Quantopian – All that Glitters is Not Gold

 

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Quantopian Video

“Past performance is no guarantee of future returns”. This cautionary message will certainly match the experience of many investors. When automated trading strategies are developed and evaluated using back tests on historical pricing data, there is always a tendency, intentional or not, to over fit to the past. As a result, strategies that show fantastic performance on historical data often flounder when deployed with real capital.

Well done Quantopian team. They have put together an excellent back testing platform and published some very well worthwhile papers.

Frankly the entire history of stock market data is insufficient to establish whether or not a given strategy will work going forward. Please do not mistake my comment for levity. I have first-hand experience of curve fitting spreading back over many years and have made many costly errors. But survived well.

My caution and scepticism is now extreme. To the extent that my only real belief in market strategies is in asset allocation.

And even then you will certainly not be able to achieve the super smoothe ATM effect almost all neophytes are seeking.

In the long term all things are born and then die. Most stocks end up worthless and only the stock index can give the impression of continuing growth.

And a correct impression until and unless the two to three hundred year old age of enlightenment ends.

Look at the short termism in the industry. Look at the lack of performance persistence over the long term in every form of investment product.

Hedge and active mutual funds are a waste of time and money over the long term unless they follow a simple strategy to follow asset growth. The more mechanical that can be the better.

The vast majority of participants in the financial markets are fooling themselves and their clients.

I am not interested in Q’s current business model but admire what they have done and appreciate the skills the team has to offer. And indeed the skills evident in various other participants.

All it needs is a way for participants and Q to profit from the enterprise.

And to distinguish this excellent site from the bunch of frauds and snake-oil salesman who dominate the trading and investment world.

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