Category Archives: Quantitative Methods

On Financial Risk Statements, Part 1

Most formal statements on financial risk are useless to their users. Why? They are written in a language that average people and many regulators don’t speak. They often don’t define what they are trying to avoid in any significant way. They don’t give the time horizon(s) associated with their assessments. They don’t consider the second-order […]

Problems in Simulating Investment Returns

Simulating hypothetical future investment returns can be important for investors trying to make decisions regarding the riskiness of various investing strategies.  The trouble is that it is difficult to do right, and I rarely see it done right.  Here are some of the trouble spots: 1) You need to get the correlations right across assets. […]

Even with Good Managers, Volatility Matters

This is another episode in my continuing saga on dollar-weighted returns. We eat dollar-weighted returns.  Dollar-weighted returns are the returns investors actually receive in a open-end mutual fund or an ETF, which includes their timing decisions, as opposed to the way that performance statistics are ordinarily stated, which assumes that investors buy-and-hold. In order for […]

Factor Glut

I use factors in my investing. What *are* factors, you ask?  Factors are quantitative variables that have been associated with potential outperformance.  What are some of these factors? Valuation (including yield) Price Momentum (and its opposite in some cases) Insider Trading Industry factors Neglect Low Volatility Quality (gross margins as a fraction of assets) Asset shrinkage […]

Numerator vs Denominator

Every now and then, a piece of good news gets announced, and then something puzzling happens.  Example: the GDP report comes out stronger than expected, and the stock market falls.  People scratch their heads and say, “Huh?” A friend of mine who I haven’t heard from in a while, Howard Simons, astutely would comment something […]

Goes Down Double-Speed (Update 2)

This is the third time I have written this article during this bull market.  Here are the other two times, with dates: Goes Down Double-Speed 2/17/2011 Goes Down Double-Speed (Updated) 5/22/2013 The first time, we had doubled since the bottom.  Second time, up 2.5x.  Now it is a triple since the bottom.  That doesn’t happen often, and […]