What Is Evidence-Based Investing?

The dictionary defines 'evidence-based' as follows: Denoting an approach to medicine, education, and other disciplines that emphasizes the practical application of the findings of the best available current research.
Wikipedia expands thus: "The movement towards evidence-based practices attempts to encourage, and in some instances to force, professionals and other decision-makers to pay more attention to evidence to inform their decision-making. The goal of evidence-based practice is eliminate unsound or outdated practices in favor of more effective ones by shifting the basis for decision making from tradition, intuition, and unsystematic experience to firmly grounded scientific research."

The above perfectly describes what, for me, is the essence of evidence-based investing.  It's the explicit acceptance of what decades of data and academic research tells us actually works, and the challenging and eschewing of 'traditional' investment policy when it's not supported by facts and evidence.
  • Evidence-based investing is dispassionate.  We are not interested in narratives, in stories, in emotions.  We make decisions based on data, on reason, on time-tested strategies.
  • Evidence-based investing is the opposite of 'investing astrology'.  It is a systematic process, a scientific methodology, a focus on empirically proven solutions.
  • Evidence-based investing replaces biases and gut feelings with intellectual honesty.
  • Evidence-based investing cuts through noise, and fear, so that we can sleep well at night knowing that our investment strategy is built on a solid foundation of research and data.

What evidence-based investing is not


Evidence-based investing is not a secret formula.  It's the rigorous application of what the research says actually works, to overcome our behavioural flaws and biases.

Evidence-based investing is not blindly pursuing passive-investing strategies above all else.   It is part philosophy and part process.












 

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