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Archive for the ‘Quantitative investment’ Category

An examination of the “Profit and Value” strategy

Posted in About, Quantitative investment, Stocks, tagged , , , on June 21, 2011 | 25 Comments »

The excellent Empirical Finance Blog has a superb series of posts on an investment strategy called “Profit and Value” (How “Magic” is the Magic Formula? and The Other Side of Value), which Wes describes as the “academic version” of Joel Greenblatt’s “Magic Formula.” (Incidentally, Greenblatt is speaking at the New York Value Investors Congress in October [...]

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Quant funds don’t perform like a good quant fund should

Posted in About, Quantitative investment, Stocks, tagged on August 5, 2010 | 5 Comments »

I burned some digital ink on these pages discussing the utility of quantitative investment processes over more qualitative approaches. The thesis was, in essence, as follows: Simple statistical models outperform the judgements of the best experts Simple statistical models outperform the judgements of the best experts, even when those experts are given access to the simple [...]

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A tide in the affairs of men

Posted in About, Quantitative investment, Stocks, Value Investment, tagged , on March 31, 2010 | 11 Comments »

In A Crisis In Quant Confidence*, Abnormal Returns has a superb post on Scott Patterson’s recounting in his book The Quants of the reactions of several quantitative fund managers to the massive reversal in 2007: In 2007 everything seemed to go wrong for these quants, who up until this point in time, had been coining profits. This inevitably [...]

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How P/E juices P/B returns

Posted in About, Quantitative investment, Stocks, Value Investment, tagged , , on March 1, 2010 | 3 Comments »

As I’ve discussed in the past, P/B and P/E are demonstratively useful as predictors of future stock returns, and more so when combined (see, for example, LSV’s Two-Dimensional Classifications). As Josef Lakonishok, Andrei Shleifer, and Robert Vishny showed in Contrarian Investment, Extrapolation, and Risk, within the set of firms whose B/M ratios are the highest (in other [...]

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Dreaming of electric sheep

Posted in About, Behavioral economics, Quantitative investment, Stocks, tagged , on February 25, 2010 | 2 Comments »

One of the most interesting ideas suggested by Ian Ayers’s book Super Crunchers is the role of humans in the implementation of a quantitative investment strategy. As we know from Andrew McAfee’s Harvard Business Review blog post, The Future of Decision Making: Less Intuition, More Evidence, and James Montier’s 2006 research report, Painting By Numbers: An Ode To Quant, in context [...]

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Quantifying qualitative factors

Posted in About, Quantitative investment, Stocks, Value Investment, tagged , , on February 23, 2010 | 7 Comments »

I’ve just finished Ian Ayres’s book Super Crunchers, which I found via Andrew McAfee’s Harvard Business Review blog post, The Future of Decision Making: Less Intuition, More Evidence (discussed in Intuition and the quantitative value investor). Super Crunchers is a more full version of James Montier’s 2006 research report, Painting By Numbers: An Ode To Quant, providing several [...]

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Walking the talk: Applying back-tested investment strategies in practice

Posted in About, Behavioral economics, Contrarian investment, Liquidation Value, Net Current Asset Value, Net Quick Stocks, Quantitative investment, Stocks, Value Investment, tagged , , , , , , , , on February 17, 2010 | 8 Comments »

Aswath Damodaran, a Professor of Finance at the Stern School of Business, has an interesting post on his blog Musings on Markets, Transaction costs and beating the market. Damodaran’s thesis is that transaction costs – broadly defined to include brokerage commissions, spread and the “price impact” of trading (which I believe is an important issue [...]

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The trend is your end.

Posted in About, Behavioral economics, Quantitative investment, Stocks, Value Investment, tagged , , on January 28, 2010 | 4 Comments »

In “Black box” blues I argued that automated trading was a potentially dangerous element to include in a quantitative investment strategy, citing the “program trading / portfolio insurance” crash of 1987. When the market started falling in 1987 the computer programs caused the writers of derivatives to sell on every down-tick, which some suggest exacerbated the crash. Here’s New [...]

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“Black box” blues

Posted in About, Quantitative investment, Stocks, tagged on January 26, 2010 | 6 Comments »

One of the major concerns with quantitative investing is that the “black box” running the portfolio suddenly goes Skynet and destroys the portfolio. It raises an interesting distinction between “quantitative investing” as I intend it and as it is often perceived. For many, the word “quantitative” in relation to investing suggests two potentially dangerous elements: [...]

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Research comparing the performance of quantitative and qualitative hedge funds

Posted in About, Quantitative investment, Stocks, Value Investment, tagged , on January 18, 2010 | 1 Comment »

Recently I’ve been laying the groundwork for a quantitative approach to value investment. The rational is as follows: simple quantitative or statistical models outperform experts in a variety of disciplines, so why not investing in general, and why not value investing in specific? Well, it seems that they do. A new research paper argues that quantitative [...]

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