Sometimes you wake up, for a moment your head is incredibly clear and then the night before hits you.

Marcel Proust wrote a book on the 'moment' part, this post however is about the awkward realisation bit afterwards.

Yesterday I drew some pictures based on 30 year treasury bills, which Mike, pulled me up on.

Here's a story of what went wrong using iShare's 20+ Year Bond ETF (TLT).

The adjusted close series reinvests coupon payments back into the fund.

This is called 'total return' in performance circles, and something I didn't include in the 30 yr Treasuries data.

But... I am the guy who sort of ignores average returns in any case, right? I focus on volatility smoothing.

Yes and no.

Yes, the volatility of the 'Close' time series is 13.98% pa. and the 'Adjusted' series is a little lower 13.92%; but the average returns are about 3% and 7%, respectively.

Which means, if you leverage 'Close' up by ~2 you see Sharpe Trajectories like this.

Obviously 'Close' volatility has doubled to around 26%, and you get half the bang for the buck as you do with 'Adjusted', or underestimate the risk adjusted performance by half!

Unfortunately I don't have coupon data for the ~40 year treasuries readily available to redraw the original post's time series. Pity.

Yes, this was a brain fart.

No, it doesn't really matter that much in the grand scheme of things (i.e. a random example to prove a larger point).

But, the big point, blogs are a fantastic way quickly firing ideas straight out into the ether and getting resounding thumbs up or down straight back, which is equal parts humbling and brilliant.

As is 'A Remembrance of Things Past' by Marcel Proust.