If you have been a value investor for some time I am sure you once had to explain value investing to a novice. Among one of the classic first question is the following:
"What happens if the stock never closes its gap to fair valuation and stays cheap forever?"
Chances are you would answer “…sure, the stock can stay cheap for a long time, but eventually it will trade at fair value.”
In this article, I will reflect on the importance of eventually and try to like this to the Buffett quote “I rather buy a great business at a mediocre price than a mediocre business at a great price”.
First, let me define my usage of some termini. A “great business” for me is a business that has the sustainable ability to generate returns on capital that are in excess of its cost of capital...[more]
If you happen to be interested in asset management, chances are that you have heard about the concept of factor returns. It’s actually all about certain variables that have some statistical utility to explain stock returns. Scientists found out about these factors by doing a so-called regression, did a lot of testing and ended up with a list of characteristics that determine stock returns. The well-known factors are P/B-ratio, momentum and size. Taking the latter as an example, ceteris paribus, a stock is expected to perform the better the smaller its market capitalization is...[more]
This post is all about how to survive a bar conversation as a banker these days.
I happen to be a banker and my friends happen to know that I am a banker. As the global media has lately been “occupied” by demonstrations of how bankers know sure ways to make money, I have been entangled in bar conversations around the stock market and techniques how to make money in the stock market. So please let me share with you some content from a typical bar conversation I had as of recently. (Disclaimer: if you expect this post to become a little bit more quantitative and useful, keep on reading- if you actually think this post deals with how to survive a bar conversation as a banker, you might be well-advised to keep on reading here )
So my typical friend would ask me, with a gentle sub-tone of sarcasm: "as you are a banker and you work with the stock market, you can now tell me how to make money...[more]
52 weeks Price Range.
This new factor -together with the other momentum factors (price index 12 months and price index 6 months) -in our Value Screener grid indicates a truth about investing that is difficult to understand: the investor should buy into strength and sell into weakness. The factor measures the proximity of a stock to its 52-week high or 52 week low. The 52 weeks price range is calculated as (current price – 52 week low) / (52 week high – 52 week low).
The idea behind using momentum factors with valuation is to find the strongest stocks, or the ones that are going up the most in price...[more]