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 . 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 . 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 . 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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