Quantitative Value
A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors
Published on 29. November 2012
288 pages
978-1-118-42000-3 (ISBN)
Description
A must-read book on the quantitative value investmentstrategy
Warren Buffett and Ed Thorp represent two spectrums ofinvesting: one value driven, one quantitative. Where they align isin their belief that the market is beatable. This book seeks totake the best aspects of value investing and quantitative investingas disciplines and apply them to a completely unique approach tostock selection. Such an approach has several advantages over purevalue or pure quantitative investing. This new investing strategyframed by the book is known as quantitative value, a superior,market-beating method to investing in stocks.
Quantitative Value provides practical insights into aninvestment strategy that links the fundamental value investingphilosophy of Warren Buffett with the quantitative value approachof Ed Thorp. It skillfully combines the best of Buffett and EdThorp--weaving their investment philosophies into a winning,market-beating investment strategy.
* First book to outline quantitative value strategies as they arepracticed by actual market practitioners of the discipline
* Melds the probabilities and statistics used by quants such asEd Thorp with the fundamental approaches to value investing aspracticed by Warren Buffett and other leading value investors
* A companion Website contains supplementary material that allowsyou to learn in a hands-on fashion long after closing the book
If you're looking to make the most of your time in today'smarkets, look no further than Quantitative Value.
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Wesley R. Gray | Tobias E. Carlisle
Quantitative Value
A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors. + Web Site
Book
02/2013
Wiley
€81.00
Shipment within 15-20 days
Persons
WESLEY R. GRAY, PhD, is the founder and executivemanaging member of Empiritrage, LLC, an SEC-registered investmentadvisor; and Turnkey Analyst, LLC, a firm dedicated to educatingand sharing quantitative investment techniques to the generalpublic. He is also an assistant professor of finance at DrexelUniversity's LeBow College of Business, where his research focus ison value investing and behavioral finance. Professor Gray teachesgraduate-level investment management and a seminar on hedge fundstrategies and operations. His professional and leadershipexperiences include over fourteen years building systematic tradingsystems, trading special situations, and service as a U.S. MarineCorps intelligence officer (Captain) in Iraq and various posts inAsia. Dr. Gray earned an MBA and a PhD in finance from theUniversity of Chicago Booth School of Business. He graduated magnacum laude with a BS in economics from the Wharton School,University of Pennsylvania.
TOBIAS E. CARLISLE, LLB, is the founder and managingmember of Eyquem Investment Management LLC, portfolio manager ofthe Eyquem Fund LP, and the author of the award-winning websitegreenbackd.com, which covers deep value, contrarian, and activistinvestment strategies. He has extensive experience in activistinvestment, company valuation, public company corporate governance,and mergers and acquisitions law. Prior to founding Eyquem,Carlisle was an analyst at an activist hedge fund, general counselof a company listed on the Australian Stock Exchange, and acorporate advisory lawyer. As a lawyer specializing in mergers andacquisitions, he has advised on transactions across a variety ofindustries in the United States, the United Kingdom, China,Australia, Singapore, Bermuda, Papua New Guinea, New Zealand, andGuam, ranging in value from $50 million to $2.5 billion. He is agraduate of the University of Queensland in Australia with degreesin law and business (management).
Content
Preface xi
Acknowledgments xiii
PART ONE The Foundation of Quantitative Value 1
CHAPTER 1 The Paradox of Dumb Money 3
Value Strategies Beat the Market 9
How Quantitative Investing Protects against Behavioral Errors23
The Power of Quantitative Value Investing 30
Notes 32
CHAPTER 2 A Blueprint to a Better Quantitative Value Strategy35
Greenblatt's Magic Formula 36
It's All Academic: Improving Quality and Price 45
Strategy Implementation: Investors Behaving Badly 54
Notes 59
PART TWO Margin of Safety--How to Avoid a Permanent Lossof Capital 61
CHAPTER 3 Hornswoggled! Eliminating Earnings Manipulators andOutright Frauds 63
Accruals and the Art of Earnings Manipulation 64
Predicting PROBMs 72
Notes 79
CHAPTER 4 Measuring the Risk of Financial Distress: How toAvoid the Sick Men of the Stock Market 81
A Brief History of Bankruptcy Prediction 83
Improving Bankruptcy Prediction 85
How We Calculate the Risk of Financial Distress 86
Scrubbing the Universe 89
Notes 91
PART THREE Quality--How to Find a Wonderful Business93
CHAPTER 5 Franchises--The Archetype of High Quality95
The Chairman's Secret Recipe 96
How to Find a Franchise 99
Notes 112
CHAPTER 6 Financial Strength: Foundations Built on Rock113
The Piotroski Fundamentals Score (F_SCORE) 114
Our Financial Strength Score (FS_SCORE) 119
Comparing the Performance of Piotroski's F_SCORE andOur
FS_SCORE 122
Case Study: Lubrizol Corporation 123
Notes 126
PART FOUR The Secret to Finding Bargain Prices 127
CHAPTER 7 Price Ratios: A Horse Race 129
The Horses in the Race 130
Rules of the Race 133
The Race Call 134
A Price Ratio for All Seasons 141
The Offi cial Winner 142
Notes 143
CHAPTER 8 Alternative Price Measures--Normalized EarningPower and Composite Ratios 145
Normalized Earning Power 147
Compound Price Ratios: Is the Whole Greater than
the Sum of Its Parts? 150
Notes 163
PART FIVE Corroborative Signals 165
CHAPTER 9 Blue Horseshoe Loves Anacott Steel: Follow theSignals from the Smart Money 167
Stock Buybacks, Issuance, and Announcements 169
Insider Traders Beat the Market 173
Activism and Cloning 176
Short Money Is Smart Money 179
Notes 182
PART SIX Building and Testing the Model 185
CHAPTER 10 Bangladeshi Butter Production Predicts the S&P500 Close 187
Sustainable Alpha: A Framework for Assessing Past Results189
What's the Big Idea? 191
Rigorously Test the Big Idea 196
The Parameters of the Universe 206
Notes 208
CHAPTER 11 Problems with the Magic Formula 211
Glamour Is Always a Bad Bet 216
Improving the Structure of a Quantitative Value Strategy 218
Our Final Quantitative Value Checklist 222
Notes 228
CHAPTER 12 Quantitative Value Beats the Market 229
Risk and Return 231
Robustness 239
A Peek Inside the Black Box 249
Man versus Machine 257
Beating the Market with Quantitative Value 262
Notes 264
Appendix: Analysis Legend 265
About the Authors 267
About the Companion Website 269
Index 271
