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Archive for the ‘About’ Category

Searching for Rational Investors In a Perfect Storm: Value Investing Through 1999-2003

Posted in About, Value Investment, tagged on May 25, 2012 | 3 Comments »

Yesterday I covered a 2006 talk, “Journey Into the Whirlwind: Graham-and-Doddsville Revisited,” by Louis Lowenstein*, then a professor at the Columbia Law School, in which he compared the performance of a group of “true-blue, walk-the-walk value investors” and “a group of large cap growth funds”. Lowenstein based the talk on an earlier paper he had written “Searching for [...]

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The Superinvestors of Graham-and-Doddsville Revisited: Value Trounces Growth in Mutual Funds

Posted in About, Stocks, Strategy, Value Investment, Warren Buffett, tagged , on May 24, 2012 | Leave a Comment »

The Superinvestors of Graham-and-Doddsville is a well-known article (see the original Hermes article here.pdf) by Warren Buffett defending value investing against the efficient market hypothesis. The article is an edited transcript of a talk Buffett gave at Columbia University in 1984 commemorating the fiftieth anniversary of Security Analysis, written by Benjamin Graham and David L. Dodd. In a 2006 [...]

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Dividend Yield Doesn’t Work, What Does? Three Key Conclusions

Posted in About, Stocks, Strategy, tagged on May 23, 2012 | 1 Comment »

A recent study by Wes Gray and Jack Vogel, Dissecting Shareholder Yield, makes the stunning claim that dividend yield doesn’t predict future returns, but more complete measures of shareholder yield might hold some promise. Gray and Vogel say that, ”regardless of the yield metric chosen, the predictive power of separating stocks into high and low yield portfolios [...]

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Man versus Magic Formula: Joel Greenblatt’s Value Investors’ Club vs his Little Book

Posted in Quantitative investment, Stocks, Strategy, tagged , , on May 22, 2012 | 1 Comment »

The only fair fight in finance: Joel Greenblatt versus himself. In this instance, it’s the 250 best special situations investors in the US on Joel’s special situations site valueinvestorsclub.com versus his Magic Formula. Wes Gray and crew at Empiritrage have pumped out some great papers over the last few years, and their Man vs. Machine: Quantitative [...]

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How To Beat Most Active Managers: A Performance Analysis of Fundamental Indexation With Different Price Ratios

Posted in Behavioral economics, Quantitative investment, Stocks, Strategy, tagged , , on May 21, 2012 | 1 Comment »

The rationale for a value-weighted index can be paraphrased as follows: Most investors, pro’s included, can’t beat the index. Therefore, buying an index fund is better than messing it up yourself or getting an active manager to mess it up for you. If you’re going to buy an index, you might as well buy the best one. An index based on the market capitalization-weighted [...]

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Chart of Equal-Weight S&P500 Index vs Market Capitalization-Weight Index

Posted in About, Behavioral economics, Stocks, Strategy, tagged , , , on May 18, 2012 | Leave a Comment »

It’s a year old, but it’s still sweet. A chart from Tom Brakke’s Research Puzzle pix comparing the performance of the S&P500 and its equal weight counterpart from 2000 to March 2011: Tom thinks the phenomenon might reverse: At some point, however, this trade will flip back in a major way and the market-weighted indexes will [...]

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Why Does an Equal-Weighted Portfolio Outperform Market Capitalization- and Price-Weighted Portfolios?

Posted in About, Behavioral economics, Contrarian investment, Stocks, tagged , on May 17, 2012 | 1 Comment »

Yesterday I took a look at the different ways of structuring an index suggested by Joel Greenblatt. Greenblatt finds that an equal-weight portfolio far outperforms a market capitalization weight portfolio. And for good reason. Greenblatt says that market cap weighted indexes suffer from a systematic flaw – they increase the amount they own of a particular [...]

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Equal Weight and Fundamental Indexing Beats The Market

Posted in About, Behavioral economics, Quantitative investment, Stocks, Strategy, Value Investment, tagged , , , on May 16, 2012 | 3 Comments »

Joel Greenblatt’s rationale for a value-weighted index can be paraphrased as follows: Most investors, pro’s included, can’t beat the index. Therefore, buying an index fund is better than messing it up yourself or getting an active manager to mess it up for you. If you’re going to buy an index, you might as well buy the best one. An index based [...]

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Value-Weighted Indexing: The Problem with Active Management

Posted in Behavioral economics, Stocks, Value Investment, tagged , on May 15, 2012 | 4 Comments »

Joel Greenblatt’s rationale for a value-weighted index can be paraphrased as follows: Most investors, pro’s included, can’t beat the index. Therefore, buying an index fund is better than messing it up yourself or getting an active manager to mess it up for you. If you’re going to buy an index, you might as well buy the best one. An index based [...]

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Joel Greenblatt’s solution to value investors’ behavioral errors

Posted in About, Behavioral economics, Quantitative investment, Stocks, Strategy, tagged , , on May 14, 2012 | 2 Comments »

Last week I looked at James Montier’s 2006 paper The Little Note That Beats The Market and his view that investors would struggle to implement the Magic Formula strategy for behavioral reasons, a view borne out by Greenblatt’s own research. This is not a criticism of the strategy, which is tractable and implementable, but an observation on how pernicious our [...]

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