Books
I selected the top 10 books which explain the philosophy and practice behind the quantitative approach to investing. The list does not cover essential books on value investing in general (you can find good lists here, here and here). If you wish to deeply understand why Quant Investing is an excellent way to beat the market, and if you wish to understand the many facets of Quant Investing, take your time and start reading…one book at a time.
Ben Graham’s classic is the foundation of the quantitative approach. Graham created Quant systems in the days where algorithms were executed with pen and paper. His “Stock Selection Criteria” for the defensive and enterprising investor and net-net stocks are well known.
Greenblatt popularized Quant Investing with his best-selling books describing the wildly popular “Magic Formula”. Now everyone can invest quantitatively in Quality Cheap stocks listed in Greenblatt’s MagicFormulaInvesting.com website.
Quant guru Wes Grey with co-authors Vogel & Foulke go further in making seemingly-complex topics such as asset allocation and cognitive biases, and make them accessible to individual investors. Grey and co. don’t keep it theoretical. They bring practical advise to intelligent investors wanting to build market-beating low-maintenance DIY portfolios.
Grey and Carlisle set a goal to create the best-performing Quantitative Value strategy, and they do a tremendous good job at it. The authors break the Magic Formula into its primary principles, and go about perfecting it. The Quantitative Value strategies in taldavidson.com were inspired by Grey and Carlisle’s work (yet go even further in perfecting the ideas for small individual investors).
With the success of “Quantitative Value” and “DIY Financial Advisor”, Grey and Vogel went on to dissect every research piece in existence on Quantitative Momentum. If you want a concise yet comprehensive primer on Momentum, this is it.
O’shaughnessy’s seminal book takes Fama-French theory of Factor Investing to practice, and delivers a report of simulated performance for all well-known stock factors and combination of factors. If you truly want to understand what works on wall street, read on.
Following the creation of the ultimate Quant Value strategy described in “Quantitative Value”, Carlisle went on to explore the cheapest securities on earth – the Deep Value stock. He discovers that simply buying cheap (vs. highest-quality cheap, as the Quantitative Value model advocates) is lucrative nonetheless. Deep Value stocks tend to be activist targets, and Carlisle elaborates on the mechanism of unlocking value in those beaten-and-forgotten stock picks.
John Mihaljevic, the man behind the “Manual of Ideas” and ValueConferences media empire made a great service to the investing community by opening the black box of the Manual of Ideas’ idea generation process. The book describes the philosophy of MOI quantitative screening process and contains many valuable insights which will surely help both novice and professional investors more successful and more confident in their investing endeavors.
The man behind Cambria Investment Management and the succesful Global Asset Allocation ETF (NYSE: GAA) Mebane Faber, shows step-by-step how to track and mimic the investment strategies of the highly successful Harvard and Yale endowments. Using the endowment Policy Portfolios as a guide, the authors illustrate how an investor can develop a strategic asset allocation using an ETF-based investment approach.
Nassim Taleb’s ground-breaking book does not discuss Quantitative Investing strategies, but rather the role of uncertainty and probability in the world around us. The book will serve to humble the readers about human experts ability to predict the future and capitalize on such prediction. It serves as a philosophical ground to Quantitative Investing.
Academic Papers
Have you ever read an academic paper on investing? Although the task may sound daunting and dull, you may find that it is not necessarily so. While all papers follow a well-defined form, the best investing researchers write wit-fully, with a touch of humor and even sarcasm. Scientific accuracy is not compromised, resulting in a worthwhile endeavor.
In Alphabetical order.
Foundations of Factor Investing
Bender J., Briand R., Melas D., Subramanian R. A. (2013)
An overview and summary of recent research on Factor Investing (a.k.a Smart Beta), their performance over the last several decades, and main theories which attempt to explain their over-performance. If you’re new to Factor Investing, Smart Beta or Quantitative Investing, this is a great place to start.
Factor-based Investing
Pappas S., Dickson J. (2015)
Another introductory paper on Smart Beta factors, to make sure you grasp the topic essentials from all angles.
Investing with Style
Assness C., Ilmanen A., Israel R., Moskowitz T. (2015)
The writings of Dr. Clifford Asness are essential reading for any serious Quant Investor. Assness and co. organize the available evidence on the out-performance on the factors Value, Momentum, Carry and Defensive. Included is an important discussion on Stock Factors as a portfolio diversifier.
A Quantitative Approach to Tactical Asset Allocation
Faber, M. T. (2013)
A study of the performance of various asset allocation schemes and their performance
Buffett’s Alpha
Frazzini A., Kabiller D., Pedersen L.H. (2012)
Could Buffett’s success be replicated by an implementation of a quantitative investing system? Frazzini and co-authors believe it could, and they show evidence. If you ever thought that Buffett possesses a unique ability to deeply analyze the qualitative aspects of a company, the authored will show you otherwise. A true eye-opening piece.
Betting against Beta
Frazzini, A., & Pedersen, L. H. (2014)
A deep dive into the low-beta stock factor, a key piece in the investment strategies we use on this website.
After-tax Returns on Stocks Versus Bonds for the High Tax Bracket Investor
Gannon, N. J., & Blum, M. J. (2006)
The issue of after-tax returns is often overlooked by novice investors who disregard asset turnover but bears much importance in any investment scheme, either discretionary or mechanical. This paper provides a good intro to the complex subject.