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Hot answers tagged value-investing

4

In practice, this equation won't even hold for the vast majority of bonds in the US Treasury market, which is the most liquid government bond market. The chart below shows the spreads of US Treasuries relative to a fitted curve (more specifically, a model price is calculated for each bond by discounting its cash flows using a theoretical zero coupon curve. ...

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A wonderful recent paper that might be of interest is Feng, Giglio, and Xiu's "Taming the Factor Zoo." First, the paper lists nearly 100 "factors" that have been proposed from 1965 through 2016. The corresponding papers that first discuss these factors are also tabulated. Second, the authors analyzed quite thoroughly whether the newly discovered factors, ...

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There are alternative approaches, for example a company can have a significant balance sheet but still be making a loss, in that instance it should be worth at least the net balance sheet value as by disposing of all assets.

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@DhruvMahajan, there's no look-ahead bias if you set it up properly. You simply don't use data post your snap date (eg, if you're assessing as of 12/31/2001 and your data set starts 1/1/2000, your LT mean would just be taken over the two years of data you have at that point). You'd simply extend this in subsequent years, as you would if you were creating ...

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You can construct some financial ratios, such as P/E Ratio or P/B. P/E Ratio P/E Ratio stands for Price/Earnings. As Price you can use the market value of equity and for Earnings the Total Net Profit from firm's Income Statement. Equivalently, you can divide both measures with the outstanding shares. This way P/E Ratio stands for Stock Price/EPS. An ...

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A &5 note of worth \$1000, is issued against a collateral of 5% bond of worth \$1736. Now yearly interest of \$1736 at a rate of 5% comes \$87. This interest is distributed among note holders. So note holder effective get a interest of 8.7% (=87/1000 x 100) which is much better than 7% as per contract. This is the advantage note holders were getting ---...

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I like your classification (though I would possibly combine sentiment + momentum and profitability + low vol), and it seems as reasonable as any. Most classifications I've seen don't have more than 6-7 categories. For a completely different approach, you can look at the classification of Harvey, Liu, and Zhu. If you want to extend beyond "factors" into ...

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The annuity formula. It's the best and easiest way to approximate a discounted cash flow analysis (DCF) using minimal data. PE is a decent "first" approximation that compares cash flow to price, but totally ignores the growth component. The PEG is a convenient tool for standardizing PEs to growth rates. PEG, however, has no mathematical basis in the time ...

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