Numbers don’t lie. While investment philosophies and market theories can be debated endlessly, mathematical evidence provides objective insights into what actually works.
The data consistently supports systematic approaches over discretionary investing.
The Evidence for Momentum
Academic research has validated momentum investing across multiple decades and markets. Studies show that stocks exhibiting strong recent performance tend to continue outperforming in the near term.
Jegadeesh and Titman’s seminal 1993 study documented significant momentum profits in U.S. stocks from 1965-1989. Subsequent research has confirmed these findings across different time periods, geographic markets, and asset classes.
This isn’t a theoretical curiosity—it’s a measurable, persistent market phenomenon that systematic approaches can exploit.
The Compound Effect
Small advantages compound dramatically over time. Consider the difference between earning 8% annually versus 11% annually on a $100,000 investment:
- After 10 years: $215,892 vs $283,942 (difference: $68,050)
- After 20 years: $466,096 vs $806,231 (difference: $340,135)
- After 30 years: $1,006,266 vs $2,289,230 (difference: $1,282,964)
A 3% annual advantage creates a $1.28 million difference over 30 years. This demonstrates why systematic approaches that consistently provide modest advantages are far more valuable than occasional “home run” stock picks.
Consistency Beats Volatility
Many investors focus on finding the next big winner—the stock that doubles or triples in value. Mathematics shows this approach is inferior to consistent, systematic returns.
Consider two portfolios over 10 years:
Portfolio A (volatile): Returns of +50%, -30%, +80%, -40%, +60%, -25%, +100%, -50%, +40%, -20% Average annual return: 16.5% Compound annual return: 8.8%
Portfolio B (consistent): Returns of +12% every year Average annual return: 12% Compound annual return: 12%
Despite Portfolio A’s higher average return and spectacular individual years, Portfolio B delivers superior compound returns due to consistency.
The Backtest Advantage
Systematic approaches can be backtested using historical data to validate their effectiveness before risking real capital. This provides mathematical evidence for investment strategies rather than relying on theoretical arguments.
The Brockmann Method’s backtesting from 2007 shows $100,000 growing to $2.5 million versus $500,000 for the S&P 100 index. This isn’t a projection or estimate—it’s what actually would have happened following the systematic rules.
Why Math Beats Intuition
Human intuition evolved for immediate survival decisions, not long-term wealth building. Mathematical approaches remove cognitive biases and focus on what actually produces superior returns.
The evidence is clear: systematic, disciplined approaches consistently outperform emotional, discretionary investing over meaningful time periods.
Tomorrow, we’ll conclude by examining how to implement these mathematical insights through practical investment processes.