What is the easiest way to back-test index funds and ETFs?
Some authors are irritating such as Stein, more here, they keep throwing people all kind of new "investing" strategies and different ideas after their last ideas stopped working. I feel such authors are either damn lazy, too proud, too arrogant, trying-to-be-mock-smart or trying-to-fool-newbies. I have tried this with some people and offered some of their writings -- and it is hilarious how easy it is fool people! So I am looking for some easy way to do back-testing. I feel back-testing is important part for credibility.
For example, let's take Stratton's posting (source here):
Tangent Tangent Tangent
Asset Class Ticker 20 25 33
==============================================================
BONDS
Treasury IEI 30 % 25 % 21 %
Inflation TIP 30 25 21
Foreign BWX 20 10 3
--------------------------------------------------------------
LOW-BETA STOCKS
Energy IXC 3 % 6 % 8 %
Consumer Staples KXI 3 6 8
Utilities JXI 3 6 8
Health Care IXJ 3 6 8
--------------------------------------------------------------
SMALL/VALUE STOCKS
U.S. VBR 4 % 8 % 12 %
Developed Markets DLS 3 5 7
Emerging Markets DGS 1 3 4
--------------------------------------------------------------
Total Expense Ratio 0.29 % 0.31 % 0.33 %
% Non-Dollar Assets 30 30 30
Is there any easy way to backtest this fast? I know I could try to put/guess right times and things in Morningstar with their tickers but is there some shortcut? By back-testing, I mean that I am interested in covariance matrices, SDs, returns, X-square ratio and their evolution over time with different combinations. I know how to do the math and calculations with random data but I do not have the data so I need some provider to offer the back-testing. Any back-testing sites or good suggestions for back-testing?
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Back-testing itself is flawed. "Past performance is no guarantee of future results" is an important lesson to understand. Market strategies of one kind or another work until they don't.
Edited in --
AssetPlay.net provides a tool that's halfway to what you are looking for. It only goes back to 1972, however. Just to try it, I compared 100% S&P to a 60/40 blend of S&P with 5 yr t-bills (a misnamed asset, 5 yr treasuries are 'notes' not 'bills')
I found the mix actually had a better return with lower volatility.
Now, can I count on that to work moving forward? Rates fell during most of this entire period so bonds/notes both looked pretty good. This is my point regarding the backtest concept.
GeniusTrader appears more sophisticated, but command line work on PCs is beyond me. It may be worth a look for you, JP.
ETF Replay appears to be another backtest tool. It has its drawbacks, however, (ETFs only)
I'd start with a Google search for "best backtesting tools."
Does your online brokerage offer anything?
You already understand that the data is the important part. The good stuff isn't free.
But yeah, if you have some money to spend you can get more than enough data to completely overwhelm you. :)
check pastsat-backtesting , backtesting tool, where one can can test on well known technical indicators without coding skills
yAnother potential tool for you would be a Monte Carlo Simulator. here's one financial-dictionary.thefreedictionary.com/Business+Fundamentals
I know that past performance is no guarantee..... but I think it's in many cases not exactly a flawed tool, and especially with respect to money managers a good way to find good ones. If a manager has shown an ability over time to consistently beat the market, yes he might be due for a bad day, but you'd generally expect that they should be able to continue that trend.
I'd apply the same logic to pundits. If their track record sucks, and they constantly seem to whipsaw you with their advice, why listen to them other than
the value they provide in terms of comic relief
a potential basis for taking a contrary position (if they prove over time to be wrong way more often than right, perhaps the best thing is to listen to what they say and then do the opposite of what they recommend.)
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