Should I be talked out of utilizing Simba backtest?

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Should I be talked out of utilizing Simba backtest?

Postby totally_lost » Thu Feb 14, 2013 9:26 am

Hi folks,

I very recently found Simba's backtest spreadsheet and have been playing about with the numbers. I am even thinking about changing my AA a bit because of it. But then I think that this data only represents a relatively short investing time period (that included the rise of bonds), and I also think that I'm falling victim to recency bias. I would not be staying the course.

The raw data shows:
Current portfolio / Theoritical portfolio
45% / 25% Total Stock Market
15% / 25% US Small cap value
12.5% / 7.5% Total international
5% / 7.5% Emerging markets
7.5% / 5.0% international small
15% / 30% Total Bond

And the spreadsheet gives me a CAGR of 11.36 and SD of 15.90 for my current portfolio and CAGR of 11.52 and SD of 13.49 for the new one.

So we are talking about a similar return but with less deviation within the returns.
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Re: Should I be talked out of utilizing Simba backtest?

Postby livesoft » Thu Feb 14, 2013 9:32 am

Backtesting does not predict the future.

The main difference to me in your scenarios is that bond percentage. The rest is probably fluff although I run a smal-cap and value-tilted portfolio.

I have not looked at Simba's stuff.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Should I be talked out of utilizing Simba backtest?

Postby red5 » Thu Feb 14, 2013 9:38 am

What is that quote I often hear, I think from Mr. Taylor Larimore? The enemy of a good plan is the search for the perfect plan. Or something like that.
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Re: Should I be talked out of utilizing Simba backtest?

Postby nydad » Thu Feb 14, 2013 10:49 am

Due to a bizarre accident with my Delorean and a lightning storm, I've recently come into possession of a copy of Simba's backtest spreadsheet from the year 2040 that I'd be happy to post, and I've used it to set up my AA. I will thus get 15% CAGR over the next 25 years, with a 100% allocation to --redacted--

:oops:

Sorry, I've just been informed by members on the time travel forum that I may be violating causality, sorry can't say any more. Good luck!

But seriously, I think the best use of that spreadsheet is to understand how different blends of assets with different risk and correlations, combined together, can lead to higher returns with lower SD. Thus, it's a great educational tool, but I would say your most important decision is bond/equity allocation - the tilting may or may not work out well the next 30 years.
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Re: Should I be talked out of utilizing Simba backtest?

Postby grayfox » Thu Feb 14, 2013 11:03 am

totally_lost wrote:Hi folks,

I very recently found Simba's backtest spreadsheet and have been playing about with the numbers.

...

And the spreadsheet gives me a CAGR of 11.36 and SD of 15.90 for my current portfolio and CAGR of 11.52 and SD of 13.49 for the new one.

So we are talking about a similar return but with less deviation within the returns.


I would say that using backtesting to forecast return is probably WORSE than having no forecast at all.

Simba backtest can be useful, but not for forecasting asset returns.
Тише едешь, дальше будешь. (Quieter you-go, further you-will-be.)
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