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Yes, I've read the interview. The question is- is he following the same
strategy that he outlined in his book, or has the human in him caused him to
make changes to the backtested strategy? Since the fund I mentioned is 31%
behind the S&P this year, which is worst year ever for this strategy (worst
prior performance was 18% behind the S&P in 1975-this info comes directly from
his book What works on Wall Street which I have in front of me) you have to
question the strategy.
Futures traders know that when your realtime loss exceeds your largest
historical loss, as in this case, it's time to reexamine your system. By the
way and not to knock O'Shaughnessy, I enjoyed the book and his well thought
out backtested approach. It's just that backtesting and assumptions that are
made by the backtester can amount to curve fitting. I know from my own
backtesting of trading systems how easy it is to be lulled into thinking that
you have just found the holy grail, when the system falls apart in realtime.
Larry Williams tells a story of a great bond system he discovered, backtested
it using over 1000 out of sample trades where it performed very well. It
couldn't make a dime in realtime!
All I'm trying to do in inject a note of caution in the reading of backtested
results from someone who has been burned by it.
Howard Bernstein
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