The minutia in the financial world is almost as confusing as the titles, certifications, and designations held by financial professionals in the industry. Many have heard of the CFA (Certified Financial Analyst) designation, but most haven’t heard of its nerdy brother, the CMT (Chartered Market Technician) certification. Each year, I attend the annual CMT Symposium in lower Manhattan and have the pleasure of learning from a plethora of intelligent, accomplished market technicians, analysts, and portfolio managers. Referencing my Twitter feed, which I used to share my experience throughout the conference, for the first time ever, I thought I’d write this “Coach’s Corner” column and share some of the things I observed.
Tom Lee, analyst at FundStrat, is still very bullish on Bitcoin and Ethereum, although crypto is his main focus. So, given other investments to analyze, I’m not sure he’d be so bullish. Nevertheless, his presentation was a good reminder to stay open-minded. Just because Bitcoin has taken a huge tumble this year doesn’t mean it won’t become a viable investment in the future (for aggressive clients, only, of course).
“Back-testing” is where portfolio managers, mutual fund companies, and other money managers use both buy and sell signals to look back into time and say, “What would’ve happened if I used these parameters?” Back-testing is fine as long as the analysis is being done for purely observational purposes or to explain a concept. However, using it as a means for testing a portfolio management strategy doesn’t work. Not only is it too difficult to determine what made the strategy work (or not) in the first place, but a back-tested strategy almost always fails to produce the same results going forward because the testing almost always results in curve-fitting.
I was going to link the phrase “Curve-Fitting” to a definition online, but none of them will make any sense to most people. To elaborate, curve-fitting (as it pertains to money management) is the act of tinkering with the buy and sell signals using historical data until you’ve arrived at the “perfect” set of signals, producing the highest possible historical returns. It sounds nice in theory, but again, perfecting trades on a historical basis is a recipe for disappointment. It won’t work when you walk it forward into “real, live” data (i.e. – real life).
Unlike back-testing, “Trade Testing” is the practice of testing each side of a trade independently. For instance, because we don’t want to curve-fit (thru back-testing), we test the buy side of the trade for profit; over say, three or six months. Then, we test the sell side of the transaction to ensure it helps us keep our profit. Lastly, the “Trade Test” takes this process even deeper. When you look back over time, there might be three times where a buy signal was triggered, but only one sell signal. Trade Testing is the act of testing all the possibilities as opposed to just the first (or last) one. Doing so produces more accurate results that more closely reflect what we can expect in the future with our portfolio management strategies.
One of the many benefits of attending the CMTA (Chartered Market Technician Association) conferences, specifically, is that it’s such a small, tight-knit community. Over the years, I’ve had the pleasure of meeting and getting to know some legends in this industry, such as Tommy Dorsey, Charlie Kirkpatrick, Paul Desmond, Louise Yamada, and Mike Carr, all of whom have become mentors of mine today. Above is a picture of John Bollinger and I, taken by his lovely bride. An accomplished analyst and author, he was one of the first analysts to use a computer when analyzing the markets. He continues to improve research on his famous “Bollinger Bands” and has since won the Market Technicians Annual award and the IFTA (International Federation of Technical Analysts) Lifetime Achievement award.
Marc Chaikin, inventor of the Chaikin Money Flow indicator, recited a quote often mentioned on the floor of the New York Stock Exchange (which was then echoed by my friend and floor trader, Jay Woods), “Make money, not predictions.” It reminds me of one of my many favorite quotes, which resides on all of my computer monitors, both at work and in my home office, “Don’t trust your own opinion until the action of the market itself confirms your opinion.” ~ Jesse Livermore.
Chaikin also caused some laughs, all while creating some enemies I think, when he bashed Elon Musk and Tesla. This was probably the funniest moment of the entire symposium.
I took a lot of notes and shared a lot on twitter, but if it hasn’t become obvious, I really enjoyed Marc Chaikin’s presentations. This is a lesson too few learn, but everyone should abide by, when it comes to their hard-earned retirement assets.
Steve Suttmeier is the Chief Equity Technical Strategist for Merrill Lynch and had probably the best presentation of the entire conference, in terms of new, applicable research and ideas that I brought back to my office in Columbus. This quote was one that resonated well with me as it’s something that I think hurts so many investors when they can’t get their emotions out of their money. It’s a difficult thing to do, but simplified by having a comprehensive financial plan in place with a rules-based portfolio management strategy for seeing that plan thru to the end of your life. The rest of the battle is about following the rules, ignoring the news, and to never, ever form an opinion. The market doesn’t care what any of us think, so the smartest thing to do is to simply follow the market, pay attention, and let it tell us what to do, not the other way around.
While I soaked in a lot of information, I did manage to have a little fun while I was there. I hung out with my friends/analysts Dan Russo, Tom Bruni, Sean McLaughlin, Brian Shannon and JC Parets, who introduced me to “The Reformed Broker,” himself – Josh Brown – the financial news anchor many of you have probably seen on CNBC.
Naturally, I made sure to go for a little walk and stop by the NYSE before heading home. We live in a great country and this is one of the many scenes that always serves as a reminder.
That’s all for now. There’s a LOT more exciting stuff to share, but virtually nothing our readers would find interesting!
I hope you’re having a wonderful week and staying warm (to quote Gina) “on this 97th day of January!”
Till next time…
If you’re interested in getting a 2nd opinion on your retirement plan, please call or email us so that we can confidentially discuss you and/or your company’s situation further.
If you have any questions about retirement or estate planning, the market, or our patented Defense First® portfolio management strategy, please reach out. You don’t have to be a client to ask a question!
If you know someone who would like to receive invitations to our events, our podcasts, screencasts, educational articles, or articles like the one you just read, please feel free to direct them to our website at www.LibertasWealth.com or Click Here to Subscribe for Free!
* Adam Koos, CFP® is a CERTIFIED FINANCIAL PLANNERTM Professional, as well as president and portfolio manager at Libertas Wealth Management Group, Inc., a Fee-Only Registered Investment Advisory (RIA) firm, located in Columbus, Ohio.
The opinions mentioned in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial adviser and strongly consider interviewing a fee-only financial advisory firm, prior to investing. Past performance is not guarantee of future results. Economic forecasts set forth may not develop as predicted. The views and opinions expressed in this commentary are those of Adam D. Koos, CFP® and do not represent the views of TD Ameritrade Institutional and its affiliates. Investing involves risk including loss of principal.