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Quantitative Value: A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (Wiley Finance) [Kindle Edition]

Wesley R. Gray , Tobias E. Carlisle
4.5 out of 5 stars  See all reviews (54 customer reviews)

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Book Description

A must-read book on the quantitative value investment strategy
Warren Buffett and Ed Thorp represent two spectrums of investing: one value driven, one quantitative. Where they align is in their belief that the market is beatable. This book seeks to take the best aspects of value investing and quantitative investing as disciplines and apply them to a completely unique approach to stock selection. Such an approach has several advantages over pure value or pure quantitative investing. This new investing strategy framed by the book is known as quantitative value, a superior, market-beating method to investing in stocks.
Quantitative Value provides practical insights into an investment strategy that links the fundamental value investing philosophy of Warren Buffett with the quantitative value approach of Ed Thorp. It skillfully combines the best of Buffett and Ed Thorp--weaving their investment philosophies into a winning, market-beating investment strategy.
  • First book to outline quantitative value strategies as they are practiced by actual market practitioners of the discipline
  • Melds the probabilities and statistics used by quants such as Ed Thorp with the fundamental approaches to value investing as practiced by Warren Buffett and other leading value investors
  • A companion Website contains supplementary material that allows you to learn in a hands-on fashion long after closing the book
If you're looking to make the most of your time in today's markets, look no further than Quantitative Value.

Editorial Reviews


"Quantitative Value is a must read for those with a love of value investing and a desire to make the investment process less ad-hoc. A must read."
--Tony Tang, Ph.D., Global Macro Researcher and Portfolio Manager, AQR Capital Management

"Gray and Carlisle take you behind the curtains to build a black box based on the best value minds in finance.  They combine academia's best ideas with the ideas of Buffet, Graham, and Thorp, to develop a quant system that performs in markets both good and bad."
--Mebane Faber, Author of The Ivy Portfolio and Portfolio Manager for Cambria Investment Management

"This book is an excellent primer to quantitative investing. It combines insights from both academic luminaries and successful professional investors, and presents them in a clear, engaging manner. The authors rigorously back-test simple strategies that can be used by the individual as well as institutional investor."
--Alex Edmans Ph.D., Finance Professor at The Wharton School, University of Pennsylvania

"Quantitative Value is the new guide to Graham-and-Doddsville. Gray and Carlisle synthesize the lessons of the great value investors to systematically identify high quality value stocks while avoiding common behavioral pitfalls."
--Tadas Viskanta, Founder and Editor, Abnormal Returns; Author of Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere.

"We seek to marry Ed Thorp's quantitative approach to Warren Buffett's value investment philosophy." That's the approach we take in our Value Investing class at UC Davis and Quantitative Value will become required reading for our class. The book we wish we would have written!"
--Lonnie J. Rush and Jacob L. Taylor, Managing Partners of Farnam Street Investments and Visiting Professors at UC Davis Graduate School of Management

From the Inside Flap

Legendary investment gurus Warren Buffett and Ed Thorp represent different ends of the investing spectrum: one a value investor, the other a quant. While Buffett and Thorp have conflicting philosophical approaches, they agree that the market is beatable. In Quantitative Value, Wesley Gray and Tobias Carlisle take the best aspects from the disciplines of value investing and quantitative investing and apply them to a completely unique and winning approach to stock selection. As the authors explain, the quantitative value strategy offers a superior way to invest: capture the benefits of a value investing philosophy without the behavioral errors associated with "stock picking." To demystify their innovative approach, Gray and Carlisle outline the framework for quantitative value investing, including the four key elements the investment process:
1) How to avoid stocks that can cause a permanent loss of capital: Learn how to uncover financial statement manipulation, fraud, and financial distress.
2) How to find stocks with the highest quality: Learn how to find strong economic franchises, and robust financial strength. Gray and Carlisle look at long term returns on capital and assets, free cash flow, and a variety of metrics related to margins and general financial strength.
3) The secret to finding deeply undervalued stocks: Does the price-to-earnings ratio find undervalued stocks better than free cash flow? Gray and Carlisle examine the historical data on over 50 valuation ratios, including some unusual metrics, rare multi-year averages, and uncommon combinations.
4) The five signals sent by smart money: The book uncovers the signals sent by insiders, short sellers, shareholder activists and institutional investment managers.
After detailing the quantitative value investment process, Gray and Carlisle conduct a historical test of the resulting quantitative value model. Their conclusions are surprising and counter-intuitive.
The book includes a companion website that offers a monthly-updated screening tool to find stocks using the model outlined in the book, an updated back-testing tool, and a blog about recent developments in quantitative value investing. For any investor who wants to make the most of their time in today's complex marketplace, they should look no further than Quantitative Value.

Product Details

  • File Size: 4309 KB
  • Print Length: 288 pages
  • Publisher: Wiley; 1 edition (January 11, 2013)
  • Sold by: Amazon Digital Services, Inc.
  • Language: English
  • ASIN: B00B1FK0AS
  • Text-to-Speech: Enabled
  • X-Ray:
  • Lending: Enabled
  • Amazon Best Sellers Rank: #93,429 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
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Customer Reviews

Most Helpful Customer Reviews
70 of 71 people found the following review helpful
4.0 out of 5 stars Should be read in tandem with "What Works on Wall Street" February 14, 2013
Format:Hardcover|Verified Purchase
As far as I know, the only investing books to mesh quantitative investing and value investing have been "What Works on Wall Street," "The Little Book That Still Beats the Market," and "Ben Graham Was A Quant." "Quantitative Value" shares a lot in common with "What Works on Wall Street," and improves on "The Little Book." In fact, this was probably one of the best investing books I've ever read, combining the tried-and-true approach of value investing, behavioral finance, and quantitative methods to produce one very interesting piece. I really, really, REALLY wanted to give this five stars, as it is exceptional, but there were several major issues with their methodology and logic. But first, the positives.

- Explains basic cognitive biases typically affecting investing and how behavioral finance can help improve results by methodically sticking with the Quantitative Value program.
- Completely dissects Greenblatt's "Magic Formula" (From "The Little Book That Still Beats the Market"), demonstrating which of the two formulas has contributed more to the returns, how to possibly improve on the formula, and using it as a benchmark to which the authors compare their Quantitative Value approach.
- Tests a composite price metric of EBIT/EV, EBITDA/EV, E/P, B/P, Gross Profit/EV, and FCF/EV. Interestingly, the composite score doesn't outperform the best performing single metric (EBIT/EV), which is at odds with the composite score findings in "What Works on Wall Street," which consisted of P/S, P/E, P/B, EBITDA/EV, and P/FCF. Can draw your own conclusions, but I suspect the divergence is due to O'Shaughnessy included P/S and P/FCF, rather than FCF/EV (a flawed metric discussed below) and GP/EV.
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38 of 40 people found the following review helpful
4.0 out of 5 stars Amazing....but flawed? January 25, 2013
By bjorn
Format:Hardcover|Verified Purchase
The book is fantastic. Well written, extensive research with a clear thought process. This is likely the best value investing process I have seen.....but there is one can't actually implement it.
- The screens are extremely complex and rigorous (which is why they work so well). But you would need a pretty intense and expensive database to actually be able to implement it.
- They provide a website to do it for you (yay!). However, the website only gives you stocks with a market cap in excess of 10 Billion (large cap only), whereas all of the book backtests are for stocks with a market cap of 1.4 billion or more.

I am sure this will work to outperform the market even for large cap only, maybe even by a lot...but it is really too bad we couldn't implement the same thing they are doing in the book.

5.17.13 Update: They have updated with a blog post addressing my concern. [...]

I am using the strategy (and happy with it thus far). I think they could have been more clear in the book how to actually implement this. I am quite confident I could not replicate this if their website goes away someday (whereas it would be easy to implement something along the lines of magic formula).
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31 of 33 people found the following review helpful
5.0 out of 5 stars A Great Approach to Quantitative Value Investing January 9, 2013
This informative and exceptionally well-researched book wove together many strands of investing and finance for me. Almost everyone knows who Warren Buffett is, and many are familiar with Ben Graham, the father of value investing. If you've read a number of investing (or gambling) books, you may even be familiar with Ed Thorp, who pioneered the application of statistics to making money on Wall Street. Or perhaps you've heard of Nassim Taleb's "The Black Swan," or Daniel Kahneman, who won a Nobel Prize for his work in behavioral psychology.

It takes a powerful unifying theme to demonstrate how the specialties of these diverse financial thinkers can be integrated into a single approach to investing. Wesley Gray, a finance professor with an MBA/PhD from the University of Chicago, and Tobias Carlisle, an M&A lawyer with a Wall Street background, combine a compelling history with voluminous academic research to demonstrate how these different spheres are in reality closely related and complementary.

The authors describe how our innate behavioral and cognitive biases cause us to make poor investing decisions, and how we can avoid such outcomes by adhering to a systematic value investing process, based on techniques used by fundamental investors, that maximizes the statistical likelihood of investment success. Based on wide-ranging and amply documented academic research, the approach uses computers to search the universe of stocks and identify those that meet its robust stock selection criteria.

This is a comprehensive, soup-to-nuts investment process. First, the authors council us to control risk by eliminating stocks that pose a risk of a permanent loss of capital due to fraud, earnings manipulation or financial distress. Next, they tackle value.
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32 of 35 people found the following review helpful
4.0 out of 5 stars Price over quality, conquering the enemy within February 16, 2013
By Taylor
Please note, I received a copy of this book for review from the publisher, Wiley Finance, on a complimentary basis.

The root of all investors' problems

In 2005, renowned value investing guru Joel Greenblatt published a book that explained his Magic Formula stock investing program-- rank the universe of stocks by price and quality, then buy a basket of companies that performed best according to the equally-weighted measures. The Magic Formula promised big profits with minimal effort and even less brain damage.

But few individual investors were able to replicate Greenblatt's success when applying the formula themselves. Why?

By now it's an old story to anyone in the value community, but the lesson learned is that the formula provided a ceiling to potential performance and attempts by individual investors to improve upon the model's picks actually ended up detracting from that performance, not adding to it. There was nothing wrong with the model, but there was a lot wrong with the people using it because they were humans prone to behavioral errors caused by their individual psychological profiles.

Or so Greenblatt said.

Building from a strong foundation, but writing another chapter

On its face, "Quantitative Value" by Gray and Carlisle is simply building off the work of Greenblatt. But Greenblatt was building off of Buffett, and Buffett and Greenblatt were building off of Graham. Along with integral concepts like margin of safety, intrinsic value and the Mr.
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Most Recent Customer Reviews
3.0 out of 5 stars investing "emotionally" in stocks that have products that I use and...
I agree with other reviews that:
1. The book production is a travesty. The numerics in the font make 8 and 6 indistinguishable, for example.
2. Read more
Published 1 month ago by Elaine Holley
5.0 out of 5 stars A good plunge into academic thought
I'm continuing to follow Gray and associates doing fresh, rational research on-line. My first book by academics, and I like the
references. Read more
Published 2 months ago by James Edward Smith (real name)
4.0 out of 5 stars Great book. Easy to read and easy to understand ...
Great book. Easy to read and easy to understand the concepts. A useful intro to quantitative investing with a focus on value that contains practical material that can be used for... Read more
Published 2 months ago by Hazem Elhagrasey
3.0 out of 5 stars Excellent book, but complexity and lack of simple implementation...
This is an excellent book on quantitative investing with a value tilt. Author provides great references and summarizes various academic papers findings. Read more
Published 5 months ago by Manjunath S. Sharma
5.0 out of 5 stars must read for managing portfolio
I've read several books in the last year on portfolio allocation, Wesley Gray's Quantitative Value is one of the best read's, and I follow his commentary on a continual basis. Read more
Published 6 months ago by J. fowler
4.0 out of 5 stars Provides a good quantitative framework
One of the better books I've read on value investing. Provides a good quantitative framework that could be implemented by an investor. Read more
Published 6 months ago by John C. Scott
4.0 out of 5 stars nice summary
This book provides a useful summary and explanation of a large variety of ideas for implementing value investing in a systematic fashion. Read more
Published 6 months ago by xfd
5.0 out of 5 stars stock selection for the Defensive investor
If you read intelligent investor ch 14 where graham described his investing criteria for the defensive investor ,this book just takes graham ideas but is different in that this... Read more
Published 6 months ago by Mohammed Al Alwan
5.0 out of 5 stars Wes hits a home run
Dr. Gray has a book for anyone who manages their own portfolio. His deep data, quant's, analysis proves beyond any shadow of a doubt that the best bet for most of us is to use the... Read more
Published 8 months ago by taoshum
5.0 out of 5 stars Great Quantitative strategy-- to beat behavioral bias
In the this book, Wes corporates valuable insights from academic researches with empirical real stock markets, re-tests the academic results, and then makes feasible investment... Read more
Published 9 months ago by Yao Tian
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