The Importance of Real-Time Independently-Verified Results: An Illustration
I make a pretty big stink about the need for real-time independently-verified results.
Now obviously not everybody requires verified results. I have huge respect for all the folks on my blogroll, but very few of them are verified in any way. So be it. Those folks aren’t marketing their super-duper trading prowess, they’re conveying ideas, thoughts, historical studies, whatever.
That’s what 95% of the content on this blog is about. But things change when you start talking about your uber-returns and marketing your abilities as a trader.
An illustration…
[logarithmically-scaled]
I’m using our own YK Strategy as an example because of the epic upchuck we experienced in October of last year. My regular readers have heard this story a hundred times, but for the uninitiated, see the strategy details.
In grey are results prior to the addition of the abnormal market filter, and red everything after (through the end of last month). These are the same results you’ll find in our independently-verified track record, and the same results we will carry (indefinitely) in all of our summary and combined stats.
October was gut wrenching, but despite it, the program has returned 88.6% annualized in 16 months of trading. Not bad.
Now, just to prove my point, let’s say we could magically make the bottom 5% of all of our daily trades disappear. That shouldn’t be too hard if I didn’t have a third-party looking over my shoulder right? Just 1 out of every 20 trades I conveniently gloss over, or pretend they were but a small bit of my portfolio, or that I had hedged them with blah, blah, blah.
The results…
[logarithmically-scaled]
Poof! 420% annualized and an equity curve as smooth as Woodshedder’s mullet. I am now a trading god.
Wait, there’s more…
Verification in our case is simpler than most because we just trade a handful of leveraged mutual funds and we’re very specific about the % of our portfolio we’re allocating to each. There are no per-transaction costs or slippage, and there is only one price per day to consider.
But imagine if all of those nasties were also a factor. Imagine the games I could play.
Happy Trading,
ms
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Filed under: Random Stuff | 5 Comments
What would the orignal pre-AMF YK would have looked like over the last month or so when the abnormal market filter was hitting high readings on the upper bound?
RE to Alex: good question – a little worse performance, a lot more volatility. michael
Curious but what has been your annualized volatility over the 16 month period?
Impressive illustration.
RE to Chris: for the “real” version of that particular strategy? A HUGE 74.1% in large part because of that one month. michael