Back from holiday, refreshed and raring to go, I thought I would share my musings on some light pool-side reading. As it was recently recommended to me, I picked up a copy of ‘Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors’ by Wesley Gray and Tobias Carlisle. Easy to read and concise, the book succeeds in conveying the authors’ findings to a wide audience without detracting from the quality of the research performed.
Content Summary
Setting the scene with a charming story of a game of bridge between Warren Buffett and Ed Thorp in 1968, the book introduces the reader to a brief history of both quantitative and value investment strategies and outlines the premise for the combination of the two. Building on this foundation, the book wastes no time in setting out the line of thinking and findings of the authors. Briefly, the broad topics are as follows:
- A discussion of why quantitative strategies are most suited to the majority of investors and an analysis of one of the best known – Greenblatt’s Magic Formula.
- Consideration of why performance should be improved by shifting return distributions to the right and an investigation of how best to do this.
- Research into the effects of quality on investment returns and testing the most appropriate way to incorporate it into a quantitative strategy.
- A comparison between different methods of establishing cheapness and a discussion of the authors’ findings.
- Finally, there is an examination of other potentially corroborating signals (such as buybacks and short interest) before presenting the complete Quantitative Value strategy and its performance.
Evaluation
Firstly, I can’t commend the writing style enough. It has been written in a very manageable way, such that I believe anybody who is already comfortable with the maths behind the basic investment ratios should be able to understand all of the logic in the book. Critically, the authors have managed to do this without detracting from the content of their research. This is no ‘The Little Book that Beats the Market’! It will take a bit longer to read but you will come away with a far better understanding of the thought process behind factor investment strategies and (barring the more quantitatively minded among us) you won’t be left questioning the assumptions and performance of the model presented at the end. For anybody seeking further depth, each chapter contains a wealth of references to all…
