While talking about Grinold's fundamental law, Professor Balch mentions it is typically easier to improve your performance score by which of the following?

Question

BlackTom AI · Accepted Answer

Question focus: Grinold's fundamental law and which factor tends to be easier to improve for a performance score, as Balch suggests.
Option 1: 'Increasing your skill because the better stocks you chose the more profitable you become' — This asserts that skill improvement is the easier path. However, Balch emphasizes breadth (more trades) because skill improvements are typically harder to achieve consistently; selecting better stocks or increasing skill alone is often constrained by limits in information, decision accuracy, and market efficiency. This makes the claim generally less aligned with the stated idea.
Option 2: 'Put your money in a jar and save it for a rainy day' — This option is unrelated to Grinold's fundamental law and the idea of performance optimization in trading. It presents a personal finance action that does not address the relationship between breadth, skill, and performance, so it’s not applicable to the concept at hand.
Option 3: 'Increasing the number of trades you perform (breadth) because it is hard to increase skill' — This matches the practical insight often highlighted with Grinold’s fundamental law: diversifying through a higher number of trades (breadth) can raise expected risk-adjusted performance even when skill improvements are limited or slow to achieve. The rationale is that breadth leverages more opportunities and compounding effects, making it comparatively easier to improve overall performance than pushing skill alone.
Option 4: 'Start with more money because you can purchase more stocks' — While having more capital can enable more trades, the core point from Grinold’s law is not about starting capital per se but about the relative ease of breadth versus skill. Merely having more money doesn’t inherently address the difficulty of skill improvement and does not directly explain why breadth would be favored for improving performance scores.
Overall, the reasoning across options centers on contrasting ease of increasing breadth against the more challenging path of boosting skill, which aligns with the idea that breadth is the more tractable lever for performance enhancement in this context.

CS7646 Course Content Quiz #9

While talking about Grinold's fundamental law, Professor Balch mentions it is typically easier to improve your performance score by which of the following?

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