Hoffstein argues that a carefully constructed backtest can help investors understand how a strategy might have behaved during past stress. The danger arises when optimized or misleading historical results become marketing instruments rather than bounded evidence for due diligence.

Backtests can reveal hypothetical stress behavior
Optimized index histories helped fuel the smart-beta boom
Regulatory restrictions reduce abuse but can impede due diligence
Historical simulations should not be presented as expected returns

“I don't think there's anything implicitly wrong with back tests if done well.”
Corey Hoffstein · 14:32

“I think the problem is back test became a marketing.”
Corey Hoffstein · 14:35

#backtesting#due diligence#smart beta#regulation

Hot Take· 1

Hot Take51:54

Why Fundamentals Alone Miss the Structural Bid for US Stocks

The discussion argues that post-crisis equity valuations cannot be understood solely through fundamentals. Low cash yields, automatic retirement contributions, fewer IPOs, and corporate buybacks increased demand for public equities while reducing available share supply.

Zero-rate policy discouraged holding cash
Retirement accounts created recurring automatic equity demand
The number of listed US stocks declined
Buybacks reduced the public share float
Supply-and-demand shifts can sustain valuations that look fundamentally expensive

“you have a dramatic shift in supply and demand.”
Corey Hoffstein · 54:06

“you saw fewer IPOs, so you're increasing demand into public equities with fewer less supply.”
Corey Hoffstein · 54:12

#market structure#passive investing#buybacks#valuations

Explainer· 3

Explainer16:49

Why Value Investing Led Hoffstein to Trend Following

Hoffstein found that value exposure was not inherently defensive across every kind of crisis. Seeking a more direct capital-preservation mechanism, he adopted trend following, which uses the historical tendency of price moves to persist and attempts to reduce exposure during sustained declines.

Value's resilience during the dot-com crash was crisis-specific
Value portfolios were badly exposed to financials in 2008
Trend following responds to persistent price direction
The approach offers a statistical edge rather than perfect cycle prediction

“there was nothing inherent in value itself that was necessarily protective in terms of the type of crisis that could unfold.”
Corey Hoffstein · 18:41

“as prices have historically gone up, they tend to persist in that direction, or if prices start to fall, they tend to persist in that…”
Corey Hoffstein · 18:54

#trend following#value investing#capital preservation#momentum

Explainer34:56

How Systematic Alternatives Trade Macro Trends Without Discretion

Systematic alternatives use predefined computer models to trade futures and other instruments long and short. Signals such as trend, carry, value, and momentum seek macro opportunities across commodities, currencies, equities, and rates while offering long-run diversification from stocks and bonds.

Computer models make and implement decisions
Strategies can trade futures both long and short
Common signals include trend, carry, value, and momentum
Crisis opportunities can arise from safe-haven rallies or profitable shorts

“system matic alternatives to me are active investment strategies that are implemented in a non discretionary manner.”
Corey Hoffstein · 34:59

“they tend to be very uncorrelated to equities and bonds over the long run, and particularly during a crisis”
Corey Hoffstein · 35:55

#systematic investing#managed futures#alternatives#macro

Explainer1:32:31

Finance Twitter's Shift From Public Square to Private Networks

Hoffstein describes how a once-small public community became too large for intimate, responsive conversations. Curated groups and lists now preserve trusted expert feedback and reduce noise, but they also sacrifice the serendipitous discovery that made the earlier network valuable.

Smaller communities once supported more public conversation
Growing inbound volume made responsiveness difficult
Private groups enable candid discussion among anonymous practitioners
Curated lists reduce noise but narrow discovery

“the community was just smaller, and so you could have a lot of conversations in public.”
Corey Hoffstein · 1:34:01

“But you lose a bit of the serendipity discovery.”
Corey Hoffstein · 1:35:15

#twitter#networking#mentorship#online communities

Story· 5

Story04:31

How a Dorm-Room Model Accidentally Became Newfound Research

Hoffstein began licensing quantitative models to a local asset manager while still in college, initially accepting basis-point compensation without knowing what a basis point was. The strategy grew from zero to several billion dollars, giving him enough revenue to continue the business after graduate school rather than seek a conventional Wall Street role.

Newfound Research began as an accidental college project
The first client paid through basis points rather than cash
Client assets grew to several billion dollars
Existing revenue made entrepreneurship possible after graduate school

“It was. It was very accidental. I never actually intended to still be running this business sixteen years later.”
Corey Hoffstein · 04:47

“well, I got a business that's already paying me. Why don't I just keep doing this?”
Corey Hoffstein · 06:38

#entrepreneurship#quant finance#newfound research#career

Story07:11

An SEC Subpoena Forced Hoffstein to Prove His Research Was Real

Hoffstein's largest client marketed a miscalculated backtest as a live track record and eventually attracted SEC scrutiny. Although Hoffstein had only supplied models and was cleared of further inquiry, the episode threatened his career and pushed him to publish weekly research as visible proof of legitimate work.

The client misrepresented a backtest as live performance
The firm's assets reached tens of billions before collapsing
Hoffstein received an SEC subpoena in his early twenties
Public research and blogging became a reputational rebuilding strategy

“I can leave this industry and go go move to Silicon Valley.”
Corey Hoffstein · 10:46

“Or I can plant my flag and prove to people I did nothing wrong research here.”
Corey Hoffstein · 10:55

#sec#backtests#fraud#reputation

Story48:20

The Identical Vanguard Portfolios That Traded 6% Apart

During March 2020, a Vanguard bond ETF traded at a substantial discount to a mutual-fund share class backed by the same pool of assets. Frozen bond trading left the mutual fund's net asset value dependent on stale quotes, while the ETF incorporated the market's lower real-time valuation.

The ETF and mutual fund represented the same underlying pool
Illiquid bond quotes distorted the mutual fund's stated NAV
The ETF served as a faster price-discovery mechanism
Crisis conditions created a rare switching opportunity

“The bond market froze up, so when the mutual fund struck NAB at the end of the day, the NAB was based on ill liquid…”
Corey Hoffstein · 49:32

“You shouldn't have two things that are literally the exact same basket attached to the same underlying trading six percent apart.”
Corey Hoffstein · 50:47

#etfs#mutual funds#bond market#mispricing

Story1:17:39

The Brief Crypto Window When Traditional Traders Could Print Money

Pandemic-era crypto markets combined rapid technical experimentation with retail-dominated order flow and regulatory barriers that limited professional arbitrage. Traditional market makers could transfer established skills into a far less efficient arena, but collapsing liquidity around Luna and other leveraged failures signaled that the opportunity window had closed.

Crypto experienced a rapid expansion of protocols and trading activity
Regulatory limits kept many professional firms out
Traditional market-making skills transferred unusually well
The Luna collapse and disappearing liquidity ended many easy opportunities

“it was an absolutely Cambrian explosion of activity.”
Corey Hoffstein · 1:17:48

“It was a game of musical chairs, right, and the music had stopped playing”
Corey Hoffstein · 1:21:43

#crypto#market making#luna#arbitrage

Story1:22:30

A New Father's Perspective After a Nine-Foot Storm Surge

After moving to the Tampa area, Hoffstein's home suffered severe hurricane damage, his car was totaled, and nearby restaurants and houses were destroyed by the storm surge. He frames the losses against the safety of his family and the joy of becoming a father.

The first floor of his rented home was destroyed
A storm surge devastated the surrounding neighborhood
Contaminated seawater damaged homes, gardens, and businesses
Family safety and fatherhood reshaped his perspective on the losses

“Our first floor of our house got completely destroyed, my car got totaled.”
Corey Hoffstein · 1:23:09

“It's all overshadowed by how amazing being a father is.”
Corey Hoffstein · 1:23:16

#hurricane#fatherhood#florida#resilience

Takeaway· 3

Takeaway1:02:01

An Investment Product Is More Than the Sum of Its Returns

Hoffstein explains that product design must account for the utility investors actually value, not just mathematically optimal returns. High-dividend funds remain popular because regular cash distributions provide consistency and convenience, even when investors could synthesize withdrawals more efficiently themselves.

Return optimization is only one component of product-market fit
Investors value convenience, consistency, and understandable cash flows
A mathematically inferior structure can deliver greater practical utility
Product designers should understand behavior before trying to educate it away

“an investment product is more than the sum of its returns.”
Corey Hoffstein · 1:02:13

“That actually has really good product market fit for what the end buyer wants.”
Corey Hoffstein · 1:03:21

#product design#dividends#investor behavior#etfs

Takeaway1:27:25

Why a Weekly Dungeons & Dragons Game Became a Creative Lifeline

Despite running a growing business and raising a young child, Hoffstein protects three hours each week for a long-running industry Dungeons & Dragons group. He values the game as collaborative storytelling in which an evolving world, player decisions, and random dice outcomes jointly create the narrative.

The group has played weekly for five years
The game provides protected social and creative time
A game master builds a world that adapts to player choices
Dice introduce randomness into collaborative storytelling

“Dungeons and Dragons is really a collaborative storytelling.”
Corey Hoffstein · 1:27:49

“I get to collaborate and be a creative part of the story creation.”
Corey Hoffstein · 1:28:33

#creativity#dungeons and dragons#storytelling#community

Takeaway1:28:51

Quant Finance Is an Apprenticeship Industry, Not a Solo Pursuit

Hoffstein says he underestimated how much niche investing depends on wisdom accumulated through direct practice. A hands-on mentor could have accelerated his development across research, regulation, product construction, client behavior, and market microstructure while reducing the risk of an early career-ending mistake.

Technical education does not replace practitioner experience
Mentorship can prevent performance and business mistakes
Investment roles combine markets, regulation, products, and client behavior
Trying to master every facet alone creates survival risk

“I think one of the mistakes I made early in my career is not appreciating how much of an apprenticeship industry.”
Corey Hoffstein · 1:28:55

“I would have gotten there a lot faster if I had found a hands on mentor and understood that this is an apprenticeship industry.”
Corey Hoffstein · 1:31:27

#mentorship#quant finance#career advice#apprenticeship

Frameworks in this episode

Liquidity Cascade Model

Play the Game on Easy Mode

Return Stacking

Risk Transformation Lens

Insights & moments

⚡Myth Buster· 1

Backtests Are Not Inherently Bad—Marketing Abuse Is the Problem

◆Hot Take· 1