Quantitative Value Philosophy by Alpha Architect has five sequential steps to reduce the investment universe to conviction picks:
- Identify Investable Universe: Our universe generally consists of mid- to large-capitalization U.S. exchange-traded stocks.
- Forensic Accounting Screens: We conduct financial statement analysis with statistical models to avoid firms at risk for financial distress or financial statement manipulation.
- Valuation Screens: We screen for stocks with low enterprise values relative to operating earnings.
- Quality Screens: We rank the cheapest stocks on their long-term business fundamentals and current financial strength.
- Investment with Conviction: We seek to invest in a concentrated portfolio of the cheapest, highest quality value stocks. This form of investing is by definition contrarian, and requires disciplined commitment, as well as a thorough understanding of its theoretical and intellectual underpinnings.
Looks like an interesting article - although the implementation details and calculations are in a book on Amazon.
Some calculation ideas are obvious, such as the CFO/NI ratio where higher ratios indicate higher quality income, i.e. fewer accrual driven earnings. CFO = cash flow from operations
Another measure of forensic accounting is financial distress.
- P/E – Price-to-Earnings
- TEV/EBITDA – Enterprise Multiple = total enterprise value / EBITDA (the author's best-performing valuation metric)
- FCF/TEV – Free Cash Flow Yield
- GP/TEV – Gross Profits Yield
- P/B – Price-to-Book
Measurement of financial strength: Piotroski’s F-SCORE
Automation of simple tasks through technology tools or apps
Amazon Mechanical Turk Ask workers to complete HITs - Human Intelligence Tasks - and get results using Mechanical Turk.
Saturated Fat research / writing
- NY Times article (9/1/2014) A Call for a Low-Carb Diet That Embraces Fat
- The research article referenced in the NY Times article. Published in Annals of Internal Medicine
- Full text of The Cholesterol Myths by Danish physician, Dr. Uffe Ravnskov. Described by Michael Eades as thoroughly researched and referenced book on how cholesterol isn’t the monster most nutritional researchers seem to think it is link to Michael Eades.
- THINCS, The International Network of Cholesterol Skeptics, an organization that includes physicians and scientists from around the globe.