Winton Capital Management: No Down Years

The Wizard of Winton:

"...I know about random walks, and when you draw these charts every day, after a bit you think, “That is no random walk.” All the university professors will say, “Well, if you watch the charts for a thousand years, that’s what it is.” Physicists, however, are not like mathematicians. They are empiricists. They study the world; they study data.

Mathematicians can be satisfied with the purely ­theoretical. I became convinced that markets a) weren’t efficient and b) absolutely trended. Later on, when people were able to back-test these theories, that turned out to be true. How do you harness this to make money?

We trade everything using trend-following systems, and it works. By simulation, you come up with ideas and hypotheses, and you test those. Over the years, what we’ve done, essentially, is conduct experiments. But instead of using a microscope or a telescope, the computer is our laboratory instrument. And instead of looking at the stars, we’re looking at data and simulation languages. It’s a very tricky field. It’s fraught with potholes and tricks. It’s treacherous. The more you get into science and the more you talk to ­scientists in other fields, the more you find out it’s all kind of like that."

Just how well does it work? 20% a year with no down years. Chart via IASG.com:

Comments

[PseudoBrain]

This is definitely a fund that is a source of alpha. But my learned friend here misses a point- the low monthly vol masks the high intramonth vol and therefore the returns look much more smooth than they actually are. After removing the alpha (drift?) the 'stationary' series has a volatility that is not completely non-significant.