If you find a strategy that seems to have worked well in the past, be aware of all of the following. First, avoid survivorship bias, in which you fail to factor in companies that went out of business. Second, factor in transaction costs, both the trading commissions and the bid/ask spread. Third, determine how much risk would've been taken on. Fourth, be wary of any strategies that you found from data mining, the process of backtesting many strategies to dig up some that work; if you backtest thousands of strategies you'll find some that happened to 'win the lottery' but are not likely to continue working. Fifth, be wary of strategies that have recently become well-known, because a strategy might not work as well if a lot of others are following it too.
Tags: investing strategies
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