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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Rick who wrote (32739)	10/2/2000 9:58:28 PM
From: Mike Buckley	Read Replies (1) of 54805

If I throw out all the data that doesn't work with the "good" strategy, that's "data chopping." But if I, instead, just say "this might work" I simply have a hypothesis that needs testing. Exactly. There is (or at least there was) a documented, real-time historical record of the thought process that went into Ann Coleman's development of what became known as the Foolish Four that Hulbert wrote about. The hypothesis was that if Michael O'Higgins was accurate in his fundamental explanation of why the stock with the penultimate ranking was most likely to be the best performing stock, buying twice as much of that stock than any of the other three might produce superior returns than buying equal dollar amounts of all four stocks. The hypothesis was tested using about a 20-year period of historical data. It was later tested using about a 30-year period of historical data. It was simply a matter of arriving at one hypothesis and testing it. It was not a matter of data mining thousands, or hundreds, or even tens of tests and throwing out the tests that "failed." One of the really remarkable facts is that almost all of the ten or so strategies that were tested outperformed the DJIA not just for decades but also for most of the rolling five- and ten-year periods. The fact is that there was little data involved with the strategies that didn't work. If Hulbert understood the underlying fundamentals of O'Higgins's work he wouldn't be surprised to see the results of the data. I wonder how many people who have an opinion about whether or not Ann Coleman's work should be called data mining have researched and massaged the spreadsheets that put various beating-the-dow strategies into historical perspective. And I wonder how many of them have a thorough understanding of the process that was used. The article written by Mark Hulbert leads me to think he hasn't looked at the spreadsheets and doesn't know the process used to create them. --Mike Buckley

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