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

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  • Format: Hardcover
  • Copyright: 12/26/2012
  • Publisher: Wiley
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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.

Author Biography

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).

Table of Contents




Part One: The Foundation of Quantitative Value

Chapter 1: The Paradox of Dumb Money

Value Strategies Beat the Market

How Quantitative Investing Protects Against Behavioral Errors

The Power of Quantitative Value Investing


Chapter 2: A Blueprint to a Better Quantitative Value Strategy

Greenblatt’s Magic Formula

It’s All Academic: Improving Quality and Price

Strategy Implementation: Investors Behaving Badly


Part Two: Margin of Safety – How to Avoid a Permanent Loss of Capital

Chapter 3: Hornswoggled! Eliminating Earnings Manipulators and Outright Frauds

Accruals and the Art of Earnings Manipulation

Predicting PROBMs


Chapter 4: Measuring the Risk of Financial Distress: How to Avoid the Sick Men of the Stock Market

A Brief History of Bankruptcy Prediction

Improving Bankruptcy Prediction

How We Calculate the Risk of Financial Distress

Scrubbing the Universe


Part Three: Quality – How to Find a Wonderful Business

Chapter 5: Franchises – The Archetype of High Quality

The Chairman’s Secret Recipe

How to Find a Franchise


Chapter 6: Financial Strength: Foundations Built on Rock

The Piotroski Fundamentals Score (F_SCORE)

Our Financial Strength Score (FS_SCORE)

Comparing the Performance of Piotroski’s F_SCORE and Our FS_SCORE

Case Study: Lubrizol Corporation


Part Four: The Secret to Finding Bargain Prices

Chapter 7: Price Ratios: A Horse Race

The Horses in the Race

Rules of the Race

The Race Call

A Price Ratio for All Seasons

The Official Winner


Chapter 8: Alternative Price Measures - Normalized Earning Power and Composite Ratios

Normalized Earning Power

Compound Price Ratios: Is the Whole Greater than the Sum of its Parts?


Part Five: Corroborative Signals

Chapter 9: Blue Horseshoe Loves Anacott Steel: Follow the Signals from the Smart Money

Stock Buybacks, Issuance and Announcements

Insider Traders Beat the Market

Activism and Cloning

Short Money is Smart Money


Part Six: Building and Testing the Model

Chapter 10: Bangladeshi Butter Production Predicts the S&P500 Close

Sustainable Alpha: A Framework for Assessing Past Results

What’s the Big Idea?

Rigorously Test the Big Idea

The Parameters of the Universe


Chapter 11: Problems with the Magic Formula

Glamour is Always a Bad Bet

Improving the Structure of a Quantitative Value Strategy

Our Final Quantitative Value Checklist


Chapter 12: Quantitative Value Beats the Market

Risk and Return


A Peek Inside the Black Box

Man versus Machine

Beating the Market with Quantitative Value


Appendix: Analysis Legend

About the Authors

About the Companion Website


Rewards Program

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