Backtesting And Pseudo-Mathematics: The Road To Financial Charlatanism
It's been a decades-long experiment to throw darts at a dartboard and see if it outperforms the picks of experts. Darts win and lose at the same rate as the average of experts. Some people clearly make money in financial markets but the old saying among brokers = 'we make money selling stocks, not buying them' - still applies. Yet someone must know what they are doing. And backtesting is a good way to seem empirical. Example: Your financial advisor calls you up to suggest a new investment scheme. Drawing on 20 years of data, he has set his computer to work on this question: If you had invested according to this scheme in the past, which portfolio would have been the best? His model assembles thousands of such simulated portfolios and read more