do tend to outperform the broader stock market over time. One of the market’s earliest micro-cap indexes, BRSIX, has returned 10.7% annualized since its 1997 inception versus 6.9% for the S&P 500. The BRSIX has had an annualized standard deviation of 19.2% versus 14.9% for the S&P 500 (about 30% higher). Over this time period, that gives a 0.61 Sharpe ratio for BRSIX and 0.43 for the S&P 500. _____ Can this trader keep it up or have his stock picks been mostly fortuitous? Consider following him and other traders of interest to track their progress.