Backtesting – Why No One Trust The Results?

Backtesting is the cornerstone of systematic investing. But if you do a survey, you will find no lack of people who view backtest results with distrust. 

Backtesting is the cornerstone of systematic investing. It is what systematic funds do for a good part of their work. They rely heavily on history to tell them what works and what does not. But if you do a survey, you will find no lack of people who view backtest results with distrust. In particular, strong skeptics who believe firmly in their own analysis and skills to make investment decisions often scoffed at the simplicity of such an approach.

For those who develop a good model and think that you stand a good chance to secure funds or land a job with it, you might be in for some disappointment. Except for yourself, many will view what you claim with at least a dose of cautious skepticism, or if not, outright mistrust. And this includes even people on the systematic side of investing like myself. But don’t get me wrong, I am all for the use of backtesting. After all, it is a critical element in my work. So why?

Backtesting – Why No One Trust The Results?