Posts filed under “Quantitative”

Meb Faber: Buy Cheap Cyclically Adjusted P/E (CAPE)

Cyclically Adjusted P/E
Click to enlarge:

 

 

Meb Faber of Cambria Investment Management looks at 10 years of earnings. Based on a methodology developed by Yale University Professor Robert J. Shiller, Faber concluded from an analysis of cyclically adjusted price-earnings ratios, designed to minimize the effect of economic swings on profits.

Cyclically adjusted P/E, also known as CAPE, for U.S. stocks since 1900. The figures were obtained from Shiller’s Yale website, where they are available from 1881 onward.

The U.S. was among 32 markets examined in Faber’s study

Investing in markets whose ratios were in the bottom third at the start of each year would have produced inflation-adjusted annual returns that beat the global average by four to seven percentage points. Markets with ratios in the top third trailed by a comparable amount.

The results point to “significant outperformance by selecting markets based on relative and absolute valuation,” Buying only when CAPE was below 15 and shunning markets with ratios higher than 30 led to higher returns, the research showed.

 

 

 

Source:
Chart of the Day
By David Wilson
Bloomberg August 23, 2012

Category: Earnings, Quantitative, Technical Analysis, Valuation

140 years of Equity Yield vs US Bond Yield

Over the last few weeks, we have discussed the questionable data and mediocre results of Jeremy Siegel’s Stocks for the Long Run (See this, this and this). When we step back and take a look at The Really Long Run, we see a much clearer picture. The deep historical perspective as it pertains to the…Read More

Category: Dividends, Fixed Income/Interest Rates, Investing, Quantitative, Valuation

Algorithmic Trading, Promise and Perils

Click to enlarge:   Bloomberg Echoes looks at the history of computer driven snafus: When machines replace seasoned traders and market makers, mistakes can occur at dizzying speed. It happened with the notorious “flash crash” on May 6, 2010, and again on Aug. 1 this year, when software at Knight Capital Group Inc. (KCG) malfunctioned,…Read More

Category: Markets, Quantitative, Trading

Buy Neutrinos

  Must read article in Spetember edition of Wired Magazine on How Wall Street Got Addicted to HFT. In light of the JKnight Trading snafu, Wired decided to post it on line earlier than suual. Here is an excerpt: “Faster and faster turn the wheels of finance, increasing the risk that they will spin out…Read More

Category: Quantitative, Really, really bad calls, Trading

Nanex: Speed Kills

Whenever I have no idea about some event, rather than hypothesize some half-assed theory, I prefer instead to go to the pros who know their area of expertise better Thus, for the the Knight Trading glitch, I direct your attention to Nanex: Knightmare on Wall Street On August 1, 2012, starting at market open (9:30 EDT), our…Read More

Category: Markets, Quantitative, Trading

Uncertainty Quantified (Not)

No sooner does this morning’s “Uncertainty” piece go up when someone emails me this “quantified” version of uncertainty. The claim is made that “Nick Bloom and Scott Baker of Stanford University and Steve Davis of the University of Chicago” have figured out how to measure uncertainty:     Sadly, no. This is merely an index…Read More

Category: Digital Media, Investing, Psychology, Quantitative

How Facebook Fucked Up Its Own IPO

What a piece of work is a man, how noble in reason, how infinite in faculties, in form and moving how express and admirable, in action how like an angel, in apprehension how like a god! the beauty of the world, the paragon of animals—and yet, to me, what is this quintessence of dust? Man…Read More

Category: IPOs, Markets, Quantitative, Trading

Re-Entry Signals Following 10 Month Moving Average Exit

Back in the beginning of the year, I mentioned that Mebane Faber and I were exploring updating his Spring 2007 Journal of Wealth Management paper titled “A Quantitative Approach to Tactical Asset Allocation.” (He is the Chief Investment Officer of Cambria Investment Management). As we discussed back earlier, Meb reviewed a simple timing model — the…Read More

Category: Investing, Quantitative

Factors Institutional Investors Are Favoring

Every year since 1989, Merrill Lynch surveys a few 100 institutional investors using a broad variety of quantitative, valuation, process and modeling questions. Their responses get summarized in a 39 chart, 27 page report. You can get a sense of the depth and breadth of the report in just a few charts — but overall,…Read More

Category: Hedge Funds, Investing, Markets, Quantitative, Trading

Are Stocks Ahead of the Economy?

> Today, I want to bring a simple analysis to your attention. It is based upon the chart of GDP versus the total stock market valuation: Another measure bodes worse, however. That’s a comparison of the total value of U.S. shares with the yearly output of the U.S. economy (see chart). The stock market is…Read More

Category: Cycles, Data Analysis, Markets, Quantitative