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Yuval Taylor
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This article is the first in a series about screens designed by famous investors. For an overview of the subject, see my previous article, Can Screening for Stocks Still Generate Alpha? Benjamin Graham, who has often been called the father of value investing, published The Intelligent Investor in 1949 and... Continue reading
Posted Jul 31, 2020 at invest(igations)
Jane Gardam’s novel Old Filth concerns the life of a Raj orphan (a British person who was born in India and was sent back to England alone) who grows up to be a respected barrister in Hong Kong. It reminded me of Penelope Fitzgerald’s work, with eccentric characters doing unexpected things, abrupt shifts in perspective, a distanced tone, and witty, crisp dialogue. But it has some minor weaknesses that Fitzgerald’s novels don’t have: coincidental meetings of old acquaintances; a dark crime that happens early but that we don’t find out about until the end; and an overemphasis on the contrast... Continue reading
Posted Jul 12, 2020 at Backland
This article is an overview of screening; in subsequent articles I will be doing deep dives into some classic screens such as those by Benjamin Graham, William O’Neil, Joel Greenblatt, Joseph Piotroski, and James and Patrick O’Shaughnessy. Hundreds of thousands—perhaps millions—of investors use screens as a first step to picking... Continue reading
Posted Jul 6, 2020 at invest(igations)
Never have I seen such chaos in the United States as at this moment. Right now in Chicago everyone is setting off their own fireworks instead of gathering to view the city's (which have been canceled), and it seems like there's nothing to guide anyone any more. In a way, it's liberating: under a huge harvest moon, with dozens of fireflies flickering, we're all setting off our own explosives. We need rules to guide us, but now we have to make up our own rules, on the fly. All the states are making their own rules too--whoever could have imagined... Continue reading
Posted Jul 4, 2020 at Backland
Last year I created a screen on Portfolio123 that invests in companies in the Russell 3000 that spend heavily on R&D. (To access this screen, you need to either have a Portfolio123 account or start a free trial.) There were four rules in the screen, but the most important were... Continue reading
Posted Jun 29, 2020 at invest(igations)
The New Yorker just published Paul Elie’s excellent piece on Flannery O’Connor’s racism. I won’t suggest that we stop reading a writer only because she once confessed, “I don’t like negroes. They all give me a pain.” Or that her black characters are alternately lazy, stupid, and killers (see her final story, “Judgement Day,” for example). There are too many other reasons to stop reading Flannery O’Connor. First, her characters do not have normal human relationships. There are no friendships between them, no falling in love, no warm familial interactions. They feel no sympathy for each other. A writer who... Continue reading
Posted Jun 21, 2020 at Backland
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Two Kinds of “Market Regimes” A lot of investors talk about “market regimes.” This term can have several different meanings. Classically, a market regime is characterized primarily by four measures: interest rates, inflation, GDP growth, and unemployment; often added to these are characterizations of government fiscal and monetary policy. But... Continue reading
Posted Jun 1, 2020 at invest(igations)
Soul Survivor by Jimmy McDonough is a biography of soul singer Al Green; but Al Green is, unfortunately, as incomprehensible a figure as one can find in popular music. The book excels when it comes to music and musicians; its central figure, though, remains a cipher. I’ve known Jimmy since I was eighteen, and his tastes in music, film, and writing were formative for me. I’ve always admired him, and had the pleasure of working on two of his best books, The Ghastly One and Shakey. This book, like his others, is full of sharp observations, wry turns of phrase,... Continue reading
Posted May 27, 2020 at Backland
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I’ve embarked on a new photographic project called Nothing to See Here. In a way, I’m attempting to do for Chicago’s South Side what Eugène Atget did for Paris a century ago. But I'm also doing something a little more radical. I’m avoiding pictorialism as much as I can. If something strikes me as wow, that would make a great photo, I won’t take it. Instead I take pictures of what doesn't particularly strike me and see if the pictures strike me afterwards. Here is a small sample of the images I've made. If you hover your pointer over one,... Continue reading
Posted May 13, 2020 at Backland
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It has long been established that stocks with low variability in prices tend to outperform stocks with high variability. I’ve explored this in a few recent articles (A Tale of Two Volatilities, Low-Volatility Stock Picking for High-Volatility Markets, and Why Alpha Works – and a New Way of Calculating It),... Continue reading
Posted May 12, 2020 at invest(igations)
My father, Milton Taylor, recently completed writing his autobiography and called it A 20th-Century (Jewish) Life: From Shepherd to Professor of Virology. (You can download it here.) Reading my own father’s memoir was very different from reading a memoir by someone I don’t know. For one thing, I’m in the book. For another, it was written for me—and for others whom he knows—not for a broad public. So it’s a personal communication rather than a general one, like a letter in a way. My father has led an interesting life. He was born and raised a Glaswegian Jew, but dropped... Continue reading
Posted May 8, 2020 at Backland
The Reversal of the Price-to-Sales Ratio For the past few years, investors have noticed what we call a “value inversion,” which appears to be getting progressively worse. The chart below exemplifies what’s happening: Theoretically—and normally—stocks with low price-to-sales ratios (cheap stocks) outperform those with high price-to-sales ratios (expensive stocks). As... Continue reading
Posted Apr 27, 2020 at invest(igations)
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What We Talk About When We Talk About Volatility. When we as investors talk about volatility, we’re usually talking about variability in price returns. If an investment goes up and down 5% to 10% per day, that’s high volatility; if it goes up and down 0.05% to 0.1% per day,... Continue reading
Posted Apr 2, 2020 at invest(igations)
Lewis Nordan’s first two books, Welcome to the Arrow-Catcher Fair (1983) and The All-Girl Football Team (1986), were short-story collections that largely hung together like the chapters of a good novel or the songs on a good album do. The first was wide-ranging, polished, and very grotesque, while the second focused mainly on a teenage boy named Sugar in small-town Mississippi. They’re not perfect books: the first opens with a sickeningly detailed embalming and the second includes a misguided Faulkner parody. But they’re otherwise quite marvelous. (The two books were later combined into one called Sugar Among the Freaks, which... Continue reading
Posted Apr 1, 2020 at Backland
This article is the last in a ten-part series loosely based on Michael J. Mauboussin’s white paper “Thirty Years: Reflections on the Ten Attributes of Great Investors.” See “Part One: Be Numerate,” “Part Two: Understand Value,” “Part Three: Properly Assess Strategy,” “Part Four: Compare Effectively,” “Part Five: Think Probabilistically,” “Part... Continue reading
Posted Mar 19, 2020 at invest(igations)
When I read Ann Patchett’s Commonwealth close to two years ago, I was floored. A wise and vivid exploration of an extended family, it was the kind of book I had wanted to read, a book that explored the relationships of real-seeming people to the same depth that Tolstoy and Balzac had. So I eagerly read her next book, The Dutch House, as soon as it came out. Then, just now, I went back and read her previous novel, State of Wonder. But State of Wonder is a silly book, and gives little hint of what Patchett would soon be... Continue reading
Posted Mar 16, 2020 at Backland
In high-volatility markets like the one we’re in now, low-volatility investing can offer considerable comfort. But it can also offer excess returns. In this article, I’m going to single out six basic factors (and their variations) that investors should explore when designing a low-volatility model, and I’m going to present... Continue reading
Posted Mar 11, 2020 at invest(igations)
Building and Breaking Models If you’re a quantitative investor or trader, you build a model and then backtest it to see if it has worked in the past; if you’re like most people, you try to improve your model with repeated backtests. You’re operating under the assumption that there will... Continue reading
Posted Mar 10, 2020 at invest(igations)
This article is the ninth in a ten-part series loosely based on Michael J. Mauboussin’s white paper “Thirty Years: Reflections on the Ten Attributes of Great Investors.” See “Part One: Be Numerate,” “Part Two: Understand Value,” “Part Three: Properly Assess Strategy,” “Part Four: Compare Effectively,” “Part Five: Think Probabilistically,” “Part... Continue reading
Posted Feb 29, 2020 at invest(igations)
I recently read Brooks Haxton’s translation of Heraclitus’s Fragments. I had also read Guy Davenport’s translation. Haxton’s translation may be, of all the translations I’ve looked at, perhaps the least straightforward, the least literal. Yet it has its virtues. Some of the fragments are pithier than in other translations, and wittier too. On the whole I prefer Davenport’s. But it would be nice to have a compendium of, say, five different translations of each fragment. Heraclitus was a Greek philosopher who wrote about the mutability of all things. Because Ancient Greek is so different from today’s English, and because all... Continue reading
Posted Feb 26, 2020 at Backland
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The Evidence: Momentum Works As a factor, momentum—the idea that a stock’s relative returns over the past six to twelve months have a tendency to persist over the next six to twelve months—has proved remarkably resilient. Academics first recognized this factor in the early 1990s, and its return premium has... Continue reading
Posted Feb 24, 2020 at invest(igations)
This article is the eighth in a ten-part series loosely based on Michael J. Mauboussin’s white paper “Thirty Years: Reflections on the Ten Attributes of Great Investors.” See “Part One: Be Numerate,” “Part Two: Understand Value,” “Part Three: Properly Assess Strategy,” “Part Four: Compare Effectively,” “Part Five: Think Probabilistically,” “Part... Continue reading
Posted Feb 10, 2020 at invest(igations)
In José Saramago’s Blindness, a mysterious epidemic of white blindness plagues the population. The book follows a group of nameless characters through the traumas of internment and isolation, hunger and filth. We have become used to dystopias and horror stories, not to mention the terrors of the concentration camps and the Gulag, and the bloody abuses of power in South America and Africa. Blindness is of a piece with all those in its nightmarishness, in the helplessness and everyday heroism (and pettiness) of its characters. But it’s also a funny book, funny in the inimitable Saramago way, in which the... Continue reading
Posted Feb 6, 2020 at Backland
The conventional method of finding out whether or not a factor works is to look at the performance of the top (or bottom) ten or twenty percent of stocks ranked according to that factor and then subtract the bottom (or top) ten or twenty percent. One should then buy stocks... Continue reading
Posted Feb 5, 2020 at invest(igations)
This article is the seventh in a ten-part series loosely based on Michael J. Mauboussin’s white paper “Thirty Years: Reflections on the Ten Attributes of Great Investors.” See “Part One: Be Numerate,” “Part Two: Understand Value,” “Part Three: Properly Assess Strategy,” “Part Four: Compare Effectively,” “Part Five: Think Probabilistically,” and... Continue reading
Posted Jan 29, 2020 at invest(igations)