Tag Archives: value

Quant investing: making momentum tolerable

For today’ s post and the next few I’ll be going back to my favorite topic, quant investing. In this post I want to explore pure momentum quant portfolios and in particular ways to make pure momentum investing tolerable and implementable to more investors. Note: for a refresher on momentum and its power (arguably the most powerful factor in investing) see this great paper from AQR.  You may have noticed that none of the quant portfolios that I have presented on the blog are pure momentum strategies. Only two strategies, trending value and microcap trending value, use momentum to picks stocks … Continue reading

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Quant stock investing vs smart beta strategies

Factor based investing has become quite popular these days. Factors are characteristics of a group of stocks, the most famous being value and small cap, that are used to sort the overall universe of stocks. For quite some time certain factors have been shown to outperform the overall market over extended periods of time. The finance industry has jumped all over this and now offers many off the shelf funds and ETFs that aim to invest in these factors and outperform the market. There are about 400 Smart Beta funds now, totaling about $400B in assets. No need to do … Continue reading

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Quant investing: microcap trending value

After my last post updating quant system performance I realized I’ve never posted on one of the quant systems, the microcap trending value system. In this post I’ll describe the microcap trending value system, its historical performance, and a tweak from the O’Shaughnessy version of the system which improves performance. The top performing quant system, by annual return, from O’Shaughnessy’s What Works On Wall Street is the microcap trending value system. From the Table 28.1, page 597, from 1965 through 2009 the strategy returned 22.33% per year with a standard deviation of 20.38%, Sharpe ratio of 0.85, and a max … Continue reading

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When quant portfolios underperform

Any investment strategy that is not ‘the market’ will experience periods of under performance. Sometimes quite extended like value investing in the late 90s. How an investor handles those periods of underperformance goes a long way to determining whether they have any chance of outperforming the averages over time. In today’s post I want to highlight the recent under performance of one the best performing quant strategy from What Works on Wall Street. In my first post on quantitative investing I introduced the top quantitative investing strategies as presented in the book What Works on Wall Street by O’Shaughnessy. I focused … Continue reading

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What to do about poor future returns

There’s been a lot of chatter recently about asset valuations, in particular US stocks and US bonds, and their impact of future returns. This is nothing new. It just seems to get louder at the start of every new year. I’ve discussed this topic before on the blog. Last time here. Basically, my point was that we may indeed, in fact it’s probable, be facing poor future returns – a least for the next 10 years, but that doesn’t mean that the 4% SWR rule is dead. In fact the 4% SWR implies even worse returns than people are forecasting … Continue reading

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Improving the performance of quant value portfolios

Value investing holds the promise of great returns over the long run and appeals to many investor’s innate sense of value derived from their personal experiences. But value investing has a couple of key downsides that make it very hard for many investors to stick with the approach long enough to experience the promised great long term out performance. Big drawdowns and long periods of under performance are two of the big downsides of value investing. That begs the question if these issues can be mitigated or at least improved with the addition of other factors. In this post I’ll … Continue reading

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Quantitative Investing – Trending Value Strategy

Time to move on to the next quant strategy I want to highlight. This post will cover a strategy called Trending Value, aka the value stocks on the mend strategy. This strategy is the top ranked strategy by risk adjusted return (sharpe ratio) in the book What Works On Wall Street. This strategy shows the power of combining the three market factors that have been proven to outperform over time; size, value, and momentum. Actually you get two strategies out of this one since you start out with a powerful value screen. With the basics we learned in the previous … Continue reading

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Getting Started with Quantitative Investing

In my last post I introduced Quantitative Investing as a stock investment strategy with great results and low effort. Here I want to show you how you can get started getting familiar with the process involved and the basic mechanics of implementing a quant strategy by using value stocks as an example. First, if you’re seriously interested in quant investing you need to buy yourself the book What Works on Wall Street. The book will give you all the basics on hundreds of quant strategies, how they perform, what their risk is, etc… All the strategies I that I mentioned in the last post … Continue reading

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Introduction To Quantitative Investing

What if I could introduce you to an investment style for equities that can soundly beat the market over time and only requires a few days a year of work? Interested? I thought so. Today I want to introduce you to Quantitative Investing and why you should consider incorporating it into your investment portfolio. Quantitative Investing is a fancy term for systematic, structured investing that automates buy and sell decisions. It represents a combination of passive and active investing. Other terms for it are automatic investing or computerized investing. Many investors are familiar with some very infamous stories of quantitative investing gone … Continue reading

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Beating the market to maximize retirement income – part II

A while back I wrote about some historical analysis I had done that showed several ways that an investor could achieve market beating returns and thus maximize retirement income. It has been known for a long time that several ‘factors’ or characteristics of stocks generate market beating returns. The two classic factors are value and size. Value stocks outperform the market over long periods of time. Small cap stocks outperform as well. The third and newest factor, at least relative to value and size, is momentum. I also showed that contrary to efficient market theory these extra returns do not … Continue reading

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