Quantitative Value

Quantitative Value : A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors + Web Site

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A must-read book on the quantitative value investment strategy Warren Buffett and Ed Thorp represent two spectrums of investing: one value driven, one quantitative. Where they align is in their belief that the market is beatable. This book seeks to take the best aspects of value investing and quantitative investing as disciplines and apply them to a completely unique approach to stock selection. Such an approach has several advantages over pure value or pure quantitative investing. This new investing strategy framed by the book is known as quantitative value, a superior, market-beating method to investing in stocks. Quantitative Value provides practical insights into an investment strategy that links the fundamental value investing philosophy of Warren Buffett with the quantitative value approach of Ed Thorp. It skillfully combines the best of Buffett and Ed Thorp weaving their investment philosophies into a winning, market-beating investment strategy.
* First book to outline quantitative value strategies as they are practiced by actual market practitioners of the discipline * Melds the probabilities and statistics used by quants such as Ed Thorp with the fundamental approaches to value investing as practiced by Warren Buffett and other leading value investors * A companion Website contains supplementary material that allows you 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's markets, look no further than Quantitative Value.
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Product details

  • Hardback | 288 pages
  • 150 x 242 x 26mm | 488g
  • New York, United States
  • English
  • 1. Auflage
  • 1118328078
  • 9781118328071
  • 147,503

Flap copy

Legendary investment gurus Warren Buffett and Ed Thorp represent different ends of the investing spectrum: one a value investor, the other a quant. While Buffett and Thorp have conflicting philosophical approaches, they agree that the market is beatable. In "Quantitative Value, " Wesley Gray and Tobias Carlisle take the best aspects from the disciplines of value investing and quantitative investing and apply them to a completely unique and winning approach to stock selection. As the authors explain, the quantitative value strategy offers a superior way to invest: capturing the benefits of a value investing philosophy without the behavioral errors associated with "stock picking." To demystify their innovative approach, Gray and Carlisle outline the framework for quantitative value investing, including the four key elements of the investment process: How to avoid stocks that can cause a permanent loss of capital: Learn how to uncover financial statement manipulation, fraud, and financial distress How to find stocks with the highest quality: Discover how to find strong economic franchises and robust financial strength. Gray and Carlisle look at long-term returns on capital and assets, free cash flow, and a variety of metrics related to margins and general financial strength The secret to finding deeply undervalued stocks: Does the price-to-earnings ratio find undervalued stocks better than free cash flow? Gray and Carlisle examine the historical data on over 50 valuation ratios, including some unusual metrics, rare multi-year averages, and uncommon combinations The five signals sent by smart money: The book uncovers the signals sent by insiders, short sellers, shareholder activists, and institutional investment managers After detailing the quantitative value investment process, Gray and Carlisle conduct a historical test of the resulting quantitative value model. Their conclusions are surprising and counterintuitive. This reliable resource includes a companion website that offers a monthly-updated screening tool to find stocks using the model outlined in the book, an updated back-testing tool, and a blog about recent developments in quantitative value investing. For any investor who wants to make the most of their time in today's complex marketplace, they should look no further than "Quantitative Value."
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Back cover copy

""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
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Table of contents

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 Errors 23 The Power of Quantitative Value Investing 30 Notes 32 CHAPTER 2 A Blueprint to a Better Quantitative Value Strategy 35 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 Loss of Capital 61 CHAPTER 3 Hornswoggled! Eliminating Earnings Manipulators and Outright Frauds 63 Accruals and the Art of Earnings Manipulation 64 Predicting PROBMs 72 Notes 79 CHAPTER 4 Measuring the Risk of Financial Distress: How to Avoid 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 Business 93 CHAPTER 5 Franchises The Archetype of High Quality 95 The Chairman s Secret Recipe 96 How to Find a Franchise 99 Notes 112 CHAPTER 6 Financial Strength: Foundations Built on Rock 113 The Piotroski Fundamentals Score (F-SCORE) 114 Our Financial Strength Score (FS-SCORE) 119 Comparing the Performance of Piotroski s F-SCORE and Our 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 Earning Power 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 the Signals 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&P 500 Close 187 Sustainable Alpha: A Framework for Assessing Past Results 189 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
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About Wesley R. Gray

WESLEY R. GRAY, PhD, is the founder and executive managing member of Empiritrage, LLC, an SEC-registered investment advisor; and Turnkey Analyst, LLC, a firm dedicated to educating and sharing quantitative investment techniques to the general public. He is also an assistant professor of finance at Drexel University's LeBow College of Business, where his research focus is on value investing and behavioral finance. Professor Gray teaches graduate-level investment management and a seminar on hedge fund strategies and operations. His professional and leadership experiences include over fourteen years building systematic trading systems, trading special situations, and service as a U.S. Marine Corps intelligence officer (Captain) in Iraq and various posts in Asia. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago Booth School of Business. He graduated magna cum laude with a BS in economics from the Wharton School, University of Pennsylvania. TOBIAS E. CARLISLE, LLB, is the founder and managing member of Eyquem Investment Management LLC, portfolio manager of the Eyquem Fund LP, and the author of the award-winning website greenbackd.com, which covers deep value, contrarian, and activist investment strategies. He has extensive experience in activist investment, 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 counsel of a company listed on the Australian Stock Exchange, and a corporate advisory lawyer. As a lawyer specializing in mergers and acquisitions, he has advised on transactions across a variety of industries in the United States, the United Kingdom, China, Australia, Singapore, Bermuda, Papua New Guinea, New Zealand, and Guam, ranging in value from $50 million to $2.5 billion. He is a graduate of the University of Queensland in Australia with degrees in law and business (management).
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Rating details

433 ratings
4.23 out of 5 stars
5 47% (204)
4 33% (145)
3 16% (70)
2 3% (11)
1 1% (3)
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