SI310: The Illusion of Backtests and True Drivers of Price ft. Richard Brennan

Top Traders Unplugged

Niels Kaastrup-Larsen

Business, Business News, Investing, News

4.8 • 670 Ratings

🗓️ 24 August 2024

⏱️ 63 minutes

🔗️ Recording | iTunes | RSS

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Summary

Together with Richard Brennan we address the high level of volatility we have experienced this month and what airplane turbulence can teach us about periods of volatility. We also discuss why backtesting can’t predict future performance and what can be done to achieve achieve more realistic expectations of future risk and returns. We then dive into how investor behaviour drives price movement and how trend followers play a role in this, and why it may still make sense to include highly correlated assets in your trend following portfolio and more.

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Episode TimeStamps:

01:01 - What has been on our radar recently?

04:43 - What can trend followers learn from airplane turbulence?

11:48 - Industry performance update

18:24 - The limitations and pitfalls of relying solely on backtesting

33:42 - Advice for using in- and out-of-sample data

36:31 - How collective trader behaviour influences price movement

48:03 - How cocoa is the perfect example of investor behaviour and price movement

52:47 - Why highly correlated assets may still be beneficial to your portfolio

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Transcript

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0:00.0	You're about to join Neil's Kostrup Larson on a raw and honest journey into the world of systematic
0:06.6	investing and learn about the most dependable and consistent yet often overlooked investment strategy.
0:13.2	Welcome to the Systematic Investor Series.
0:33.0	Welcome and welcome back to this week's edition of the Systematic Investor series with Richard Brennan and I, Neil's Castellarsen, where each week we take the pulse of the global market through the lens of a rules-based investor.
0:36.4	Rich, it is great to have you back this week.
0:40.4	How are you doing down under? Any big news from where you are in the world?
0:51.2	Nothing really, Neil's. It's a bit cold down here. We're going into spring now, so things are starting to warm up slightly, but it's great to be back on the podcast.
0:56.3	It seems like forever that I was here last time. So many things happens, which we'll get to in between our conversations at the moment. But as you know,
1:01.9	before we dive into all that good stuff, one thing I always love to do with all of you is to just
1:07.4	kind of hear what's been on your radar, what you think have been interesting.
1:11.9	None of the topics that we're going to talk about,
1:13.9	but just something that's come across your desk that you thought,
1:16.6	yeah, this is actually kind of interesting.
1:19.1	Well, I suppose what's grabbed me this month is, you know,
1:22.5	we had this very high level of volatility early in the month,
1:26.8	and, you know, there were pundits out there professing gloom and doom.
1:31.7	And, you know, of course, the trend followers, we, you know, we were hit with the trends
1:37.2	that we were riding.
1:38.1	And, you know, we got slapped, slapped around by the Japanese yen and the NASDAQ coming off and the S&P 500 coming
1:46.7	off. But, but now you, it's almost a forgettable event. What happened earlier in that,
1:52.8	in the month as, you know, we've now all sort of starting to recover again and, uh, going
1:57.6	back into trending as normal. And, uh, so, so, you know, that's interested me because,
	...

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