Top Traders Unplugged

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

16 snips
Aug 24, 2024
Richard Brennan, an expert in volatility and investor behavior, shares insights on the recent market turbulence, comparing it to airplane turbulence as a metaphor for volatility. He argues against the reliance on backtesting for predicting future performance, advocating for more realistic expectations of risk and returns. The conversation highlights how human behavior influences price movements and discusses the role of trend followers in this dynamic. Brennan also addresses the benefits of including highly correlated assets in trend-following portfolios.
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ANECDOTE

August Volatility

  • High volatility in early August caused market turmoil, impacting trend followers.
  • However, markets quickly recovered, highlighting their unpredictable nature.
ANECDOTE

Turbulence Analogy

  • Airplane turbulence, though causing internal damage, never breaks the plane's structure.
  • Similarly, trend following models remain robust despite market volatility.
ADVICE

Discipline and Trend Following

  • Respect trend following models and maintain discipline.
  • Avoid overriding model rules to prevent negative consequences.
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