Video: Back-Tests Vs. Walk-Forward Tests And The PE Ratio

by: Brian M. Nelson, CFA


Brian Nelson talks about his views with respect to back-tests vs. walk-forward tests as it relates to studying strategies or the stock market.

He talks about how important it is to understand that back-tests may have a "foregone conclusion" embedded within them, while walk-forward analysis generally tests a hypothesis on a go-forward basis.

The price-to-earnings ratio is a key area that is worth talking about, and Nelson digs into why investors should stop using it.

Hi folks,

This is the eighth episode of a series that I have started called "Off the Cuff," where I get in front of the camera and talk for about 10 minutes each episode. It's low-tech, I know - but it's "authen-tech." I like that. I'll do my best to incorporate feedback and questions going forward, so stay tuned. We have a number of the videos already filmed. We're now up to 13 content-packed videos!

In this episode (episode 8), I talk about my views with respect to back-tests versus walk-forward tests. Back-tested studies, in my view, aren't as valuable as walk-forward studies that test a hypothesis on a go-forward basis. For example, in back-tested studies, there may already be a "foregone conclusion" embedded in the numbers, while walk-forward studies generally test a hypothesis surrounding an idea, concept, or strategy ("out of sample"). The episode also goes into the price-to-earnings ratio and why investors should stop using it.

Give these videos and the discussions time to get warmed up. They're not made to be fancy. I don't like bells and whistles. They're made to be conversational. I hope you enjoy this eighth episode and those that follow. Let me know what you think. Don't forget to comment. Thanks!

Disclaimer: This video and any content within are for information purposes only and should not be considered a solicitation to buy or sell any security. Valuentum and Brian Nelson are not responsible for any errors or omissions or for results obtained from the use of this video or any content and accept no liability for how readers may choose to utilize the content. Assumptions, opinions, and estimates are based on our judgment as of the date of the article and are subject to change without notice. There is substantial risk of loss associated with investing in any financial instrument. Valuentum Securities is a financial publisher.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.