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

PART ONE

The Foundation of Quantitative Value

This book is organized into six main parts. Part One sets out the rationale for quantitative value investment and introduces our checklist. In it we examine several simple quantitative value strategies to illustrate some key elements of the investment process. In Part Two we discuss how to avoid stocks at high risk of sustaining a permanent loss of capital—those suffering from financial statement manipulation, fraud, and financial distress. Part Three contains an examination of the indicia of high-quality stocks—an economic franchise and superior financial strength. We go bargain hunting in Part Four, looking for the price ratios that best identify undervalued stocks and lead to the best risk-adjusted investment performance. We look at several unusual implementations of price ratios, including long-term average price ratios and price ratios in combination. Part Five sets out a variety of signals sent by other market participants. There we look at the impact of buybacks, insider purchases, short selling, and buying and selling from institutional investment managers like activists and other fund managers. Finally, in Part Six we build and test our quantitative value model. We study the best way to combine the research we've considered into a cohesive strategy, and then back-test the resulting quantitative value model.