Financial Models used in the Financial world

May 21, 2021

Sector Booting using SCTR

Can we boost performance by getting rid of a couple of bad industries? Certainly. Can we do it via the SCTR? Maybe.

The best case: what future prediction can bring

Before we get started, we want to understand what perfect prediction could bring us.

This chart is what would happen, from 2000, if we could magically throw out the bottom 20% of these 11 sectors (usually 3), in terms of future performance next quarter.…

August 23, 2019

What does “S&P-like” mean, anyways?

In a previous article, we compared the S&P 500 index to an EquitiesLab macro, issandplike. Our goal was to analyze the S&P’s value, by comparing the official index’s performance with a collection of similar stocks. But what does “similar” mean in this case?

According to Standard & Poor’s website, an S&P stock must meet the following requirements.…

March 26, 2019

Will The Real O’Shaughnessy Please Stand Up?

O’Shaughnessy’s screen focuses on low-cost tickers with small market caps. His reasoning goes that, as small as these companies are, most analysts ignore them. This lack of attention suggests that there quite a few diamonds in the rough within microcap stocks. Is he right?
October 23, 2018
The Gordon Growth Model

Financial Valuation: Gordon Growth Model

The Gordon Growth model is an offshoot of the standard dividend discount model. This model is used primarily to calculate the intrinsic value of a firm based on the discounted value of future dividends.

The Equation

At a basic level the Gordon Growth Model is calculated by:

P = D1 / r-g

  • P = The intrinsic price you should pay for the firm
  • D1 = The dividend for the next period
  • R = The current discount rate, for our purposes we will use the CAPM for this
  • G = Is the dividend growth rate


Applying the Gordon Growth Model

So, we know how this is calculated if you are doing this on a sheet of paper, and if you don’t have the data there may be some pieces of information that you need to assume.…
October 16, 2018
CAPM Explained

CAPM – Capital Asset Pricing Model

CAPM – Capital Asset Pricing Model

The CAPM is a staple of most every finance course that focuses on the valuation of equity investments. And though it may be a very good way to begin the process of teaching students how to effectively analyze securities there are a lot of assumptions that make it very difficult to use in a real world setting.…

June 20, 2018
Why Death Crosses Don't Work

Death Crosses Don’t Work

OK, what is a death cross, and what do I mean by “it doesn’t work”? A death cross is a (very) vivid name for a short term moving average slipping below a longer term moving average.  Technical analysts love to sell when they see death crosses, and buy when they see golden crosses.…

June 6, 2018
Short-term reversal

F-Score and Equity Short-Term Reversals

Quantpedia Strategies

As I was recently looking around at other quantitative firms, I happened across Quantpedia. In the past we’ve spoken to Quantpedia and are actually featured on their website. However, this time around I was taking a look in their screener section and came across the “F-score and Equity short-term reversals”.…

March 26, 2018
Using Monte Carlo with Piotroski

How To Use Monte Carlo With The Piotroski Score

Henry Crutcher

How to analyze a factor without ranking in Equities Lab

Create a screen

Everything starts with creating a screen.  So, onward!

Name your screen

Screeners with names can be found later.  If you want to put your screens into categories, simply put MyCoolCategory: at the front.

Limit your stocks

You can type “Market Cap > 500m” here.  

July 4, 2017
The term "red flags" is synonymous with "bad things are going to happen," and, for investors, they are a sign that you should likely stay away from that investment. However, all this talk of red flags being able to predict that a company is going to do poorly makes you wonder, does it work?

How Effective are Red Flags in Investing

Just how telling are red flags?

The term “red flags” is synonymous with “bad things are going to happen,” and, for investors, they are a sign that you should likely stay away from that investment. However, all this talk of red flags being able to predict that a company is going to do poorly makes you wonder, does it work?…

June 9, 2017

Benjamin Graham Score

In my years of using Equities Lab as a quantitative investment tool, I have never lost sight of the core values of long term investing. Many of these values are in the teachings of Benjamin Graham and used by an idol of mine, Warren Buffett. Remembering this, no matter how much risk I take on in my portfolio, I always keep a subsection for value investments.…