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How About Evaluating VectorVest?

| | Posted in: Individual Gurus

Several readers have asked about VectorVest, such as: “Have you evaluated the VectorVest trading program?”

In general, there is not enough information on VectorVest’s public web site to do any detailed evaluation.

One of VectorVest’s recent research items is “Riding the Wave”, a hypothetical in-sample backtest represented as generating a return of over 1000% in nine years (approximately 32% annualized). There is not enough information to assess the impacts of look-ahead bias and data snooping bias in this backtest as described. The impact of look-ahead bias is material in that a trader using the strategy in real time would not have the data early on to estimate a value for the indicator trading threshold. Further, VectorVest does not describe assumptions about trading frictions used in the backtest. An out-of-sample test incorporating reasonable trading frictions would provide more realistic expectations for the strategy than does the biased approach described. VectorVest does generally disclaim that “past performance is not a guarantee of future results.”

Some additional things to consider about VectorVest’s products and services are:

The VECTORVEST SUBSCRIBER AGREEMENT (Section 1.2.G) states that subscribers “shall NOT…Display, perform, or publish any results of benchmark tests run on the Software, or on any data or information provided by the Subscription Service, either publicly or to a third party, without prior and express written permission from VectorVest…” [Apparently, a subscriber does not have the right even to perform a benchmark test on the service without written permission from VectorVest. What is the purpose of such a restriction? Does VectorVest want to control the assumptions made in benchmarking the service? Does VectorVest have something to hide?]

The VECTORVEST SUBSCRIBER AGREEMENT (Section 5.3) also states: “YOU AGREE THAT FUTURE RESULTS MAY NOT BE PROFITABLE OR EQUAL TO REPRESENTATIONS OF PAST PERFORMANCE; REAL, INDICATED OR IMPLIED. …VECTORVEST, ITS EMPLOYEES, AGENTS, OR AFFILIATES ARE NOT RESPONSIBLE FOR ANY LOSSES YOU MAY INCUR AND YOU AGREE NOT TO HOLD VECTORVEST LIABLE OR RESPONSIBLE FOR ANY POSSIBLE CLAIM FOR DAMAGES ARISING FROM ANY DECISION YOU MAKE BASED ON DATA OR INFORMATION MADE AVAILABLE TO YOU BY VECTORVEST, THE SOFTWARE, THE SUBSCRIPTION SERVICE, OR ANY DATA, INFORMATION, PRODUCTS OR SERVICES PROVIDED BY VECTORVEST, EVEN IF WE ARE SOLELY NEGLIGENT.” [This strong disclaimer appears to deny all accountability on the part of VectorVest regarding both the value of VectorVest products and services and the effort by VectorVest to provide them. Should you give more weight to the promotional words intended to get you to give VectorVest your money or the denial of accountability intended to prevent you from getting VectorVest’s money?]

The promotional material on VectorVest’s home page states that “VectorVest is the only service that…Uses a Market Timing System that has NEVER FAILED!” [Have the owners of VectorVest’s methods substantially captured the benefits of this system via strategies such as “Riding the Wave” for themselves and thereby become extremely wealthy from trading equities? If not, why not?]

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