This book, in terms of its narrative theme, bears a resemblance to "A Random Walk Down Wall Street." While the potential for learning might be somewhat limited, the recommended reading list is quite valuable.
Generally portfolio optimization is unstable--it often produces extreme weights with only small differences in the inputs; especially when assets are highly correlated.
page 62
Calculating risk-adjusted portfolio weights usually involves using a correlation matrix, average return, and the standard deviation of returns. Portfolio optimization is more akin to an art form, as it involves finding the right balance and mix of assets.
Portfolio typically has three types: maximum geometric return, maximum Sharpe ratio, and something in between.
(page 77)
In general, portfolio optimization requires a target function. We have several typical choices: maximizing geometric return, maximizing Sharpe ratio, minimizing risk. Therefore, I believe that the author's description in this passage is not precise.
The geometric return of a portfolio depends on both the arithmetic return and its risk. The approximation I have been using is: geometric return = arithmetic mean-0.5*(standard deviation)^2
(page 142)
The geometric mean return Rg = [(1+r_1)(1+r_2)(1+r_3)...(1+r_N)]^{1/N}-1 is a return metric that combines the arithmetic mean return Ra = (r_1+r_2+...r_N)/N and the standard deviation \sigma = \sqrt{[(r_1-Ra)^2+(r_2-Ra)^2+....(r_N-Ra)^2]/N}. This return metric can serve as an optimization objective.
The system's market exposure with the inserted stop was reduced for the first time. Whereas without any exit in place the system was in the market 100% of the time, this risk exposure is now reduced to 73%.
(page 61)
Viewed from a portfolio perspective, reducing market exposure while maintaining the same level of returns effectively results in an indirect increase in future Sharpe ratio
There are a couple of well-known industry classification schemes, but I will be using the Global Industry Classification Standard (GICS) developed by MSCI and S&P.
page 252
The GICS (Global Industry Classification Standard) system is a classification system for global industries (https://www.msci.com/gics and https://en.wikipedia.org/wiki/Global_Industry_Classification_Standard). This system consists of four levels. The first level is the sector (11 sectors), the second level is industry groups (24 groups), the third level is industries (69 industries), and the fourth level is sub-industries (158 sub-industries). It's important to note that the number of categories at each level may change annually. For example, before 2016, there were only 10 sectors, but after the addition of real estate in 2016, the number of sectors increased to 11.