Quant Investing

with Tal Davidson

Glossary

Here are the definitions for popular terms we use in our screeners and model portfolios (ordered according to abc):

  • Avg. Daily Volume – The average daily trading volume over the last month.
  • Beta – 3 year Beta.
  • Cheapness Rank (TEV/EBIT Screener) – A cheapness rank based on the TEV/EBIT multiple. A rank of A% indicates that the stock is cheaper than A% of stocks in the universe. A lower rank is better.
  • Cheapness Rank (VC2 Screener) – A cheapness rank based on Value Composite 2 ranking system (VC2). VC2 is inspired by Jim O’Shaunnesy’s “What Works On Wall Street”. Comprised of the following valuation multiples: P/E TTM; P/FCF; P/B; EV/Sales; EV/EBIT; Shareholder’s Yield. A lower rank is better.
  • Current Ratio – Calculated as Current Assets – Current Liabilities.
  • Debt/Equity – Calculated as Total Debt / Book value of Equity.
  • EPS PTM – Earnings Per Share during the previous TTM, excluding Extraordinary items.
  • EPS TTM – Earnings Per Share during the recent TTM, excluding Extraordinary items.
  • EV (or TEV) – Enterprise Value. Calculated as Market Cap + Total Debt (incl. Preferred equity) – Cash & Equivalents.
  • EV/ Sales – Calculated as Enterprise Value / TTM Revenue. Enterprise Value = Market Cap + Total Debt (incl. Preferred equity) – Cash & Equivalents.
  • EV/EBITDA – Calculated as Enterprise Value / TTM Earnings before Interest, Taxes, Depreciation & Amortization. Enterprise Value = Market Cap + Total Debt (incl. Preferred equity) – Cash & Equivalents.
  • FS_score – Modified Piotroski F_score. The higher the better. A measure of the quality and financial stability of the company, measured from 0 to 10. Based on the work of T. Carlisle and W. Grey described in their book “Quantitative Value”.
  • MF Quality Rank – Magic Formula quality rank. Sorts stocks according to their return on capital, which was defined by Joel Greenblatt as [Operating Income after Depreciation / (Net PP&A + Receivables + Inventory)]. A higher rank is better. 
  • MF Rank – Magic Formula Rank. Calculated as the average of the  MF quality rank and the MF valuation rank. A higher is better. 
  • MF Valuation Rank – Magic Formula valuation rank.  Sorts stocks according to their Earnings Yield, defined by Joel Greenblatt as [Operating Income after Depreciation / Enterprise Value]. A higher rank is better. 
  • Mom. Quality Rank – Momentum’s Quality Rank. Implements a proprietary algorithm which sorts stocks according to how consistent and monotonous their momentum behaves. A higher rank is better. 
  • Mom. Quarter – The momentum of the stock in the recent quarter. Calculated as the % of price change between 3 months ago and 1 month ago. The exclusion of the most recent month is due to the reversal effect in the recent month.
  • Mom. Year – The momentum of the stock in the recent year. Calculated as the % of price change between 12 months ago and 1 month ago. The exclusion of the most recent month is due to the reversal effect in the recent month.
  • NCAV (% of MV) – Calculated as Net Current Asset Value / Market Cap. Nat Current Asset Value = Current Assets – Total Liabilities – Preferred Equity.
  • NCAV % y-o–py – The % change in NCAV from the previous year to today.
  • Net Cash (% of MV) – Calculates Net Cash / Market Cap. Net Cash = Cash & Equivalents – Total Liabilities – Preferred Equity.
  • P/B – Calculated as Market Cap / Total Equity. The measure excludes Preferred Equity.
  • P/E TTM – Calculated as Market Cap / TTM Earnings before Extraordinary items.
  • P/FCF – Calculated as Market Cap / (TTM Operating Cashflow – Capital Expenditures)
  • P/TanB – Price to Tangible Book Value Ratio. Tangible Book Value is the book value of common equity (excl. preferred equity) minus intangible assets.
  • Quarter Mom Rank – Quarterly Momentum Rank. The higher the better. Sorts the stocks according to their idiosyncratic quarterly momentum. Idiosyncratic momentum normalizes momentum relative to their beta. A momentum figure for a low beta stock will yield a higher rank than the same momentum figure for a low beta stock.
  • ROC 5Y Avg. – The arithmetic average of the Return on Capital during the last five TTM periods. ROC is calculated as EBIT / (Equity + Total Debt – Cash & Equivalents)
  • Sh. Yield – Shareholder’s Yield. The rate at which the company gave back capital to its shareholders, in the form of dividends, buying back equity, and reducing debt. Calculated as (Dividend paid + net equity purchased + net debt paid) / Market Cap.
  • TEV/EBIT – Total Enterprise Value / Earnings Before Interest and Taxes. Enterprise Value = Market Cap + Total Debt (incl. Preferred equity) – Cash & Equivalents. EBIT equals TTM Operating Income.
  • TEV/EBIT Rank – A cheapness rank based on the TEV/EBIT multiple. A rank of A% indicates that the stock is cheaper than A% of stocks in the universe. A lower rank is better.
  • TTM – Trailing Twelve Months.
  • QV Quality Rank – Quantitative Value Quality Rank. A rank of A% indicates that the stock has a higher quality than A% of stocks in the universe. Comprised of fundamental quality parameters such as the FS_Score, 5Y averages of Return on Assets, Return on Capital, Accruals, Gross Margin, and Gross Margin growth, as well as several technical parameters which are undisclosed. A higher rank is better.