Gatun Capital
The first half of the data is where we search and adjust. The second stays untouched and passes judgement at the end. A rule that only looks good in the first half is discarded — there, everything you went looking for looks good.
A setting is adopted only if its neighbours are good too. A single good value between two bad ones is chance — and chance does not repeat.
Company figures count from the day they were reported — not from the quarter end they refer to. Weeks lie in between. Anyone who skips those weeks is testing with knowledge from the future.
Testing only the companies that still exist today leaves out every one that went bankrupt or was taken over. Among smaller companies that is two thirds of them. With us they are included.
The terms asset managers, funds and institutional investors use when they talk about results — and what can be overlooked in each one. We use them exactly as they stand here.
The geometric annual return: the constant rate that turns the initial amount into the final one. It is the only figure that can be compared across periods of different length.
How widely the monthly results scatter around their mean, annualised. The usual measure of how restless a curve is.
How much return is left per unit of volatility once you subtract the rate obtainable without any risk. The standard measure when comparing two approaches of different risk.
The same idea as Sharpe, but only downward movement counts. Anyone running an approach with rare large gains is not punished for them here.
The largest loss from peak to trough that would have had to be endured. In practice the single most important figure: it decides whether anyone stays invested.
How long it took to make a decline back. Losing a fifth is one thing if it is recovered after eight months, and quite another if it stands for four years.
How much of a performance simply comes from the market having risen. A result only becomes interesting once that part is subtracted.
How often things went up. Easy to grasp, and therefore often quoted.
How much of the portfolio is moved in a year. It drives costs directly: every reshuffle pays the spread.
Every approach has a ceiling. Invest more than a share trades in a day and you drive up your own entry when buying and push down the proceeds when selling.
What cannot be recalculated, we do not claim.
Above is what we watch for when testing. Here is how large the effect is — counted from public market data, not from our results. Anyone with the same sources arrives at the same figures.
| US common stocks listed at the end of 1998 | 7 400 |
| of those, no longer tradable today | 6 117 |
| listed at the end of 2005 | 5 624 |
| of those, no longer tradable today | 3 970 |
| share that disappeared since 1998 | 82.7 % |
Four out of five companies that existed then no longer exist today — taken over, merged, bankrupt. Anyone basing a thirty-year test on today's roster of companies tests the survivors alone and leaves out precisely the cases that went wrong. Such a test is not imprecise; it is systematically too favourable.
| quarterly reports evaluated | 681 370 |
| median between quarter end and report | 44 days |
| three quarters of reports within | 65 days |
| nine tenths of reports within | 90 days |
| later than 30 days | 622 624 |
At the quarter end nobody knows what happened during the quarter. On average six weeks pass before the report; for one in ten it is more than three months. A backtest that uses company figures as of the quarter end trades on knowledge that existed nowhere at that time — in well over nine cases out of ten. We count from the day of publication.
| from Aug 2000, low −45 % | 75 months |
| from Oct 2007, low −51 % | 53 months |
| from Dec 2021, low −24 % | 24 months |
| longest recovery | 75 months |
Three declines of more than a fifth in barely thirty years. The longest stood for over six years before the old level was regained. A return without those two figures — how deep and how long — does not describe what an investor actually had to sit through. That is why both stand next to every return figure we report.
| index with dividends, 2016 to 2025 | +294.9 % |
| titles listed at the start of 2016 | 4 582 |
| of those, still tradable at the end of 2025 | 2 479 |
| median title over the same ten years | +41.7 % |
| better than the index | 625 of 4 582 |
| lost more than nine tenths | 666 of 4 582 |
The index quadrupled; the median share did not even gain half. Only about one title in seven beat the index, and roughly as many lost almost everything. An average across shares therefore says little; the distribution says everything. Whoever selects must be measured against that distribution — and against the titles that were no longer there at the end.
A figure on its own says nothing. It only becomes a statement once you check how much of it would have come about without any skill. Tools for that have existed for decades, and we apply them to ourselves.