I read an awesome article titled “Financial Backtesting: A Cautionary Tale” at philosophicaleconomics.com, who has absolutely spectacular content. The article, although lengthy simply states just because you have mounds of data to support a strategy and a compelling backtest that significantly outperforms the market it doesn’t mean it’s sustainable into the future.
Along with supporting research and data, there needs to be a logical explanation of why the systematic investment strategy will continue to work. If there’s no analytical understanding of the effectiveness of the system, then the probabilities of continued success going forward decrease substantially.
As the name implies, Aptus Behavioral Momentum strategy, uses a proprietary combination of momentum and behavioral forces to give us our theoretical model. Our logical explanation is the emphasis we place on the psychology of investors. We believe understanding behavioral tendency is more relevant to our strategy’s success than trying to sort through thousands of fundamental data points in an effort to uncover value. Ultimately, it’s the buyers and sellers who determine price – let’s figure them out first. All strategies work in the testing lab, we want a strategy that works in the real world, for real investors.
It’s our belief, that the way we systematically capture this irrational behavior will continue to manifest itself in a way we can exploit. So far, humans haven’t figured out a way to avoid the behavioral biases we are all plagued with, and we expect that truth to remain! Check out our Index page to learn more about our methodology.