From: Lesley Groff Sent: Friday, February 7, 2014 7:23 PM To: Jeffrey Epstein Subject: Fwd: ATorus - Daily Portfolio Report 2/6 Attachments: Atorus_BacktestNAV_020614.pdt Untitled attachment 00921.htm Sent from my iPhone Begin forwarded message: =b>From: Michael Fowler c » Date: February 7, 2014, 1:57:21 PM EST To= Lesley Groff < • Subject: ATorus - Daily Portfolio Report 2/6 A Reminder About Security Selection & Position Sizing=/i>" Having displayed the "vol day" adjusted returns yesterday, I f=el it worth reminding about security selection and position sizing. Specifi=ally, the large winners, are not driven by out-sized position sizing (at in=eption) or a bias to small or mid cap securities becoming large cap securit=es. I've previously outlined our liquidity and market capitalization requir=ments in our Trading Assumptions document. Our position sizing =at inception, yields equal potential profit irrespective of notional dollar= at risk. Stated another way we eliminate the volatility "basis" risk betwe=n any positions, so that the denominators are all indexed to the same poten=ial impact to NAV. We then add to winners and never to losers. At the end o= the day, our assumption (yes, it is an assumption) is that the distributio= of returns, IN VOL DAYS and over a given interval of time, follows a Paret=-Iike distribution. By "indexing" our position sizing (e.g. Kelly Criterion=like) to vol, we are always "in" the positions that represent the majority o= returns and scale those returns by adding to them, without dollar cost ave=aging into losers. In essence, would you think the results are more stable o= someone who made 50% in a year even with a high Sharpe, wherein the sample=size was (i) small in the number of positions and factors; (ii) profit fact=r driven by a small subset of the total trades, and (iii) driven by excess p=sition sizing; or someone who made 15% in a year, wherein the sample size w=s (i) large; (ii) profit factor dr