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Backtests vs. Real Life in the Markets

By Ben Carlson, CFA
A Wealth of Common Sense

If you lived under a rock in 2020 and didn’t pay attention to what was going on around you, simply looking at the performance number of the overall market would make you think things have been relatively boring this year. It certainly doesn’t feel like a flat year in the market, and many stocks are still in a world of pain (even after the recent run-up).

This is one of the reasons investment strategies are so much easier to live through via backtests than real life. In a future backtest, the first six months or so of this year will look easy. In real time, this has been one of the most challenging environments we’ve ever seen, because everything is happening so fast.

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z - Cover Image: Backtests vs. Real Life in the Markets