Quantitative Value + Website – A Practitioners Guide to Automating Intelligent Investment and Eliminating Behavioral Errors

<p>Preface xi</p>
<p>Acknowledgments xiii</p>
<p>PART ONE The Foundation of Quantitative Value 1</p>
<p>CHAPTER 1 The Paradox of Dumb Money 3</p>
<p>Value Strategies Beat the Market 9</p>
<p>How Quantitative Investing Protects against Behavioral Errors 23</p>
<p>The Power of Quantitative Value Investing 30</p>
<p>Notes 32</p>
<p>CHAPTER 2 A Blueprint to a Better Quantitative Value Strategy 35</p>
<p>Greenblatt s Magic Formula 36</p>
<p>It s All Academic: Improving Quality and Price 45</p>
<p>Strategy Implementation: Investors Behaving Badly 54</p>
<p>Notes 59</p>
<p>PART TWO Margin of Safety How to Avoid a Permanent Loss of Capital 61</p>
<p>CHAPTER 3 Hornswoggled! Eliminating Earnings Manipulators and Outright Frauds 63</p>
<p>Accruals and the Art of Earnings Manipulation 64</p>
<p>Predicting PROBMs 72</p>
<p>Notes 79</p>
<p>CHAPTER 4 Measuring the Risk of Financial Distress: How to Avoid the Sick Men of the Stock Market 81</p>
<p>A Brief History of Bankruptcy Prediction 83</p>
<p>Improving Bankruptcy Prediction 85</p>
<p>How We Calculate the Risk of Financial Distress 86</p>
<p>Scrubbing the Universe 89</p>
<p>Notes 91</p>
<p>PART THREE Quality How to Find a Wonderful Business 93</p>
<p>CHAPTER 5 Franchises The Archetype of High Quality 95</p>
<p>The Chairman s Secret Recipe 96</p>
<p>How to Find a Franchise 99</p>
<p>Notes 112</p>
<p>CHAPTER 6 Financial Strength: Foundations Built on Rock 113</p>
<p>The Piotroski Fundamentals Score (F—SCORE) 114</p>
<p>Our Financial Strength Score (FS—SCORE) 119</p>
<p>Comparing the Performance of Piotroski s F—SCORE and Our</p>
<p>FS—SCORE 122</p>
<p>Case Study: Lubrizol Corporation 123</p>
<p>Notes 126</p>
<p>PART FOUR The Secret to Finding Bargain Prices 127</p>
<p>CHAPTER 7 Price Ratios: A Horse Race 129</p>
<p>The Horses in the Race 130</p>
<p>Rules of the Race 133</p>
<p>The Race Call 134</p>
<p>A Price Ratio for All Seasons 141</p>
<p>The Offi cial Winner 142</p>
<p>Notes 143</p>
<p>CHAPTER 8 Alternative Price Measures Normalized Earning Power and Composite Ratios 145</p>
<p>Normalized Earning Power 147</p>
<p>Compound Price Ratios: Is the Whole Greater than</p>
<p>the Sum of Its Parts? 150</p>
<p>Notes 163</p>
<p>PART FIVE Corroborative Signals 165</p>
<p>CHAPTER 9 Blue Horseshoe Loves Anacott Steel: Follow the Signals from the Smart Money 167</p>
<p>Stock Buybacks, Issuance, and Announcements 169</p>
<p>Insider Traders Beat the Market 173</p>
<p>Activism and Cloning 176</p>
<p>Short Money Is Smart Money 179</p>
<p>Notes 182</p>
<p>PART SIX Building and Testing the Model 185</p>
<p>CHAPTER 10 Bangladeshi Butter Production Predicts the S&amp;P 500 Close 187</p>
<p>Sustainable Alpha: A Framework for Assessing Past Results 189</p>
<p>What s the Big Idea? 191</p>
<p>Rigorously Test the Big Idea 196</p>
<p>The Parameters of the Universe 206</p>
<p>Notes 208</p>
<p>CHAPTER 11 Problems with the Magic Formula 211</p>
<p>Glamour Is Always a Bad Bet 216</p>
<p>Improving the Structure of a Quantitative Value Strategy 218</p>
<p>Our Final Quantitative Value Checklist 222</p>
<p>Notes 228</p>
<p>CHAPTER 12 Quantitative Value Beats the Market 229</p>
<p>Risk and Return 231</p>
<p>Robustness 239</p>
<p>A Peek Inside the Black Box 249</p>
<p>Man versus Machine 257</p>
<p>Beating the Market with Quantitative Value 262</p>
<p>Notes 264</p>
<p>Appendix: Analysis Legend 265</p>
<p>About the Authors 267</p>
<p>About the Companion Website 269</p>
<p>Index 271</p>