How Do You Use Historical Market Data to Inform Investment Decisions?

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We've backtested many popular passive investing strategies and found them to be seriously flawed when scrutinized. Modern Portfolio Theory (MPT) is the bedrock upon which so many passive strategies are built. It relies on the assumption that asset class returns, volatility, and correlations are predictable and steady. What we found was that not only do these vary wildly across many timeframes, but there also seems to be a trend toward increasing correlations, which undermines the ability of MPT to properly diversify against risk. As a result, we've adopted an active investing style that responds dynamically to changing market conditions and valuations. This conclusion was the direct result of testing four to five decades of historical market data.