Quant Mashup - Investor\'s Field Guide
Alpha or Assets [Investor's Field Guide]
More and more investors are buying “factor” based strategies which invest using measures like valuation and low volatility, but the most popular strategies are applying factors in the wrong way. Strategies should be built for alpha, not scale—but the asset management industry has gone in the
- 7 years ago, 8 Apr 2016, 03:02pm -
The More Unique Your Portfolio, The Greater Its Potential [Investor's Field Guide]
If there is a lot of overlap between your portfolio and the market, there is only so much alpha you can earn. This is obvious. Still, when you visualize this potential it sends a powerful message. Active share—the preferred measure of how different a portfolio is from its benchmark—is not a
- 8 years ago, 22 Mar 2016, 02:47pm -
When Measures Become Targets: How Index Investing Changes Indexes [Investor's Field Guide]
In Vietnam, under French colonial rule, there was a rat problem. To solve the rat infestation, the French offered a bounty on rats, which could be collected by delivering a rat’s tail as proof of murder. Many bounties were paid out, but the rat problem didn’t improve. Officials soon noticed rats
- 8 years ago, 8 Mar 2016, 03:38am -
Will You Be a Gambler or the House In the Stock Market? [Investor's Field Guide]
Blackjack odds are as good as you’ll get at most casinos. In most cases, the casino has just a 1% edge versus the gambler. So in a given night, you can go on a great run and win a lot of money playing blackjack. But of course if you played every day, all day, your odds of a sustained run steadily
- 8 years ago, 19 Feb 2016, 12:42pm -
Stocks That Triple In One Year [Investor's Field Guide]
There have been 1,700 individual U.S. stocks (with starting market caps of at least $200MM, inflation adjusted) which have tripled in a 12-month period since 1962. Many of these individual stocks tripled in more than one 12-month period, so we have 7,500 or so separate observations of a stock
- 8 years ago, 7 Feb 2016, 01:31am -
The Few Rule the Many — Power Laws in Market Returns [Investor's Field Guide]
As index investing has grown in popularity, investors focus more and more on the market’s overall return and less on the return of its component parts (individual stocks). But underneath the hood of each market index we find many inequalities. The top 20% of stocks represent 85% of the overall
- 8 years ago, 23 Jan 2016, 10:20pm -
Three Value Investors Meet in a Bar [Investor's Field Guide]
Bill, Ernie and Sam—three lifelong value investors—met in a bar on November 30th, 2015. Bill was despondent. He’d underperformed the market by -47% over the past 10-years and was questioning his very belief in value. Ernie was happier. He’d done poorly in 2015, but over the last ten years
- 8 years ago, 29 Dec 2015, 10:31pm -
ZIRP, And The Factors That Launched 1,000 ETFs [Investor's Field Guide]
The rise of smart beta–or more broadly, factor investing–has coincided with a 6 year period of zero interest rates. During this period, factors have been particularly ineffective relative to longer term results. Using publicly-available data (Ken French) we can explore the recent results for the
- 8 years ago, 22 Dec 2015, 07:50pm -
Momentum Deterioration, Crashes, and Prospects [Investor's Field Guide]
In this piece, I’ll explore the momentum factor in some detail, mainly because of the excellent article by @jesse_livermore on the dangers of back-testing and the recent deterioration in the momentum factor. As Jesse did, I’ll use Fama French data because its publicly available, even though I
- 8 years ago, 15 Dec 2015, 06:29pm -
Benchmark Oddities [Investor's Field Guide]
Imagine two NBA teams. Team one starts Anthony Davis, Russell Westbrook, Stephen Curry, Kevin Durant, and James Harden. Team two starts Hassan Whiteside, DeMarcus Cousins, Brook Lopez, Marc Gasol, and Nikola Vucevic. Who wins? The two teams above determined by a stat called PER (player efficiency
- 8 years ago, 28 Oct 2015, 06:58pm -
High Conviction Buybacks [Investor's Field Guide]
Large U.S. companies spent nearly half a trillion dollars on net buybacks (cash spent on buybacks less cash raised through issuance) during the 12 months ending 6/30/2015. That’s almost as much as the buyback peak in 2007, which didn’t turn out too well. Scary! But hold on. Something that gets
- 8 years ago, 17 Jul 2015, 11:04pm -
Buyback Extravaganza [Investor's Field Guide]
When important people on Wall Street and Capitol Hill are actively criticizing an aspect of corporate America, we’d better take notice. Share buybacks—the open market repurchase of a company’s shares by the company itself—have been under a lot of fire. The amount spent on buybacks is
- 8 years ago, 16 Jun 2015, 06:34pm -
Using the Price to Sales Ratio [Investor's Field Guide]
Price to sales is a very simple valuation ratio. It has the tendency to bias you towards lower margin and higher debt companies, all else equal, but it has still been a very effect measure of cheapness and a fine standalone factor for stock selection. Having explored the history of the ratio,
- 8 years ago, 13 Jun 2015, 04:37am -
Lessons from Market Extremes [Investor's Field Guide]
We know that markets overdo it at extremes. At the market level, we call these bubbles or manias, panics or crashes. At the stock level, we call them glamour and value. Let’s collect some lessons from the best performing stocks from the two categories where investors have the most extreme (good or
- 8 years ago, 9 Jun 2015, 02:33pm -
Using the Price-to-Book Ratio [Investor's Field Guide]
Having explored the history of the price-to-book ratio, we can now turn to its usefulness as a stock selection criterion. The data suggests a few important points about the price-to-book ratio: It has worked quite nicely in small-cap It has not worked as well in large-cap stocks Price-to-book
- 8 years ago, 27 May 2015, 01:22pm -
O’Doul’s Part 2 [Investor's Field Guide]
I posted the other day about fundamental indexation being the O’Doul’s of value investing, because it is just the first step away from a market cap weighted index and towards a more differentiated value portfolio. I received lots of emails about the post, so figured I would spend more than 20
- 8 years ago, 13 May 2015, 04:33pm -
Is Being Different Better? Dispersion and Active Management [Investor's Field Guide]
Beating the market very obviously requires performance that is different than the market, which in turn requires portfolio holdings that are themselves different from the market. "Active Share"-or the percent of your portfolio which does not overlap with your relevant market benchmark
- 8 years ago, 30 Apr 2015, 03:00pm -