EBITDA, EBITDA, EBITDA…That’s All, Folks!

Value investing practitioners and academics have long studied the enterprise multiple effect, including my own business partners, Jack and Wes. The literature reveals that Enterprise Multiples, defined as total enterprise value of the firm divided by EBITDA, generate the largest spread between Value and Growth firms. The debate among...

Is There A Size Effect In The Stock Market?

One of the oldest and most persuasive arguments in the stock market is that small stocks outperform large stocks.(1) Warren Buffett, speaking at the 2013 Berkshire Hathaway Annual Meeting, summarized the sentiment when discussing the disadvantages of managing a huge amount of capital: Q4 hedge fund letters, conference, scoops etc There’s...

“The Failure Of Factor Investing Was Predictable”

In a recent ETF column, Allan Roth listed five investment lessons. While I agreed with much of what he wrote, one claim—factor investing has “failed miserably”— called for examination of the facts. But first, a little background. Q4 hedge fund letters, conference, scoops etc William Sharpe, Jack Treynor and John Linter...

The Smart Money Indicator: A New Risk Management Tool

We have all heard the mantra, “You can’t time the market!” But in reality, investors attempt to do just that every day as part of their tactical asset allocation strategies, which are less extreme variants of the classic trend-following “risk-on/risk-off” approach, which many associate with market timing.(1) Q4 hedge fund...

Manager Sentiment And Stock Returns

Manager Sentiment and Stock Returns Fuwei Jiang, Joshua Lee, Xiumin Martin, Guofu Zhou Journal of Financial Economics, forthcoming A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category Q4 hedge fund letters, conference, scoops etc What are the Research...

Rankings And Risk-Taking In The Finance Industry

Rankings and Risk-Taking in the Finance Industry Michael Kirchler, Florian Lindner, and Utz Weitzel The Journal of Finance, Fall 2018 A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category. Q4 hedge fund letters, conference, scoops etc What are...

Value, Momentum & Carry Across Asset Classes

There is a 72% probability of the San Franciso Bay Area getting hit by at least one earthquake of a magnitude of 6.7 or stronger between today and 2043 according to the United States Geological Survey, which is a scientific agency of the U.S. government. An earthquake of that magnitude...

1042 QRP: How To Finance A Seller Note

Employee Stock Ownership Plans (“ESOP”) create unique opportunities for business owners and their employee-participants to build wealth through their companies. To foster broader adoption of ESOPs, Congress instituted a number of attractive tax advantages benefitting ESOP companies and the business owners who form them. Among these is the opportunity...

Equity Investing Is Riskier Than You Probably Expected

Volatility Lessons Eugene F. Fama and Kenneth R. French Financial Analysts Journal A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category Q3 hedge fund letters, conference, scoops etc What are the research questions? The purpose of this...

Payday Anomaly Revisited

Unless you are a die-hard buy-and-hold investor, chances are that you need to rebalance your portfolio at some point. Q3 hedge fund letters, conference, scoops etc The question is when? And how often? And why at a specific time? Some strategies rebalance once a year, some multiple times a day. What if...

Herding And Mutual Fund Performance

Does Herding Behavior Reveal Skill? An Analysis of Mutual Fund Performance Q3 hedge fund letters, conference, scoops etc Hao Jiang and Michela Verardo The Journal of Finance, Fall 2018 A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research...

Why And How Investors Use ESG Information

Why and How Investors Use ESG Information: Evidence from a Global Survey Amir Amel-Zadeh and George Serafeim Financial Analysts Journal A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category Q3 hedge fund letters, conference, scoops...

A Simple Analysis Of 2018 U.S. Factor Returns

As the year turns, a common practice is to assess a portfolio and see how each position performed. Q3 hedge fund letters, conference, scoops etc The summary for stocks is easy: equities did not do well. Whether you were invested in U.S. stocks (down ~5%+), developed markets (down ~13%+), or emerging markets...

Data Science Is Revolutionizing Investment Practice

Order from Chaos: Data Science is Revolutionizing Investment Practice Joseph Simonian, Marcos Lopez de Prado, and Frank Fabozzi Journal of Portfolio Management, Fall 2018 A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category. Q3 hedge fund letters, conference,...

A Protocol To Prevent “Quants Gone Wild”

A Backtesting Protocol in the Era of Machine Learning Rob Arnott, Campbell Harvey, and Harry Markowitz Working paper A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category. Q3 hedge fund letters, conference, scoops etc What are the Research...

Machine Learning Classification Methods And Factor Investing

In the last post in our machine learning series, we showed how nonlinear regression algos might improve regression forecasting relative to plain vanilla linear regression (i.e., when underlying reality is nonlinear with complex interactions). Q3 hedge fund letters, conference, scoops etc In this piece, we’ll first review machine learning for classification,...

Warren Buffett Is Wrong About Options (Except)

Warren Buffett sold long-dated, deep out of the money puts in the years leading up to the financial crisis. In his 2008 Annual Letter to Shareholders, he explained: Q3 hedge fund letters, conference, scoops etc I believe each contract we own was mispriced at inception, sometimes dramatically so. He goes on later...

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