Basic Factor Analysis: Simple Tools to Understand What Drives Performance
Investors should know what they are buying and why they are buying it. Unfortunately, more often than not, investment products are jammed down the throats [...]
Exploring Employee Satisfaction and Stock Performance
Recapping Older Ideas on Socially Responsible Investments Back in 1970, Milton Friedman wrote an article for the New York Times Magazine that outlined his views [...]
Daily Academic Alpha: High Lobby Efforts Equal Alpha?
Corporate Lobbying and Firm Performance Corporate lobbying activities are designed to influence legislators, regulators and courts, presumably to encourage favorable policies and/or outcomes. In dollar [...]
From the Frontlines to Finance: How the Marines Shaped Our Investment Philosophy
Serving in the Marine Corps was an unforgettable experience. Civilians often tell us “thank you for your service”; however, the real “thanks” is due to the Corps for giving us valuable life lessons. The not-so subtle teachings bestowed upon us by heavily muscled, insanely aggressive Marine Corps Drill Sergeants are still, literally, ringing in our ears: “Listen here, pond scum, you better run faster, shoot straighter, and decide quicker if you are going to win in battle!” Years later, we would test that theory in real-time, battling insurgents in Iraq. As we trade in our flak jackets for laptops and neckties, the lessons learned in combat and are not only relevant, but vital on the battlefield of high finance. Four core lessons apply to frontlines and finance: Humans Are Emotional: Systematic processes beat behavioral bias; Rambo isn't Realistic: Act based on evidence, not on stories; Complacency Kills: Focus on fundamentals and never stop learning; Integrity is Everything: Do things right and do the right thing.
The Risks of Owning an Individual Stock
How risky is it to buy an individual stock? This is a question investors should ask themselves when deciding to buy a single stock. However, many [...]
Where are the Cheap High Quality Value Stocks?
Here is a snapshot of a model portfolio built on the Quantitative Value philosophy. Note: we exclude financials in our analysis, so by construction they have [...]
Tactical Asset Allocation: Beware of Geeks Bearing Formulas
How Should I Tactically Allocate my Assets? A lot of investors ask this question as their wealth grows and the number of financial products grows exponentially. [...]
Daily Academic Alpha: Which Trend if Your Friend?
Which Trend Is Your Friend? Managed-futures funds (sometimes called CTAs) trade predominantly on trends. There are several ways of identifying trends, either using heuristics or [...]
What Drives the S&P 500 Equal-Weight Return Premium?
A recent academic paper, Equal or Value Weighting? Implications for Asset-Pricing Tests, highlights two methods of weighting: Equal-weight and Value weight. As the paper states: With monthly rebalancing, an equal-weighted [...]
Quant Geek Weekend Homework: Academic Finance Research
Recently Discovered Academic Finance Research You Might Have Missed: Post-discovery Performance: Will Anomalies Fade Away After Discovery? (Qu, Lu, Sun and Yan) The Search for Crisis [...]
Performance Attribution for Active ETFs and Active Mutual Funds
Peter Hecht, Ph.D., a fellow Chicago Finance PhD, and vice president of Evanston Capital Management, recently posted an article introducing a practical solution for active portfolios return attribution: [...]
Currency Investing Research: Good Carry, Bad Carry
Good Carry, Bad Carry Bekaert and Panayotov A version of the paper can be found here. Want a summary of academic papers with alpha? Check out [...]
Book Review – Competition Demystified: a Radically Simplified Approach to Business Strategy
We've spent a lot of time these days thinking about how to identify economic moat, or a firm's ability to defend against competitive forces in [...]
Momentum Investing: Skewness-enhanced Momentum Yields Double Alpha
Expected Skewness and Momentum Jacobs, Regele and Weber A version of the paper can be found here. Want a summary of academic papers with alpha? Check [...]
Quant Geek Weekend Homework: Academic Finance Research
Recently Discovered Academic Finance Research You Might Have Missed: The Five-Factor Fama-French Model: International Evidence (Nusret Cakici) Doubt on Five-Factor Fama-French Model: Is it Just in [...]
Daily Academic Alpha: Dude, Where’s my Alpha?
Seeking Alpha? It's a Bad Guideline for Portfolio Optimization Alpha is the most popular measure for evaluating the performance of both individual assets and funds. [...]
How to Combine Value Investing and Momentum Investing (Part 2/2)
We find that sorting stocks on value and then momentum has been a historically successful strategy. However, sorting stocks on value and then quality, which is inline with a fundamental value philosophy, works just as well, if not better. We hypothesize that the "momentum" effect identified within the cheap stocks bucket, is really a proxy for strong fundamentals and positive operational momentum among the cheapest, highest quality value stocks. Our preference--based on empirical and philosophical grounds--is to go with a more "pure" value philosophy that focuses on buying the cheapest, highest quality value stocks, as opposed to a muddled value approach that buys the cheapest, highest momentum value stocks.
Value Investing Research: Simple Methods to Improve the Piotroski F-Score
Executive Summary In this article, we identify how we can improve the performance of the F-Score and enhance a generic value investing approach. In a [...]
Daily Academic Alpha: Credit Spreads and Stock Returns
The Term Structure of Credit Spreads and the Cross-Section of Stock Returns We explore the link between credit and equity markets by considering the informational [...]
A Unique Insider Trading Signal that Generates Alpha
Insider Trading Patterns Cicero and Wintoki A version of the paper can be found here. Want a summary of academic papers with alpha? Check out our Academic [...]