Editor: Crass Cash
"History may not repeat itself, but it rhymes."
-Mark Twain
Back testing a stock theory has become very popular and even the great Benjamin Graham has dabbled in it. This is a very serious problem though that you need to be made aware of. Back testing is when you take certain parameters and see how they performed in the past. Theory being that that's how they'll perform in the future.
The problem is that this pretty much never happens. Economists and financiers love to take certain parameters and make them do what they want. Or at least fiddle around with them until they do. This is called data mining and has gotten a lot of brilliant people in trouble.
Have you ever heard of a private equity group called Long-Term Capital Management? Look it up and read the history of what they did. Don't fall into the same spell that they did believe that history repeats itself...although it just may rhyme.
-Mark Twain
Back testing a stock theory has become very popular and even the great Benjamin Graham has dabbled in it. This is a very serious problem though that you need to be made aware of. Back testing is when you take certain parameters and see how they performed in the past. Theory being that that's how they'll perform in the future.
The problem is that this pretty much never happens. Economists and financiers love to take certain parameters and make them do what they want. Or at least fiddle around with them until they do. This is called data mining and has gotten a lot of brilliant people in trouble.
Have you ever heard of a private equity group called Long-Term Capital Management? Look it up and read the history of what they did. Don't fall into the same spell that they did believe that history repeats itself...although it just may rhyme.
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