How to Design a Fundamentals-Based Strategy that Really Works, Part Three: Principles of Backtesting
This is the third article in a series; here is the first (on factor design) and here is the second (on designing ranking systems). I’ve…
This is the second article in a series; here is the first. I’ve been using a fundamentals- and ranking-based strategy for stock picking since 2015,…
I have been using a strictly quantitative process to buy and sell stocks for the last six years, with excellent results: I have a CAGR…
Overview Analysts and investors have long puzzled over the difficulties of calculating the cost of equity. The cost of equity is an essential component of…
If you were given a crystal ball that would accurately predict a company’s growth over the next year, you would logically invest in those companies…
Introduction Let’s say you believed that the higher the risk, the higher the reward. Let’s say you loved taking risks. Let’s say you participated in…
A few months ago three researchers published an astonishingly ambitious and compendious paper called “Is There a Replication Crisis in Finance?” (Their names are Theis…
James P. O’Shaughnessy’s What Works on Wall Street has long been one of my favorite books on investing. Not because it’s so readable—it includes pages and pages of backtests that are a real slog to get through. And not because it’s impeccable—there are some odd omissions, which I’ll get to later. And not because it strikes an estimable balance—there’s simply not enough about accounting measures, and what’s there is somewhat weak. . . .
The idea behind value investing is that you buy a stock well below its fair value, wait for it to appreciate to something close to…
In 2000, Joseph D. Piotroski was a young associate professor of accounting at the University of Chicago Graduate School of Business, having obtained his Ph.D. from the University of Michigan the previous summer. That year he published a paper called “Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers” in the Journal of Accounting Research. Seldom has an accounting paper made such a huge splash.