You’ve met all eight metrics one at a time. ROI and CAGR, volatility and drawdown, Sharpe and Sortino, beta and alpha — each a sharp little tool that answers exactly one question. But no single number ever tells you whether a fund is any good. A glittering CAGR can hide a near-death crash; a modest return can be a quiet masterpiece. Quality only shows up when you read the numbers together.
This capstone doesn’t re-teach the eight metrics — it teaches the skill that turns them into a verdict: scanning a factsheet, lining the numbers up against each other, and deciding whether a return came from skill or from luck.
The four questions, eight numbers
Every factsheet is really answering four questions, two numbers each:
- How much did it grow? → ROI, CAGR
- How risky was the ride? → Volatility, Max drawdown
- Was the return worth the risk? → Sharpe, Sortino
- Skill or just the market? → Beta, Alpha
The Four Questions, Eight Numbers
Before you read — take a guess
Guess before reading: a fund posts a huge CAGR. Which single fact would most make you suspicious that it was luck, not skill?
Before judging anything, make sure each number’s job is crisp. Match the eight metrics to the one thing each really tells you:
Match each metric to what it really tells you.
Pick a term, then click its definition.
Now sort the same eight into the four families. Knowing which bucket a number lives in is half of reading a factsheet — you never compare a return number to a risk number, you compare across the families.
Sort each metric into the question it answers.
Place each item in the right group.
- ROI
- CAGR
- Max drawdown
- Sortino
- Volatility
- Alpha
- Sharpe
- Beta
Reading a Real Factsheet
Time to do the real thing. Here are two funds that both posted a great-looking CAGR — but the full picture tells very different stories:
| Metric | Fund A “Steady” | Fund B “Cowboy” |
|---|---|---|
| CAGR | 11% | 14% |
| Volatility | 10% | 32% |
| Max drawdown | −18% | −61% |
| Sharpe | 1.4 | 0.5 |
| Sortino | 1.9 | 0.6 |
| Beta | 0.9 | 1.8 |
| Alpha | +2.5% | −1.0% |
Read it the way the four questions tell you to. How much? Fund B wins the headline — 14% vs 11%. But stop there and you’ve been fooled. How risky? Fund B ran triple the volatility (32% vs 10%) and suffered a near-fatal 61% drawdown — remember, that needs a +156% gain just to get back to even, while Fund A’s −18% only needs about +22%. Worth the risk? Fund A earns far more per unit of risk (Sharpe 1.4 vs 0.5, Sortino 1.9 vs 0.6). Skill or the market? Fund B’s high beta of 1.8 means a roaring market did the heavy lifting, and its negative alpha says the manager actually lagged what that much market risk should have paid. Fund A’s +2.5% alpha is genuine value added.
Fund A quietly wins on every measure that matters. A big return on a brutal ride is luck; a solid return on a calm ride is quality.
Why is the steadier fund the better-run one even though it has the lower CAGR?
Putting It Together
Chunk the whole toolkit into one picture — four questions, eight numbers, one verdict:
Big picture
The investor's metric toolkit
- Investment metrics
- How much did it grow?
- ROI — total gain, time-blind
- CAGR — steady yearly rate (geometric)
- How risky was it?
- Volatility — swing around average
- Max drawdown — worst peak-to-trough
- Worth the risk?
- Sharpe — excess ÷ all volatility
- Sortino — excess ÷ downside only
- Skill or the market?
- Beta — sensitivity to the market
- Alpha — return beyond beta = skill
- How much did it grow?
One mixed recap that pulls from every family — return, risk, risk-adjusted, and market:
Which metric expresses growth as a single annual rate that accounts for compounding?
Check your answer to continue.
Key Takeaways
How to read a factsheet
- Never judge on one number. Walk the four questions in order: how much it grew (ROI, CAGR), how risky it was (volatility, drawdown), whether the return was worth the risk (Sharpe, Sortino), and whether it was skill or the market (beta, alpha).
- A high CAGR is meaningless until you check the drawdown and volatility that paid for it — and remember big drawdowns need disproportionately bigger gains to recover.
- Sharpe and Sortino rank funds fairly because they price in risk; a higher ratio at the same return always wins.
- Beta tells you how much of the return was just the market’s tide; alpha is what’s left over — the manager’s real skill. Negative alpha on a high beta means a rising market flattered a weak strategy.
- The verdict in one line: a big return on a brutal ride is luck; a solid return on a calm ride is quality.