By ROBIN POWELL
A question I’m often asked is, what exactly do we mean by evidence-based investing? After all, “evidence” can be used to claim almost anything. So what sort of evidence specifically are we talking about? In other words, what characteristics does a piece of evidence, new or otherwise, need to have to be considered worthy of consideration?
There are four main things to look for. First, the evidence has to be genuinely independent. Unfortunately, much of the evidence cited in support of different investment strategies is either produced, or at least commissioned and paid for, by companies with a commercial interest in publicising it.
Secondly, it needs to have been peer-reviewed. The peer review process that serious academic journals insist on isn’t fool-proof, but it does make the evidence in question more reliable.
Thirdly, the results of any academic research need to have been time-tested. So, for instance, a strategy may have worked over a particular time period, but has it been tested across multiple environments and timeframes?
There is however, a fourth characteristic that evidence absolutely needs to have to merit being taken seriously: it must be based on robust data analysis.
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