In the journey of investing, regularly reviewing your investment decisions is crucial. Every investor hopes to succeed in the market, but decision-making is often influenced by various factors, making it particularly important to reflect on past investment operations. Reviewing not only allows us to appreciate successful outcomes but, more importantly, helps us extract valuable lessons to avoid repeating the same mistakes.

Market feedback often takes time to materialize, and only with the passage of time can we determine whether our decisions were correct. Therefore, just as we analyze exam questions after a test, we should regularly review our investment performance to continuously refine our investment skills.

However, in the face of complex and ever-changing financial markets, effectively evaluating investment performance remains a significant challenge for many beginners. For novice investors, relying solely on emotions or intuition often leads to mistakes. Here, we set aside subjective factors and turn to more objective, scientific performance evaluation through quantitative analysis to gain clearer understanding of various aspects of investment performance and optimize investment strategies accordingly.

Profitability Metrics

The ultimate goal of investing is profit—a common objective for all investors. When discussing profitability, the most direct measure is undoubtedly how much money we've earned. However, this value is often influenced by the principal amount. For example, if our principal is $100 million and we earn $1 million, the profit is relatively small in economic terms. Conversely, if the principal is just $10,000 and we earn $1 million, it could represent a highly successful investment. Clearly, these two scenarios can't be compared simply using absolute amounts.

For this reason, we typically use the percentage of profit relative to the principal—known as the "rate of return"—as a standardized measure. However, quantitative analysis of returns goes beyond calculating absolute data. When comparing returns across different time periods, a single percentage value often fails to reflect the true investment performance. For instance, earning 5% in one year versus 5% in one day aren't directly comparable—the former represents a year's achievement while the latter reflects a momentary fluctuation. Therefore, we must standardize the time unit for effective comparison.

This is where the concept of "annualized return" comes into play. While calculating annualized returns may seem complex, simplified methods are available. A common approach is to extend the daily return to a full year, typically using 252 trading days as the benchmark. This calculation provides a more scientific and reasonable expectation of investment returns.

Of course, beyond overall profitability, we should also examine the performance of individual trades. There may be situations where overall trades are in a loss position, but one successful trade can reverse the overall outcome.

Risk Metrics

Investing is essentially a game of strategy, and in this game, risk control is key to achieving long-term returns. While profitability is important, risk management is equally crucial. Novice investors must recognize one fundamental truth: losses are an inevitable part of trading. Only by acknowledging and accepting this can we plan our investment strategies rationally. Therefore, mastering effective risk control strategies not only minimizes losses but also helps maintain stability amid market volatility.

How can we control risk? Multiple risk metrics can help quantify investment risk. For example, "maximum drawdown" is an important risk indicator that measures the peak-to-trough decline during a specific period. Maximum drawdown not only reflects a strategy's risk level but also helps investors better assess potential risks when formulating strategies.

Additionally, standard deviation is another commonly used risk metric that reflects the volatility of investment returns. In financial markets, return volatility is often proportional to risk—the higher the standard deviation, the greater the volatility and, consequently, the higher the risk. Therefore, wise investment strategies involve allocating assets to reduce the overall portfolio's standard deviation.

Another useful tool is the "Sharpe ratio," a risk-adjusted return metric that evaluates investment efficiency. The Sharpe ratio measures the excess return per unit of risk, with higher values indicating more attractive returns. This helps investors decide whether to continue holding a particular asset.

However, these metrics alone aren't enough. We must regularly track and record them to serve as valuable references in our investment process. By continuously monitoring these key indicators, we can better understand our investment capabilities and adjust strategies promptly when market conditions change, avoiding excessive risk and potential losses.

Conclusion

In the complex world of financial markets, scientifically and effectively evaluating investment performance will help us go further and steadier in our investment journey. The profitability and risk metrics we've discussed provide a quantitative approach to comprehensively understanding investment performance and optimizing decision-making. As we master these metrics and adapt them to market changes, our investment path will become more efficient and successful.

The investment journey isn't always smooth sailing—the key lies in our ability to continuously learn and improve. Through regular reviews and reasonable evaluations, and by applying these lessons to future investment operations, we stand a better chance of achieving sustainable success in this challenging market. Whether you're a new investor or an experienced veteran, regularly reviewing and optimizing your investment strategy is fundamental to establishing a foothold in the market.