Why Use One Value Factor When You Can Use Many

By Justin Carbonneau (@jjcarbonneau)—-Interested in chatting with Justin – let him know.—- Suppose you wanted to find the value stocks in today’s market using common value ratios. Which would you use and why? Would you lean more heavily on the price-to-book ratio, which is largely used in academic testing and originates out of the world of Graham & Dodd? Or would you rather use something like the price-to-earnings ratio, which is more common and uses… Read More

A New Method for Rebalancing Helps Systematic Models Get Better

By Justin Carbonneau (@jjcarbonneau)—-Talk about the Markets and/or Invest with Justin —-A centerpiece for most systematic investing models is a “refreshing” of the portfolio positions, which is also often referred to as rebalancing. Simply put, on each rebalancing date certain positions are removed from the portfolio and replaced with better scoring stocks based on the strategy being followed. When you run investment models and the underlying company fundamentals and valuations change, it’s important to let… Read More

Momentum Investing – the What, the Why, the How and the Risks

By Justin Carbonneau (@jjcarbonneau) At the most basic level, momentum investing in the context of security selection can be defined as buying securities that have done the best over the past 12 months and selling those that have done the worst. While there are multiple methods and timeframes used to measure momentum, which we’ll get into below, the idea of buying based on price strength and selling based on price weakness is at the core… Read More

What Quant Value Models Can and Can’t Do for You

By Justin Carbonneau (@jjcarbonneau) – Two weeks ago I wrote an article, Differences in Value, where I outlined the various criteria (i.e. price-to-sales, price-to-book, and enterprise value-to-EBIT) used in the value models on Validea. As the piece got passed around Twitter, there was a very good comment by Tren Griffin, an investor and thoughtful writer. Griffin tweeted the following (see below – included in the tweet was a screenshot of a page from Berkshire’s Hathaway’s… Read More

Differences in Value

By Justin J. Carbonneau (@jjcarbonneau) —  A few weeks ago my partner, Jack Forehand (@practicalquant) wrote a piece titled “The Mechanics of Value Investing“. In it, he highlighted the various ways in which value investing can be defined. This topic was recently brought to light again in a recent tweet (see below) by Tom Psarofagis, ETF Analyst at Bloomberg. As Mr. Psarofagis points out, the underlying holdings in “value” ETFS can often be very different.… Read More

Long Term Compounding Using Low Volatility & Other Fundamental Factors

By Justin J. Carbonneau (@jjcarbonneau) —  There is an age-old concept in investing that the more risk you take the higher the return you should get. This makes a lot of sense; investors don’t invest in a risky companies to get low returns. Most hope to be compensated for that extra risk. But the tradeoff of risk and return is flipped upside down when talking about the most and least volatile stocks in the equity… Read More

Expanding the Opportunity Set with Shareholder Yield

By Justin J. Carbonneau (@jjcarbonneau) —  When most investors hear the word “yield” they immediately think about dividends. Things like stock buybacks and debt paydown typically don’t come to mind. But those are also yields, or ways companies can return cash to shareholders. When dividends, buybacks and debt paydown are combined, they give us something called shareholder yield. Calculating and sorting stocks by shareholder yield is a systematic way to identify companies that are returning… Read More

Replicating Buffett’s Wide Moat Investing Method

By Justin J. Carbonneau (@jjcarbonneau) —  Warren Buffett and others have long advocated buying companies with moats around their businesses. Strong brand loyalty (Disney), economies of scale (Walmart), innovation (Google), location (Starbucks) and other sources of competitive advantage play an important role in in the success of companies over time. The reason companies with moats appeal as attractive investments is that a moat, which is a function of a firm’s competitive advantage, protects the business… Read More

Twin Momentum: A Combination of Fundamental & Price Momentum

By Justin J. Carbonneau (@jjcarbonneau) —  An object at rest stays at rest and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force. -Isaac Newton Momentum investing, or buying stocks exhibiting strong price performance relative to other stocks nicely aligns with Newton’s principle. There are a numerous academic studies and white papers backing-up the robustness of the momentum factor. The knocks… Read More

Learning from Buffett’s Performance

In my last article, I looked at the stocks owned by Warren Buffett and Berkshire Hathaway and asked the question, “How Active is Buffett’s Portfolio?”. As we found out, the answer is very active in terms of how different the equity portfolio looks vs. the broader market index. The combination of Buffett’s portfolio and investing acumen has translated into one of the best investment track records in history. There are some interesting observations we can… Read More