Category Archives: Quantitative Methods

On Finding Neglected Companies

While at RealMoney, I wrote a short series on data-mining.  Copies of the articles are here: (one, two). I enjoyed writing them, and the most pleasant surprise was the favorable email from readers and fellow columnists. As a follow up, on April 13th, 2005, I wrote an article on analyst coverage — and neglect. Today, […]

On Emergent Phenomena

How do you deal with a risk that has never been seen before?  I’m going to focus on financial risks here, but clever people can generalize to other classes of human risk, like war and terrorism. By “emergent phenomena” I mean what happens when people act as a group pursuing the same strategy.  One person […]

Why are Pensions so Messed Up

A few days ago, I was reading Felix Salmon’s piece Pension politics.  (Nice title, the type that Tadas likes — the shorter the better.)  I wrote a short response in the comments, largely agreeing with Felix.  Here it is: Here are the facts: 1) DB pension funding accounting rules are more liberal than life insurance […]

Industry Ranks February 2014

My main industry model is illustrated in the graphic. Green industries are cold. Red industries are hot. If you like to play momentum, look at the red zone, and ask the question, “Where are trends under-discounted?” Price momentum tends to persist, but look for areas where it might be even better in the near term. […]

An Expensive Kind of Insurance

Strategy One: “Consistent Losses, with Occasional Big Gains when the Market is Stressed” Strategy Two: “Consistent Gains, with Total Wipe-out Risk When Market is Highly Stressed” How do these two strategies sound to you?  Not too appealing?  I would agree with that.  The second of those strategies was featured in an article at recently […]

Differences in US States’ Unemployment over the Last 36 Years

I would encourage you to have a read of the 2014 Baltimore Business Review.  Produced by the CFA Institute  — Baltimore, and Towson University, it  is a great example of how academics and practitioners can work together.  Here is my article, reformatted so that it looks better on my blog: Differences in US States’ Unemployment […]

On Target Prices & Yields

I know that much of the money management business sets target prices for buying and selling, particularly value managers, and sell-side analysts.  I don’t set target prices.  Why? Think of what a target price means.  It says that at a certain price you are willing to exchange securities for cash (sell), or vice-versa (buy).  The […]

On Position Sizing in Equity Long-Short Hedge Funds

This article is prompted by the following article by John Hempton of Bronte Capital.  This is not meant as a criticism of him; I have nothing but respect for him.  The article triggered memories of my own experiences with position sizing at a hedge fund. The hedge fund I once worked for had great expertise […]

Systemic Risk Stems from Asset-Liability Mismatches

What happens when a crisis hits?  There are demands for cash payment, and the payments can’t be made because the entities have short liabilities requiring immediate payment, and long illiquid assets that no longer can be sold for a price consistent with average market conditions.  When there are many firms for which this is true, […]