CHAPTER 11
Quantitative Equity Portfolio Management
Andrew Alford, Ph.D. Managing Director Quantitative Investment Strategies Group Goldman Sachs Asset Management
Equity portfolio management has evolved considerably since Benjamin Graham and David Dodd published the original edition of their classic text on security analysis in 1934.206 For one, the types of stocks available for investment have shifted dramatically, from companies with mostly physical assets (such as railroads and utilities) to companies with mostly intangible assets (such as technology stocks and pharmaceuticals). Moreover, theories such as Modern Portfolio Theory and the Capital Asset Pricing Model, in conjunction with new data sources and powerful computers, have revolutionized the way investors select stocks, create portfolios, and execute trades. Consequently, what was once mostly an art is increasingly becoming a dynamically evolving science: Loose rules of thumb are being replaced by rigorous research and complex implementation.
Of course, these new advances, while greatly expanding the frontiers of finance, have not necessarily made it any easier for portfolio managers to beat the market. In fact, the increasing sophistication of the typical investor has probably made ...
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