No. of Recommendations: 6
One of the greatest achievements this year was IMO MrToast´s presentation of a bunch of beautifully simple 2-step screens (a great relief from all the SOS-MSS-drop#1-stuff, no offense intended).
Some of these screens had a bit unusual cutoffs, like "take the top 55 by market cap, then sort by RS52" etc., MrToast´s rationale being that one might as well take the local peak than insisting on some arbitrary number.
The problem with this is, however (as will all backtesting, for that matter), that these results could not have been reproduced by someone who decided to jump in such a screen in, say, 1979, because he wouldn´t have known the peak for the 1969-1999 data.

But what will MrToast do in 2005? He sure won´t insist on the cutoff values he determined this year, I think. Similarly someone living in 1979 who has 10 years of VL data would determine his own rules for a 2 step screen like CAPRS, based on the data he has. A year later he will backtest again, based on 11 years of data. And so on. Doing this, his cutoff values will change over time. (Considering that small caps outperformed in the 70ies, in the beginning it might be "take the Top 80 VL T1 stocks by market cap, then sort by RS52).

I hope someone will jump on this. A backtest starting e.g. 1979 should be possible basing all investment decision on the data available at that specific time, readjusting screen rules annually. I think it would give us a much more realistic picture.
Considering that markets change in the long run, another idea I have is basing investment decisions not on all data available at that time, but on the data of the trailing x (maybe 10) years.

What do 'ya think?

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