Author: Yuval Taylor

Sharpe ratio. Information ratio. Jensen's alpha. Compound annual growth rate (CAGR). Average monthly or annual returns (or excess returns). These are the five major ways that people measure portfolio performance. I've already discussed these at length in a previous article. But I want now to offer something new—and better. This…

When we decide whether or not to buy a stock, or choose what stock to invest in, we pay attention to certain aspects of that stock (low price-to-sales ratio, for example, or strong earnings growth), and we favor stocks with those aspects in part because we’ve learned that such stocks…

Let’s say I screen the stocks in the S&P 1500 by the following criteria (all for the last twelve months): sales greater than enterprise value; sales growth between 0% and 15%; net profit margin greater than 5%. Tested on Portfolio123 since 1/1/2000 with a four-week holding period and a slippage…

A few months ago I was wondering how I could synthesize the following considerations when buying stock in a company: a) its indicated dividend; b) its price; c) its payout ratio (i.e. how much of the company’s earnings does it pay out in dividends); and d) its projected dividend growth.…

There have been countless discussions of the overvaluation of stocks these days. But one metric has been getting short shrift. And that is supply. The demand for stocks is going to be high as long as alternative investment vehicles are not as appealing as stocks. Right now the perceived return…

A lot of investors avoid microcaps. They’re hard to trade, their prices are volatile, slippage and market impact present major headaches, and there’s just not enough information out there about them to enable investors to easily judge their worth. I love microcaps. Here are the seven reasons why. Inefficiencies. The…

In technical analysis, a trend is defined as the general direction of a security’s price over a period of time. In order for a trend to be useful, it has to have a greater chance of continuing than of reversing. If it has a greater chance of reversing than of…

There is no shortage of investment advice to “keep it simple, stupid.” Peter Lynch, Warren Buffett, and Joel Greenblatt have all been said to have dispensed this wisdom. I don’t like it. I recently met an investor who was planning to use a very simple value-based investment model that he’d…

The price of a stock is the number-one thing most investors look at when deciding whether or not to buy shares in a company. But maybe it shouldn’t be. The hypothesis behind fundamental analysis is that one can compare the price of a stock to the price that, in an…

(Originally William F. Sharpe, Beta, and the Paradox of Risk-Adjusted Returns) Money managers like to take into account not only the potential returns of an investment but also the amount of risk involved. They use all sorts of formulae to quantify this balance: alpha, beta, the Sharpe ratio, the Sortino…