[bumby]

>Are you saying despite having higher returns, the higher risk makes this strategy worse? That really feels like handwaving to me, since the only thing I care about is ROI.

There’s lots of metrics that try to balance the risk and reward. Often, the risk is based on the volatility of the asset. The common alpha metric does this by incorporating the assets volatility compared to the overall market volatility. There’s others like Sharpe ratio etc.

Factoring that volatility is particularly important in long-term investing so your choices don’t, as you say, tank your investment. So maybe you interested in cyclicals over the last nine months and your investments went gangbusters. Does that mean that same strategy will work in perpetuity? Probably not, because cyclicals tend to have high volatility. Risk -adjusted metrics attempt to quantify that risk.