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Financial Models used in the Financial world
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.…
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.…
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.…
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.…
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.…
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”.…
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.
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?…
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.…