The Investment Strategy Tester is here!
I’ve added a section to the web site entitled “Strategy Tester.” This section will house the new calculator as well as articles re the calculator and the uses to which it can be put. The first article for the new section is entitled The Investment Strategy Tester Shows You How to Recover Your Stock Crash Losses.
Juicy Excerpt: The good news is that for close to 30 years now academic researchers have been doing work pointing the way to a far more effective way to invest than the failed Passive Investing model. Passive Investing has always produced bone-crushing losses for all who followed it because it calls for investors to be fully invested in stocks at times of insanely dangerous prices. The Investment Strategy Tester helps you to compare the pros and cons of all sorts of investment strategies and thereby to quantify the losses you are likely to suffer by following a passive approach. It permits you to see that by switching from the failed Passive Indexing strategy to the more sensible Valuation-Informed Indexing strategy you can over the next three decades recover most or all of the losses you suffered in the great stock crash.
Rob,
Thanks for the excellent write up.
One point, however: We do not display the lowest and highest 50 runs because of the possibility of fat tails. [Rare “Blank Swan” events.] There is always a 10% chance of an error (5% to the upside and 5% to the downside) in any analysis.
Have fun.
John Walter Russell
We do not display the lowest and highest 50 runs because of the possibility of fat tails.
You are of course correct. Thanks for pointing that out, John.
I am planning to write an article entitled “Detailed Instructions for Using The Investment Strategy Tester.” My tentative thought is that I would prefer to make note of the point you are making here in that article rather than in the one that already appears at the site. My concern is that it would take a few words to explain this complication and that devoting words to that purpose would do harm to the flow of basics overview that I was trying to provide in the existing article.
In the follow-up article, I would say something like “The statement in the earlier article that blah-blah-blah is not precisely correct. The full reality is that the first 50 and the last 50 results are not included.” And then I would explain why.
If that’s a bad idea from the standpoint of technical accuracy, please let me know. It might be that it’s a bad idea because people who understand statistics better than I do will read the words of the existing article and conclude that things weren’t done properly. I obviously don’t want to raise concerns in the minds of such people. My goal is to balance the need for technical accuracy with the need for simplicity in the initial description of what the calculator does for those who may be a bit intimidated by it on first impression.
Please let me know your thoughts (and I will think the matter over a bit more myself). Perhaps I should include a parenthetical noting that there will be a more detailed description coming later. As I write these words, I think I might be persuading myself that that’s the better way to go.
Rob
I ended up making a change. I added the following words to the end of the paragraph:
A technical note: For complicated statistical reasons, the best 50 results and worst 50 results are actually excluded from the analysis.
Rob