Ben Graham Was a Quant – Raising the IQ of the Intelligent Investor

Preface xi
<p>Introduction: The Birth of the Quant 1</p>
<p>Characterizing the Quant 3</p>
<p>Active versus Passive Investing 6</p>
<p>CHAPTER 1 Desperately Seeking Alpha 11</p>
<p>The Beginnings of the Modern Alpha Era 16</p>
<p>Important History of Investment Management 18</p>
<p>Methods of Alpha Searching 20</p>
<p>CHAPTER 2 Risky Business 27</p>
<p>Experienced versus Exposed Risk 28</p>
<p>The Black Swan: A Minor ELE Event Are Quants to Blame? 34</p>
<p>Active versus Passive Risk 38</p>
<p>Other Risk Measures: VAR, C–VAR, and ETL 49</p>
<p>Summary 52</p>
<p>CHAPTER 3 Beta Is Not "Sharpe" Enough 55</p>
<p>Back to Beta 64</p>
<p>Beta and Volatility 65</p>
<p>The Way to a Better Beta: Introducing the g–Factor 67</p>
<p>Tracking Error: The Deviant Differential Measurer 75</p>
<p>Summary 77</p>
<p>CHAPTER 4 Mr. Graham, I Give You Intelligence 79</p>
<p>Fama–French Equation 81</p>
<p>The Graham Formula 89</p>
<p>Factors for Use in Quant Models 90</p>
<p>Momentum: Increasing Investor Interest 96</p>
<p>Volatility as a Factor in Alpha Models 113</p>
<p>CHAPTER 5 Modeling Pitfalls and Perils 123</p>
<p>Data Availability, Look–Ahead, and Survivorship Biases 124</p>
<p>Building Models You Can Trust 127</p>
<p>Scenario, Out–of–Sample, and Shock Testing 131</p>
<p>Data Snooping and Mining 139</p>
<p>Statistical Significance and Other Fascinations 140</p>
<p>Choosing an Investment Philosophy 148</p>
<p>Growth, Value, Quality 149</p>
<p>Investment Consultant as Dutch Uncle 152</p>
<p>Where Are the Relative Growth Managers? 154</p>
<p>CHAPTER 6 Testing the Graham Crackers . . . er, Factors 159</p>
<p>The First Tests: Sorting 160</p>
<p>Time–Series Plots 173</p>
<p>The Next Tests: Scenario Analysis 182</p>
<p>CHAPTER 7 Building Models from Factors 193</p>
<p>Surviving Factors 194</p>
<p>Weighting the Factors 197</p>
<p>The Art versus Science of Modeling 200</p>
<p>Time Series of Returns 210</p>
<p>Other Conditional Information 215</p>
<p>The Final Model 217</p>
<p>Other Methods of Measuring Performance: Attribution Analysis via Brinson and Risk Decomposition 220</p>
<p>Regression of the Graham Factors with Forward Returns 228</p>
<p>CHAPTER 8 Building Portfolios from Models 233</p>
<p>The Deming Way: Benchmarking Your Portfolio 235</p>
<p>Portfolio Construction Issues 247</p>
<p>Using an Online Broker: Fidelity, E∗Trade, TD Ameritrade, Schwab, Interactive Brokers, and TradeStation 249</p>
<p>Working with a Professional Investment Management System: Bloomberg, Clarifi, and FactSet 251</p>
<p>CHAPTER 9 Barguments: The Antidementia Bacterium 255</p>
<p>The Colossal Nonfailure of Asset Allocation 256</p>
<p>The Stock Market as a Class of Systems 258</p>
<p>Stochastic Portfolio Theory: An Introduction 266</p>
<p>Portfolio Optimization: The Layman s Perspective 276</p>
<p>Tax–Efficient Optimization 282</p>
<p>Summary 282</p>
<p>CHAPTER 10 Past and Future View 285</p>
<p>Why Did Global Contagion and Meltdown Occur? 292</p>
<p>Fallout of Crises 297</p>
<p>The Rise of the Multinational State–Owned Enterprises 301</p>
<p>The Emerged Markets 310</p>
<p>The Future Quant 311</p>
<p>Notes 317</p>
<p>Acknowledgments 325</p>
<p>About the Author 327</p>
<p>Index 329</p>