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Yuval Taylor
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The Problem with Calculating Intrinsic Value The calculation of intrinsic value has become a forbidding and abstruse practice. It seems reserved for nerds and members of the Warren Buffett cult. As Aswath Damodaran, one of its most elegant and charismatic practitioners, and perhaps the person who has promoted it more... Continue reading
Posted 3 days ago at invest(igations)
Roger Lowenstein’s When Genius Failed: The Rise and Fall of Long-Term Capital Management was first published in 2000 (it was republished with a new afterword in 2011) and is now considered a classic book of business history. It tells how a firm consisting of PhDs and financial wizards—including two Nobel... Continue reading
Posted Nov 1, 2020 at invest(igations)
I finished Tristram Shandy only to find out that the author didn’t. Laurence Sterne died after publishing nine volumes. If he had lived, he doubtless would have written a tenth and an eleventh. I’m disappointed—I was looking forward to some sort of conclusion. But silly me. That would have been incongruous. The book has no beginning—well, actually, most of the book is its beginning—or middle, really, so how could it have an end? So much has already been written about Tristram Shandy that I’m not sure what I can add. And really, what can you say about a shaggy dog... Continue reading
Posted Oct 28, 2020 at Backland
This article is the third in a series about screens designed by famous investors. The first, on Benjamin Graham, can be found here; the second, on William O’Neil, can be found here; and for an overview of the subject, see my article “Can Screening for Stocks Still Generate Alpha?“ In... Continue reading
Posted Sep 14, 2020 at invest(igations)
There are a number of reasons why you might be interested in the future sales/revenue growth of a company. For instance, in order to perform a discounted-cash-flow analysis of a stock, it’s one of the essential inputs. Or perhaps you believe that the higher a company’s projected sales growth, the... Continue reading
Posted Sep 8, 2020 at invest(igations)
This article is the second in a series about screens designed by famous investors. The first, on Benjamin Graham, can be found here; for an overview of the subject, see my article Can Screening for Stocks Still Generate Alpha? In 1988, William O’Neil published How to Make Money in Stocks,... Continue reading
Posted Sep 1, 2020 at invest(igations)
In 1977, Yaakov Shabtai published a novel in Israel called Zikhron dvarim, which means A Memory of Things. If you took the English mistranslation of Proust’s title À la recherche du temps perdu, Remembrance of Things Past, and translated that as concisely as possible into Hebrew, you’d probably get Zikhron dvarim. The novel is Proustian in many ways: the sentences are long and intricate; paragraphs go on for pages (in fact, Zikhron dvarim consists of one unbroken paragraph); the central characters are idle and irresolute; one of the principal subjects is decay and degeneration; the cast of characters is vast... Continue reading
Posted Aug 25, 2020 at Backland
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
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
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
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)
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)