Research Papers

[badcompany]

I'm always looking for good stuff to read. If you've come across anything financial related, feel free to post it, here:

Here's one I found informative and interesting:

http://web.mit.edu/alo/www/Papers/august07.pdf

http://i95.photobucket.com/albums/l142/thinlizzy21/6a868724576cff6849002b4753b7bd43_zps7a3a7a7c.jpg

[Robert Goren]

Thank you for posting this. I am maybe about a fifth the way through and find it fascinating. At this point most of us are Quant handicappers (whether we admit it or not) and we need to reminded from time that our methods have holes in them that are easily seen. 25 SD events do happen.

[vegasone]

Most of the Quants were over leveraged and operated under the impression they had found the key to the vault. A "Black Swan" event was not in their vocabulary. Some great books out there explaining their downfall.

[jfdinneen]

badcompany,

Perhaps Re-Examining the Hidden Costs of the Stop-Loss (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1123362) would be of interest!

John

[badcompany]

badcompany,

Perhaps Re-Examining the Hidden Costs of the Stop-Loss (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1123362) would be of interest!

John

Good one. Thanks.

That said, I believe the Author misses the point. A stop loss can often serve as an insurance policy which can protect you from a devastating loss from a crash as was the case in 2008.

Of course, not having insurance can often save you money, but, it doesn't change the fact that you put yourself in a high risk position.

[badcompany]

This is a good one. IMO, Position Sizing gets way too little attention, compared to stock picking.

http://turtletrader.com/position_sizing.pdf


http://i95.photobucket.com/albums/l142/thinlizzy21/9e373dd4e41034d27213cf40225f2a04_zps878881be.jpg

[PaceAdvantage]

Position sizing is a no brainer. Most retail traders take on WAY TOO big of a position for their account size. I know I'm guilty of it...

[badcompany]

Position sizing is a no brainer. Most retail traders take on WAY TOO big of a position for their account size. I know I'm guilty of it...

Position Sizing is the one area where you can be perfect and bat 1.000.

In financial markets or horseracing it's unavoidable to make bad decisions with regard to timing or stock/horse selection, but, if your rule is that you only risk X% of your bankroll on a stock/race, there's no excuse other than mental weakness to not do so.

[whodoyoulike]

BadCompany

I think reviewing doctoral and master dissertations is a good idea. I remember University libraries keeping these on file. Is that what you're doing? Are they available on-line? My experience is way before the internet.

[badcompany]

BadCompany

I think reviewing doctoral and master dissertations is a good idea. I remember University libraries keeping these on file. Is that what you're doing? Are they available on-line? My experience is way before the internet.

I usually just type in a keyword like "Position Sizing" and see what comes up.

[incoming]

Has anyone tried kelly criterion, I know at one time it was extremely popular in horse racing?

[whodoyoulike]

I usually just type in a keyword like "Position Sizing" and see what comes up.

You should see if University libraries have the dissertations avail on-line. If they do, I would think Univ. of Chicago, Harvard, Stanford, UCLA, or Wharton would be a gold mine for you. If not avail., you should take a visit to your local University and see what they have.

[badcompany]

You should see if University libraries have the dissertations avail on-line. If they do, I would think Univ. of Chicago, Harvard, Stanford, UCLA, or Wharton would be a gold mine for you. If not avail., you should take a visit to your local University and see what they have.

Good idea, thanks.

Got this one from Wharton


http://i95.photobucket.com/albums/l142/thinlizzy21/b07dff12515de21ee249a342e5d72be1_zps64229ce4.jpg

[whodoyoulike]

I don't get it. Is it on-line? The heading indicates Stanford.edu.

[badcompany]

I don't get it. Is it on-line? The heading indicates Stanford.edu.


http://www.wharton.upenn.edu/faculty/faculty-publications.cfm

[highnote]

This link will take you to a large number of articles from one of the greatest minds in the history of investing:

http://www.edwardothorp.com/index.html

He's not just an academic. He actually practiced what he preached and made hundreds of millions of dollars.

[badcompany]

Heard this guy on a podcast. Interesting stuff applicable to both racing and trading.

http://wexler.free.fr/library/files/gilovich%20(1985)%20the%20hot%20hand%20in%20basket ball.%20on%20the%20misperception%20of%20random%20s equences.pdf

http://i95.photobucket.com/albums/l142/thinlizzy21/F208132B-01C8-4905-BA77-4C943204FE21-474-0000008BAA91577B_zps0f35dd23.jpg

[badcompany]

Reckless, you might like this one. The Prof. breaks down Balance Sheets in an interesting way

http://people.stern.nyu.edu/adamodar/pdfiles/papers/returnmeasures.pdf

[reckless]

Reckless, you might like this one. The Prof. breaks down Balance Sheets in an interesting way

http://people.stern.nyu.edu/adamodar/pdfiles/papers/returnmeasures.pdf

Thanks for the link, badcompany. Great stuff to say the least.

Since the market and financial implosion in 2008-09 most companies have cleaned up their balance sheet and have become more conservative these past 5-6 years. This is good for the stock market and for investors, of course.

I always felt that companies that earn high ROE, high ROIC and generate free cash flow on a consistent and long term time horizon are worthy of consideration for investment.

After finding companies that fit this criteria I need just one more piece of the puzzle -- price. Companies that I feel are 'cheap' sell for a price that is 6, 8, 10, 13 times free cash flow. (There are great companies out there that generate high returns, such as Gilead, but the price is too rich for me to invest. The company is still a great company.)

There are bargains out there all the time, regardless if the S & P 500 is at 2,000 or 666.

[_______]

reckless-

Since you mentioned Gilead, just wondering what metric you are looking at when you determine Gilead is either over or fairly priced.

I see a company that will generate $50 billion in FCF over the next 3 years trading at nearly 1/2 it's peers forward P/E.

Obviously from my posts I think the stock is undervalued. Just wondering what the bear case is.

[Saratoga_Mike]

More and more competition on the way, shifting leverage to payors (i.e., PBMs and managed-care companies) and diminishing share. I have no opinion, but that's the bear case.

[badcompany]

The history of Pharma is that the big companies get bigger and dominate. Going forward, the best and the brightest in that field will want to work for Gilead, as it has established itself as the #1 Biotech company in the world.

http://i95.photobucket.com/albums/l142/thinlizzy21/38e7774bc773a22afbdf1354f5ea8da5_zps1818d5fd.jpg

[_______]

More and more competition on the way, shifting leverage to payors (i.e., PBMs and managed-care companies) and diminishing share. I have no opinion, but that's the bear case.

Merck will wind up with a significant share (25%?) of the HCV market once they roll out in 2016 but until then, ABBV doesn't have a comparable treatment. And even with discounts managements extremely conservative projections are for year over year growth.

I know you're agnostic but I don't see much in the standard bear case stated.

[reckless]

reckless-

Since you mentioned Gilead, just wondering what metric you are looking at when you determine Gilead is either over or fairly priced.

I see a company that will generate $50 billion in FCF over the next 3 years trading at nearly 1/2 it's peers forward P/E.

Obviously from my posts I think the stock is undervalued. Just wondering what the bear case is.

Gilead has always been a thorn in my side for ages. :) The reason is they have periods where Free Cash Flow explodes and periods where FCF growth is relatively miniscule.

I don't fault Gilead for this simply because this is the industry -- biotech, pharma -- they are in and that industry comes with radical (and inconsistent) periods of growth.

I also 'dismissed' Gilead because they didn't pay a dividend, and that is a must for me if I wish to invest. They started one now, as you know, so that gives me a new and important picture of the company.

Part of that past 'inconsistency' also had me --possibly wrongfully-- look at Gilead with a jaundice eye. Is this a company that only generated approx. $1.63 in FCF in 2012 or $2.10 in 2013 or is it now a company that will generate $7.50 (est.) in 2014 and $9.00 (est.) in 2015 in estimated FCF?

With Gilead selling at $97 right now, at $9 (est.) in FCF for 2015 Gilead is selling at about 10+ times FCF -- a streaming bargain for a company with 30 % net profit margins and 40%+/30%+ (est.) ROE/ROIC. At $7 (est. low end) FCF it is offered at 14 times which is under my bare minimum ratio for purchase.

But if Gilead generates just $2, $3 or even $4 in FCF -- more typical in recent years -- then it sells for 48 or 32 or 24 times FCF, too, too rich for my blood.

Don... badcompany ... and the other Gilead devotees, thanks for 'opening' my eyes to one of the great growth companies of the year. If the company is really on a growth projectory, then a $135 or $140 stock price in 12-18 months is quite possible.

PS--Just to note: Don, I am NOT a bear. I do see some dark clouds ahead for the market but not the end of the world. Stocks I sold a few weeks back are some stocks that I bought years ago for a ham sandwich and are now at prices that I wouldn't buy right now at current FCF yields. I took very long term profits on most of them. Leaving some money on the table is something I have learned to live with if the market continues going higher.

[badcompany]

As long as Gilead continues to outperform the Market to this extent, they can keep the dividend ;)

http://i95.photobucket.com/albums/l142/thinlizzy21/cf254f6f093097193e6971ed1fca9529_zps24941771.jpg