By Steven P. Greiner
Innovative insights on growing types to help you turn into a disciplined clever investor
The pioneer of worth making an investment, Benjamin Graham, believed in a philosophy that is still by way of a few of modern-day so much profitable traders, akin to Warren Buffett. a part of this philosophy contains adhering for your inventory choice technique come "hell or excessive water" which, in his view, was once probably the most vital points of investing.
So, if a quant designs and implements mathematical versions for predicting inventory or industry activities, what higher technique to stay aim, then to speculate utilizing algorithms or the quantitative procedure? this is often precisely what Ben Graham was once a Quant will assist you to do. establishing with a quick historical past of quantitative making an investment, this publication fast strikes directly to concentrate on the elemental and monetary components utilized in identifying "Graham" shares, reveal the best way to try out those elements, and speak about tips to mix them right into a quantitative model.
- Reveals the way to create customized displays in accordance with Ben Graham's equipment for safeguard selection
- Addresses what it takes to discover these components such a lot influential in forecasting inventory returns
- Explores the best way to layout types in accordance with different types and overseas strategies
If you need to develop into a greater investor, you would like sturdy insights and the correct assistance. With Ben Graham was once a Quant, you will obtain this and lots more and plenty extra, as you the right way to create quantitative versions that stick with within the footsteps of Graham's price philosophy.
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Additional info for Ben Graham Was a Quant: Raising the IQ of the Intelligent Investor (Wiley Finance)
Sample text
The Danish philosopher, Kirkegaard made the statement that life can only be judged in reverse but it must be lived forwards. 11 The reason we review this statement is because it should not be thought of as a coffin nail to those who would criticize the use of a normal curve to examine past data or as criticism for modeling regularly observed events. Understanding the statistical interpretation of a time series of past data is not related to the philosophical underpinnings of such a statement. Graham also purported and even had in his lecture notes the example of a stock reaching new highs; after a while it goes down to levels below previous highs, and you can take this example as a warrant for purchasing securities based on past or historical histories, at lower prices than the current high.
However, 12-month past-earnings 24 BEN GRAHAM WAS A QUANT growth fails miserably at being a forecaster of future return. We will see that Graham liked to see earnings growth, but he examined it over years, not over simple 12-month measures. In this case, 12-month past-earnings growth is probably a risk factor because it regresses well with future return statistically, but offers little in the way of alpha. Generally any alpha factor that has been working for a long period of time becomes discovered by the market and ultimately arbitraged away and reduced in status to being a risk factor.
Because ultimately you will be building a model from several factors, you would like the return time series from each factor to be as independent from one another as possible. Just as diversification of stocks offers lower risk in the portfolio, choosing stocks from differing alpha sources also diversifies risks and, in fact, the two diversification methods are related. Though complete disconnect is impossible using economic or financial-statement variables to model security returns, it is wise to choose one’s variables from diverse categories like valuation, profitability, cash flow, momentum, fundamentals, growth, and capital allocation.