Well justin88, good luck to you. I’m glad you know all that number stuff well. Just remember that you want to maximize your return on risk, so whatever your model says, just leverage it up to the maximum ratio your model permits. Please don’t do it with my money, though.
Given what was said, I guess its safe to “presume” that quantitive strategies are basically investing by the numbers. I mean, you can have a quant strategy that says to buy the stock if it goes below a certain P/E, P/B, margins, current ratio etc. you would classify that as fundamentals? But what if the numbers are not what is so important? Can a quant model or a quant value a company based on its product or management? would a quant model be able to help me understand why coke is such a strong product or why a certain insurance firm’s risk approach is more prudent long term? with quant, aren’t we just trying to look at stocks as ticker symbols and numbers as oppose to businesses with a certain earning power?
bchadwick Wrote: ------------------------------------------------------- > Well justin88, good luck to you. I’m glad you > know all that number stuff well. Just remember > that you want to maximize your return on risk, so > whatever your model says, just leverage it up to > the maximum ratio your model permits. > > Please don’t do it with my money, though. I assume you’re joking and understand that increasing leverage actually reduces risk-adjusted return. Agreed that the insane leverage and imo rote speculation taken was ridiculous, but (again imo) the major failure was located in risk management.
First, let me say that the point of quantitative investing isn’t to be right 100% of the time, so it’s not critical to take into account every little detail for the model. FrankArabia Wrote: ------------------------------------------------------- > Given what was said, I guess its safe to “presume” > that quantitive strategies are basically investing > by the numbers. I mean, you can have a quant > strategy that says to buy the stock if it goes > below a certain P/E, P/B, margins, current ratio > etc. you would classify that as fundamentals? It is possible to take a quantitative approach to fundamental data, sure. > But what if the numbers are not what is so > important? > > Can a quant model or a quant value a company based > on its product or management? Nobody is claiming that QA is a panacea. If the product / management is quantified somehow, sure. This isn’t so different than assigning values to chess pieces – pawn = 1, knight = 3, rook = 5, etc. > would a quant model > be able to help me understand why coke is such a > strong product It is possible to build a model for brand value, sure. At least companies like Interbrand sure think so. > or why a certain insurance firm’s > risk approach is more prudent long term? Yep. > with quant, aren’t we just trying to look at > stocks as ticker symbols and numbers as oppose to > businesses with a certain earning power? Perhaps 15-20 years ago you could make money with just a correlation matrix but I doubt that’s the case now.
justin88 Wrote: ------------------------------------------------------- > First, let me say that the point of quantitative > investing isn’t to be right 100% of the time, so > it’s not critical to take into account every > little detail for the model. > > > FrankArabia Wrote: > -------------------------------------------------- > ----- > > Given what was said, I guess its safe to > “presume” > > that quantitive strategies are basically > investing > > by the numbers. I mean, you can have a quant > > strategy that says to buy the stock if it goes > > below a certain P/E, P/B, margins, current > ratio > > etc. you would classify that as fundamentals? > > It is possible to take a quantitative approach to > fundamental data, sure. > > > > But what if the numbers are not what is so > > important? > > > > Can a quant model or a quant value a company > based > > on its product or management? > > Nobody is claiming that QA is a panacea. > > If the product / management is quantified somehow, > sure. This isn’t so different than assigning > values to chess pieces – pawn = 1, knight = 3, > rook = 5, etc. > > > > would a quant model > > be able to help me understand why coke is such > a > > strong product > > It is possible to build a model for brand value, > sure. At least companies like Interbrand sure > think so. > > > > or why a certain insurance firm’s > > risk approach is more prudent long term? > > Yep. > > > > with quant, aren’t we just trying to look at > > stocks as ticker symbols and numbers as oppose > to > > businesses with a certain earning power? > > Perhaps 15-20 years ago you could make money with > just a correlation matrix but I doubt that’s the > case now. I think you hit the nail on the head. So we do a bunch of fundamental analysis and assign a quantitative value to it? Then we run a program to see how well these factors would have fared years ago if we would have taken a respective strategy right? I guess that’s what it comes down to. I would wager that it is the guy who can identify the factors that are important who are going to get paid. not the guy putting together the program to run the analysis.
justin88 Wrote: ------------------------------------------------------- > but (again imo) the major failure was located in risk management. Do you not see the inherent fallacy in your statement? Most risk management is based on quantitative models, rofl!
CFA and fundamental analysis will be relevant at least in my life time, and that is all that matters.
FrankArabia Wrote: ------------------------------------------------------- > justin88 Wrote: > -------------------------------------------------- > ----- > > FrankArabia Wrote: > > > -------------------------------------------------- > > > ----- > > > at the end of the day, fundamental analysis > is > > > what is required. > > > > Both quantitative and fundamental analysis are > > required. You might have been able to get a > job > > 15 years ago without quantitative skills, but > it’s > > nearly impossible today. > > > > > > > programmers simply build spreadsheets, but > what > > to > > > do with the information obtained is more > > > important. > > > > > > you can always hire a programmer to make > models > > > and spreadsheets. > > > > > > as an example, the financial crisis we saw > > brewed > > > on the backs of complex financial > instruments. > > > however, a person that had no understanding > of > > it > > > and smart enough to stay out of things they > did > > > not understand did not lose millions. > > > > Wow, just wow. Do you really think it was the > > person who understood these models that was > > leveraging this garbage 30 to 1? > > > > > > > i take a history background over a computer > > > programming one anyday. programmers are > > basiclaly > > > tools used. > > > > > > nice try nerd. > > > > I too value history highly, but you’re way off > the > > mark here. > > > So i’m valuing China Mobile here. What “quant” > skills do I need. > > I got the annual reports, conference calls, > company website info and information on the > chinese communications industry. In addition, i’m > looking at their competitors as well. > > Do i even need to use a spreadsheet other than to > keep the data nice and clean and perhaps change > the discount or growth rate? > > please explain how quant skills will help me make > my decision to buy more or sell this security. > > I admit however, that I rather not build the model > and instead would like someone to put all this > stuff in a spreadsheet for me so i can just sit > and think. some fancy VBA would be nice but highly > unlikely it will contribute to my decision. > > thanks Sure you’ll get a value. Question is : Is your analysis worth anything ? Is anyone anywhere willing to bet money on it ? Are you personally willing to bet money on it ? probably not. It is very hard to convince people that you can make them money with your brain. Whether you claim you’re a one-of-a-kind fundamental analyst or Quant analyst. The main difference between FA and QA (IMHO) is that people with money tend to trust mathematical models more than BS. Because they “sound” more sophisticated and can be back-tested and validated in the real world not in fantasy land. Plus off-course saying that you have a Ph.D in math/physics gives you more credibility than a BA in art-history or psychology.
FrankArabia Wrote: ------------------------------------------------------- > I would wager that it is the guy who can identify > the factors that are important who are going to > get paid. > > not the guy putting together the program to run > the analysis. They are the same person usually.
My goal is to work in a value fund. From what i have read, its not quant intensive. Would i put my money behind my own analysis? Absolutely and have already done so. that is the best part, i work hard, i get results (hopefully). I would never recommend something I can’t commit to myself. I think all the value guys on here I have talked to invested their own money behind their analysis and are doing quite well. I think its hard to get people to trust you with money under any circumstances.
adavydov7 Wrote: ------------------------------------------------------- > justin88 Wrote: > -------------------------------------------------- > ----- > > but (again imo) the major failure was located > in risk management. > > Do you not see the inherent fallacy in your > statement? Most risk management is based on > quantitative models, rofl! There was near-zero risk management in places like AIG. If you don’t manage risk, it doesn’t matter how you model it. Nowhere have I said that the quantitative models are authoritative. Nonetheless, many places were successful with risk management; JPM is a prime example, though I have no insight into their methods.
mo34 Wrote: ------------------------------------------------------- > Sure you’ll get a value. Question is : Is your > analysis worth anything ? Is anyone anywhere > willing to bet money on it ? Are you personally > willing to bet money on it ? probably not. There are more quantitative funds now than there ever have been. Quant funds are also hiring aggressively in this market. I wish I could say the same for fundamental funds. I hope it gets better soon. > It is very hard to convince people that you can > make them money with your brain. Whether you claim > you’re a one-of-a-kind fundamental analyst or > Quant analyst. The main difference between FA and > QA (IMHO) is that people with money tend to trust > mathematical models more than BS. Because they > “sound” more sophisticated and can be back-tested > and validated in the real world not in fantasy > land. Unless you’re doing manual labor, you’re making money with your brain. I agree there are excellent FAs out there – Ackman, Einhorn, Paulson – but I bet a lot of the good FAs have a very solid quantitative understanding (just as a lot of the good QAs have fundamental understanding). > Plus off-course saying that you have a Ph.D in > math/physics gives you more credibility than a BA > in art-history or psychology. I haven’t said a thing about myself. Re: backgrounds, in general there is a trend, yes, but that doesn’t tell you much about any given individual.
justin88 Wrote: ------------------------------------------------------- > There was near-zero risk management in places like > AIG. If you don’t manage risk, it doesn’t matter > how you model it. I’m sure that’s not what they would have told you had you asked them back in 07. I am willing to bet they would have told you something to the effect that based on our models we are fully hedged/insulated/immunized.
adavydov7 Wrote: ------------------------------------------------------- > I’m sure that’s not what they would have told you > had you asked them back in 07. I am willing to bet > they would have told you something to the effect > that based on our models we are fully > hedged/insulated/immunized. Are you referring to AIG? Sure a PM might say that, but a reasonable person (ie risk manager) should be skeptical of statements like this. While there are legitimate arbitrage opportunities out there, they are small; they don’t exist for a trillion dollar balance sheet.
justin88 Wrote: ------------------------------------------------------- > mo34 Wrote: > -------------------------------------------------- > ----- > > > Unless you’re doing manual labor, you’re making > money with your brain. I agree there are > excellent FAs out there – Ackman, Einhorn, > Paulson – but I bet a lot of the good FAs have a > very solid quantitative understanding (just as a > lot of the good QAs have fundamental > understanding). > Actually most cubicle workers don’t promise to make money with their brains. They only promise to do a given function in return for an agreed upon compensation. But Asset Managers promise to grow your money with their brain, it’s magic 
With all this talk of quant/fundamentals, are there any famous quant/value funds? the guys i hear of are pretty fundamental and problably wouldn’t run some crazy computer program that will tell them to buy a stock.
No, I was referring particularly to AIG risk managers. Come to think of it, had you shown AIG’s risk models to other risk managers in 07 I am sure the would have concurred in the AIG risk managers’ statements.
adavydov7 Wrote: ------------------------------------------------------- > No, I was referring particularly to AIG risk > managers. Come to think of it, had you shown AIG’s > risk models to other risk managers in 07 I am sure > the would have concurred in the AIG risk managers’ > statements. Can you provide me some evidence of your claim? I will provide some to the contrary, although a bit more recent (from Sept 2008), when AIG was still marking assets at 1.7x to 2x multipliers on Lehman’s valuation (which you could argue was already inflated): http://www.nytimes.com/2008/09/15/business/15aig.html
FrankArabia Wrote: ------------------------------------------------------- > With all this talk of quant/fundamentals, > > are there any famous quant/value funds? > > the guys i hear of are pretty fundamental and > problably wouldn’t run some crazy computer program > that will tell them to buy a stock. How about Renaissance Technology? Probably the most successful hedge fund ever (unless Paulson can keep this up).
FrankArabia Wrote: ------------------------------------------------------- > are there any famous quant/value funds? > LSV is Chicago is pretty deep value, pure quant.