NormR
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Posts posted by NormR
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The Sleuth Investor: Uncover the Best Stocks Before They make Their Move:
www.amazon.com/The-Sleuth-Investor-Uncover-Stocks/dp/0071481850
This one is sort of hilarious. Good fun, but it's basically about how to get almost-insider info without breaking the law. Call it SAC lite.
Just finished The Value Investors by Ronald Chan which was worth it for the Schloss interview. Mind you I'm a fan.
I liked Tobi's Quantitative Value which I read earlier in the year.
I'm slowing getting through Howard Mark's book but it's been slow going.
I have What's Behind the Numbers? and The Art of Value Investing on order.
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I'm pretty sure risk IS volatility.
There aren't many people who don't like upside volatility.
I like Marty Whitman's idea that risk should always be qualified with an adjective. The search for one unifying risk measure is likely futile and perhaps dangerous if it stops people thinking about the different risks they face.
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I wonder what to odds are of FFH winning. Someone should be held responsible for the short attack shenanigans. But I fear they won't.
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You are correct. It was based upon his 10 criteria from the II so it is not directly applicable but does illustrate the effectiveness (or lack thereof) of using a raw screen to manage money.
I'm more sympathetic to screens/quants than most on this board. But I acknowledge that they aren't without their issues.
The O'Shaugnessy US Value fund seems to have had some success using a relative value/momentum method.
I think the upside for most such methods is a few percentage points above the market. You're not likely to get Buffett like numbers from them, but they're a good place for beginning value investors to start. (Mind you, Net Nets are probably best pursued by more knowledgeable people.)
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Another example of underperformance was Jim Rea's mutual fund based upon Ben Graham's net-net approach. Part of the issue may be timing (when the market rewrards these bargains versus when they go broke or remain zombies).
I thought this was based more on an extension of his defensive method?
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very interesting thread, i have tried to monitor actual performance of several net net portfolios that are currently running, the ones i am aware of are
-gurufocus ncav bargains - inception mar 2011 - hand picked
-cheap stocks 26 net net index - inception sep 2011 - mechanical
-canadian net net portfolio - jan 2013 - mechanical?
Far too short a period to come to conclusions regarding the method, IMHO. Most good methods suffer from long periods of underperformance - often many years in length.
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In terms of F-Score, this was the move valuable item in Quantative Value. I seem to remember they had a study in there where if you took all the stocks below 1x book value and divided them in half based on F-Score, shorted the low F-score stocks, and purchased the high F-Score stocks that strategy would outperform the market by 22% a year, that number is incredible.
Ya, but wasn't that in mid-large stocks? The -ve earnings finding threw me for a loop and has me questioning other factors when it comes to Net Nets.
Btw, the March/April FAJ has an interesting article on M-Scores (fraud checks) which also seems to help quite a bit.
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It's funny that you mention the quantity of net-nets at the moment. One thing I was thinking long-term, though it may involve too much tinkering with a mechanical strategy, is looking at the number of net-nets as an indicator of current market under/overvaluation, and how that should influence, say, the portion of new money that should be directed to funds like Merger (MERFX) and the Arbitrage Funds, along with other special situation and workout stocks/funds. This is inspired by Graham who suggested a general 50/50 split between bonds/supercash and stocks and that the max to push any one area was 75%-80%. Sonkin had a similar structure with his Hummingbird fund, though Tarsier was just raw deep value.
The lack of net-nets could be one indicator that domestic markets are overvalued. Greebackd has been doing a series of different studies that all show we are due for a correction. Part of me says to just develop my plan and start now if I am going to follow a mechanical strategy.
Would you mind telling where you'd recommend running the screen? I don't have a problem with a subscription service, but would like as much of what I need in one place:
(1) global net-net screen in majority of publicly traded markets - probably can't find anything to screen for a lot of unlisted/OTC stocks aside from by hand or with something like Nate's unlistedstocks.net
(2) f-score, z-score maybe, insider ownership
(3) maybe net-net, NCAV, NNWC values - again will still verify numbers are accurate and not the result of a data misread
I've seen GuruFocus, Value-investing.eu, StockScreen123, Screener.co, and the Graham Investor screener as possible options so far. I worry about data quality on some, like Graham Investor, of course.
I think the benefit, at least with the backtests Geoff did, is that he used StockScreen123, which uses Compustat and is supposed to be a database that keeps records for liquidations and bankruptcies, as well firms leaving for the OTC index, reducing survivorship biases. You can find a stock like Solitron in CompuStat since it was once in NASDAQ, but for something that has always been OTC, it's not included.
I used a Bloomberg terminal which is a little $$$ for most investors. Also, even Bloomberg isn't perfect when it comes to very small stocks - particularly in Canada.
Do you have a study that shows F-Score works for Net Nets? If -ve earnings helps (still trying to get my head around this one) then F-Score might hurt.
Oh, if you've links to Net-Net studies, please share :)
Btw, I've been following Graham's Simple Way for years. It is a high volatility method. So high, I'm not sure many would be able to follow it.
Oh, and the value premium seems to persist for ~5 years at least but I've not seen a study on it for Net Nets.
I'd also opt for an equal weighting method (at least approximately). Ideally, lots of small bets.
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I found the ethics questions to be entertainingly tricky, but not too hard for those who read the material. Many CFA questions have some tricks in them. The ones that packed several questions into one and inverted the answer were lovely brain benders on a timed test.
Good skill/luck to all who are writing it!
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Norm, would it be heresy to shift focus on the CFA exam to concepts like Ziemba's modified Sharpe ratio that is more representative of down risk/volatity than a ratio based on a normal distribution?
Humm, I may have left the wrong impression. I think it's perfectly ok for the CFA to teach, shall we say, standard theory first and then add to it later on. IIRC, the level 3 exam had a section on some of the more advanced performance metrics, but it's been some time since I wrote it.
On the other hand, I suspect that most value investors don't pay much attention to volatility as a risk factor. If anything, they may look for low volatility stocks which seem to do quite well over the long term.
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Well, I just ran a Net Net screen and there aren't many of these beasties these days. You've got to get down in the weeds to find them or go internationally.
Take care with backtests in the field because the quality of data tends to be poor on the micro-cap end of many databases.
I was interested to run across a study that suggested that Net Nets with negative earnings had outperformed those with positive earnings. I'm not quite sure what to make of it. (See prior comment.)
It is an interesting area of patient investors with small amounts of capital to deploy. But be ready for a bumpy ride.
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If you guys felt that the Railcar Bar was too tight or inadequate, we can change that. It's a good idea to keep it in the hotel, because it makes it easier for Francis to bring you guys good guests. The further they have to walk, the less likely you'll get as good guests, and most definitely the less time they'll be able to spend with you guys.
Let me know what you want to do, and I can arrange a separate small room to hold the pre-dinner drinks meeting in with a cash bar and maybe theatre/classroom seating. Although, when I went into the Railcar Bar...while full and tight...it had a very intimate feeling and was very easy to hear the Q&A. Whatever you guys decide...let me know. Cheers!
We certainly want to accommodate the great guests!
I thought the Railcar might have been a bit too small, but I'd like to hear what other attendees thought. (Mind you, it was also very convenient.)
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Doh, I'd rather it was a week later, but such is life.
I expect the Ben Graham Dinner will be held the day before the FFH Dinner. Also, light drinks just before the FFH Dinner will occur again. I'm open to naming suggestions for the drinks event.
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Feeling "rich" is relative. If all your neighbors/friends are earning millions and you're doing half a mil, you wouldn't feel rich at hard but more likely feel like you're doing something wrong.
You also might be earning $500k from your labors, but if you neighbor "earns" $500k from passive income while hiking the National Parks that is an entirely different meaning of rich.
Eric, Excellent observation. It is what I live for.. freedom!
Thankfully freedom can be had for much less. 8)
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Incidentally, since Prem reads this board, he will be very upset at anyone who buys any other phone instead of a Z10 or Q10. He will not pay your annual dividend if he finds out you bought a non-Blackberry phone. He will also get Thorsten to break your little, girly phones with his big brawny hands. ;D He's a big guy...looks slight on television, but he's big! Cheers!
ROFL! ;D
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^Yeah but those measures are all based on the use of standard deviation as a measure of risk. Sharpe ratio, beta, semideviation, shortfall risk etc etc. Now in some cases they use nonnormal distributions as a measure, but it's still underpinned by a form of return volatility.
While I'm sympathetic with what you're trying to say, it's a bit of an overstatement, at least mathematically speaking. On the other hand, volatility has become a rather mushy word with many meanings.
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A question for the CFA candidates: Does the CFA body of knowledge suggest that price volatility is a measure of risk?
What other notion of market risk is there? It's pretty standard that risk is defined as a dispersion of returns.
Various factor based approaches where beta, size, book/price, momentum, etc all become risk measures. The interpretation is largely a bunch of poppycock but not uncommon in academia.
Also, there are other measures like volatility. Semi-variance, etc. And combos like the Sharpe ratio.
Good luck / skill to everyone on the exam this year. I'm glad I don't have to write exams these days. ;D
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I had a thought today.
Given that the market is efficient, you can't underperform the market over the long run (aside from commissions).
The reason you can't lose is that you have no disadvantages versus everyone else. Because all information is known to all.
Now... it's easy to sell people on the idea that you can't beat the market, but I've yet to hear this one.
I've used a similar argument and you can have all sorts of fun with it. Not that I believe the markets are efficient. ;D
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I hope he'll give us a report! ;D
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http://www.vanityfair.com/business/2013/06/steve-cohen-insider-trading-case
With arrest after arrest in a massive, seven-year insider-trading investigation, U.S. Attorney Preet Bharara is getting closer to the biggest fish of them all: Steve Cohen, founder of SAC Capital, the $14 billion hedge fund, who some regard as the most successful stock picker of his time. C.E.O.’s have fallen, lives and companies have been upturned, but Cohen has thus far escaped. Bryan Burrough and Bethany McLean go deep inside Bharara’s probe—and SAC’s org chart—to reveal just how much blood is in Wall Street’s waters. -
Just curious, who on this board is on Twitter?
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Does somebody know if FFH is planning to post the slides of their presentation?
Yes, Prem said they would be posted.
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Envy runs the world.
If so, stocks shouldn't have a long-term risk premium according to Eric Falkenstein ;)
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BAC A warrants have sold off and wondering if Francis has started nibbling away?
Not as of Tuesday when I asked him :)
For those of you who subscribe to The Wall Street Journal
in General Discussion
Posted
Very common with papers / magazines / phone / other subscriptions. The best prices go to those who are only marginally attached to their subscriptions. The worst to loyal customers. Drives me bonkers.