I’m excited to announce that the book Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (hardcover, 288 pages, Wiley Finance) is now available.
In Quantitative Value, we make the case for quantitative value investment in stock selection and portfolio construction. Our rationale is that quantitative value investing assists us to defend against our own behavioral errors, and exploit the errors made by others. We examine in detail industry and academic research into a variety of fundamental value investing methods, and simple quantitative value investment strategies. We then independently backtest each method, and strategy, and combine the best into a new quantitative value investment model.
In Quantitative Value we begin our investigation by examining two simple quantitative value investment strategies: one suggested by the great value investor and philosopher Benjamin Graham, and the other Joel Greenblatt’s Magic Formula, and ask if there are simple ways to improve upon them.
We conduct our investigation along four broad lines:
- How to identify and avoid stocks at the highest risk of sustaining a permanent loss of capital, including those exhibiting financial statement manipulation, fraud, or financial distress (e.g. bankruptcy)
- How to find stocks of the highest quality, which we define as those possessing an economic franchise, and superior financial strength
- Which price ratios (e.g. price-to-book value or price-to-earnings) best identify undervalued stocks and lead to the best risk-adjusted investment performance? We look at several unusual implementations of price ratios, including long-term averages and combinations of price ratios
- Which signals sent by other market participants identify stocks primed for performance? We look at the impact of buybacks, insider purchases, short selling, and buying and selling from institutional investment managers and activists.
We examine the best way to structure our findings into a cohesive strategy, and then backtest the resulting quantitative value model. We compare the performance of our quantitative value model with the performance of several well-known value investing mutual funds.
What people are saying
Quantitative Value is a must-read for those with a love of value investing and a desire to make the investment process less ad-hoc.
—Tony Tang, PhD, Global Macro Researcher and Portfolio Manager, AQR Capital Management
If you liked The Little Book that Beats the Market, you will love Quantitative Value. Gray and Carlisle take systematic value-based investing to the next level.
—Raife Giovinazzo, PhD, CFA, Research Analyst in Scientific Active Equity, BlackRock, Inc.
Quantitative Value is the new guide to Graham-and-Doddsville. Gray and Carlisle synthesize the lessons of the great value investors to systematically identify high quality value stocks while avoiding common behavioral pitfalls.
—Tadas Viskanta, Founder and Editor, Abnormal Returns and author of Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere
Gray and Carlisle successfully bridge the gap between fundamental and quantitative value investing—an extremely worthy endeavor and, likewise, an extremely rewarding read.
—MacDuff Kuhnert, CFA, Quantitative Portfolio Manager, Causeway Capital Management LLC
Gray and Carlisle take you behind the curtains to build a black box based on the best value minds in finance. They combine academia’s best ideas with the ideas of Buffett, Graham, and Thorp, to develop a quant system that performs in markets both good and bad.
—Mebane Faber, author of The Ivy Portfolio, and Portfolio Manager for Cambria Investment Management, Inc.
A clear and concise vision of how the two dominant disciplines of modern investing (quant and value) can be combined in actionable ways that produce outsized returns over the market.
—Christopher Cole, CFA, Founder and Portfolio Manager, Artemis Capital Management LLC
An elegant synthesis of Warren Buffett’s value investment philosophy and Ed Thorp’s quantitative approach. Quantitative Value belongs on every investor’s bookshelf.
—Charles Mizrahi, Author of Getting Started in Value Investing and Editor of Hiddenvaluesalert.com
“We seek to marry Ed Thorp’s quantitative approach to Warren Buffett’s value investment philosophy.” That’s the approach we take in our Value Investing class at UC Davis and Quantitative Value will become required reading for our class. The book we wish we would have written!
—Lonnie J. Rush and Jacob L. Taylor, Managing Partners of Farnam Street Investments and Visiting Professors at UC Davis Graduate School of Management