Run (Don’t Walk) When You Hear These Two Words in 2016…
March 18, 2016
If you’ve explored alternatives to buy-and-hold investing, you know these two words. But the nation’s fastest-rising investment advisor wants you to RUN the next time you hear them…
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As a serious investor, you’ve probably heard what I’m about to tell you. You may have “fallen for it” yourself.
There’s no shame in that.
You wouldn’t believe how often I’ve seen top-notch investors get suckered by this phenomenon in my 30-plus years as a professional equity analyst and portfolio manager.
Invariably it goes something like this…
Some hotshot analyst or reclusive “quant” uncovers a surefire, “proven”’ predictor of future stock price movements – a magical, heretofore overlooked “set up” that not only has “worked” 90% of the times in the past…
It is all but guaranteed to keep delivering winners in the future.
And why wouldn’t it? The “set up” was confirmed by exhaustive back tests and rigorous statistical analysis. There’s no way those results could be fleeting or attributed to chance, right?
Invariably, the moment you – or any other “real investor,” for that matter – puts significant money behind the trades, the results suddenly don’t look so good. Or worse, the system breaks down completely.
Somehow trades that made money again and again, like clockwork, suddenly don’t work. Persistent trends no longer appear quite so inevitable – and “causes” no longer seem to produce the same “effects.”
This is particularly puzzling given that the cause/effect relationships driving the strategy were proven with Greek symbols to be statistically significant. They can’t possibly fail now, just because you have real money on the line!
You must have done something wrong, right? In fact, there are fundamental reasons for these oft-repeated wealth-draining breakdowns and failures – and they’re not limited to the world of finance and investing.
These same failures are undermining long-held conclusions and entrenched theories published in peer-reviewed journals nearly across the social and even the “hard” sciences. Some argue it’s a pernicious and dangerous epidemic.
In the field of psychology, it spawned what skeptics are calling a “reproducibility crisis” – a phenomenon that threatens to turn the entire field on its head. I’m not surprised. It’s been costing investors hard-earned money for decades…
And it’s only getting worse. Especially now that schemes backed by these dubious “studies” are so easily blasted across the Internet. Frankly, I’m concerned that any one of these will cost you and your loved ones dearly.
There are reasons why scientific “outcomes” long-accepted as gospel cannot be reproduced in follow up studies. Poor study design, lazy peer review, wishful thinking, and outright fraud are among the usual subjects.
But if you’re looking for a smoking gun, look no further than two simple words — especially when it comes to investing and the markets. In fact, you just read them (and I don’t mean “statistical analysis,” although they’re closely related).
Remember, not even sophisticated investors are immune to their charms. In my experience, the more sophisticated you are – the more mathematically inclined you are – the more likely you are to be suckered by these two powerful words.
It’s gotten so out of hand, in fact, we have a saying in the offices of my independent research firm when it comes to the claims of quant investors and their breakthrough systems…
“They’ve never met a back test they didn’t like!” You may have guessed. Those are the two words I’m writing to warn you about today – back test.
Which is not to say that rigorously “back testing” historical market data doesn’t have its uses. Back testing can be useful in identifying historical patterns to generate unconventional insights and ideas …
Particularly as a launching pad for new areas of research. “Back testing” can help explain the past so that we might know what to watch for in the future. But here’s the thing: Back testing cannot be used to predict future outcomes.
Even where the tested results are presented as “statistically significant.” This is especially true when the conclusion results from “data mining” – a methodological no-no that’s become disgustingly common in the social sciences.
Especially in the Wild West world of investing. Where cheap and easy computing power makes it easier than ever for novice researchers to essentially “throw everything against the wall and see what sticks.”
Don’t misunderstand. I’m not claiming that everyone who pitches you a “trading system” is a fraud. Or that there are no successful active traders on the planet. I’ve met more than one successful trader in my day.
I’m not even saying that every laundry list of ticker symbols you see presented as consistent double- or triple-digit “winners” is complete hogwash. Sometimes these truly are real results, achieved in REAL TIME.
But I do want you to be careful. Remember, I’ve been doing this for more than 30 years, including two decades running my own Wall Street research firm. If I’ve learned one thing in that time it’s that There simply are NO shortcuts or magic formulas.
That goes double for active “trading” – which demands experience, vigilance, discipline, and frankly, skill. Anyone who claims to have stumbled upon a system that delivers an easy stream of triple-digit winners may be suspect.
Especially if those results weren’t delivered to investors putting real money on the line in REAL TIME – in other words, if they are the results of back tests, no matter how “statistically significant” the results are claimed to be.
And here’s the kicker. Too often, the words “back test” are conveniently left out of the pitch. Meaning it’s difficult to tell the difference! Just to be sure, try this…
The next time you see a list of trade “results,” be on the lookout for two more words. If you hear that you “could’ve” or “would’ve” made money, the results might just be hypothetical. Real investors either make money or they don’t!
I’d love to share some real results of real trades with you. These are documented returns achieved by real investors just like you in REAL TIME. Even better, I’d like to show you exactly how we earned those profits…
Using the same criteria… the same hard work and discipline… and the very same fundamental and technical analysis I’ve been putting to work helping my clients and investors get wealthy investing for more than three decades.
Sound fair? Great! Please remember to keep a close eye on your inbox on Thursday morning, March 24, 2016 for an important and timely announcement that can dramatically improve your investing results.
It involves an opportunity to hear more about a one-of-a-kind wealth-building project I’ve been working on for the past year. Including how you can be invited to join a small group of active investors and me if you’re interested.
I can say with the utmost confidence that you’ll like what you see!
So please be on hand. I’m a little concerned that the level of interest from my Smart Investing members and loyal readers suggests we will not be able to accommodate everybody who wants to join us.*
*One final note: Make no mistake: what I’d like to propose is not right for every investor. But it’s not rocket science, either. Especially, because I will be there to guide you every step along the way – drawing on all the knowledge and experience I have accumulated over more than 30 years as a professional analyst and money manager. Of course, you don’t have to decide anything today. But if you think you might be interested in hearing more, please be on hand to read over your invitation bright and early Thursday morning.