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Investment Philosophies



This web page is designed to support the first edition of "Investment Philosophies", printed in 2002. The publisher is John Wiley and Sons. You can navigate the site by either going to individual chapters and getting supporting material by chapter, or by going to the supporting material directly. The supporting material includes:

  1. Chapter Outlines and overheads: These are saved as pdf files, and you need Adobe Acrobat to read them. You can download Adobe Acrobat by going to the Adobe site. (www.adobe.com) The overheads are categorized by topic, rather than chapter. To go to overheads, click here.
  2. Readings: These are readings from business and academic publications that supplement the specific topic.
  3. Powerpoint Presentations: These are power point presentations that are designed for use by instructors. You will need the password to download these.
  4. Spreadsheets: These are spreadsheets that supplement the topic. They are in Microsoft Excel 95 format, and can be used on either a Mac or Windows system.
  5. Datasets: These are the datasets referenced in each chapter. They generally will include updated lists of firms that fit the specificed criteria - lowest PE, highest dividend yield etc.
  6. References: I am deeply indebted to the many people with far more patience than I possess who made my job easier by testing just about anything that can be tested. This reference list contains every (I hope) paper that I have borrowed from in writing this book.
  7. Some light reading: This is my must-read list... with a little editorial commentary.
You can read the preface to the book by clicking here. If you are an instructor using this book, please click here.

You can pick the chapter that you would like to go to, to see illustrations, solutions and other supporting material.
Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6
Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12
Chapter 13 Chapter 14        

Or you can pick the material that you are interested in.
Spreadsheets Overheads Datasets
References Powerpoint Presentations Light Reading

Chapter 1: Introduction
Topic Details
Overheads
Download as pdf file
Readings
  1. Introduction to Investing
  2. A venture capital fund's investment philosophy
  3. A growth newsletter's invstment philosophy

Chapter 2: Upside, Downside: Understanding Risk
Topic Details
Overheads Download as pdf file
Data Sets
  1. The Most and Least Volatile Stocks
  2. The Highest and Lowest Beta Stocks
  3. Highest R-squared companies
  4. Risk Premium for the United States
  5. Companies with AAA ratings
Spreadsheets risk.xls.Run a regression of stock returns against market returns and estimate risk parameters.
ratings.xls: This spreadsheet allows you to estimate the synthetic rating and cost of debt for any firm.
References Click here
Readings
  1. What is risk?
  2. A Measure of Risk Tolerance
  3. Operating Risk as a Measure of Risk
  4. Market Risk and Time Horizon
  5. Investors must recall risk
  6. New Definitions of Risk
  7. Diversification matters
  8. Can you diversify and pick stocks at the same time?
  9. What makes your stock price go up or down?
  10. A contrary view on betas
  11. Margin for Safety.. An alternative to beta?

Chapter 3: Numbers don't lie or do they?

Topic Details
Overheads Download as pdf file
Data Sets
  1. Companies with largest cash balances
  2. Firms with the highest returns on capital
  3. Most Levered firms
Spreadsheets finratio.xls: Compute the profitability ratios for a firm, based upon financial statement data.
References Click here
Readings
  1. Measuring Earnings
  2. The Content of an Annual Report
  3. Low Points in Accounting History
  4. R& D's effects on earnings
  5. Smoothing Earnings
  6. Is this debt?
  7. One-time Write off?
  8. The Accounting Black Box
  9. The Practices of Five Companies: GE, Coke, AIG, Williams and IBM
  10. Warnings Signs in Earnings Reports

Chapter 4: Show me the money: The Basics of Valuation

Topic Details
Overheads Download as pdf file
Data Sets Main data page for datasets
Spreadsheets

bondval.xls: This spreadsheet allows you to value a bond
Divginzu.xls: This spreadsheet allows you to value a firm using the dividend discount model
FCFEginzu.xls: This spreadsheet allows you to value the equity in a firm using a free cashflow to equity model
FCFEginzu.xls: This spreadsheet allows you to value the equity in a firm using a free cashflow to equity model

References Click here
Readings
  1. The Dividend Discount Model
  2. The dividend yield matters....
  3. Microsoft faces a call to pay dividends

Chapter 5: Many a Slip: Trading, Execution and Taxes

Topic Details
Overheads Download as pdf file
Data Sets
  1. Stocks with highest Bid-ask Spreads
  2. Mutual funds with highest trading costs
  3. Mutual funds with highest tax drag on returns
Spreadsheets  
References Click here
Readings
  1. The Effect of Online Trading
  2. Turnover Ratios and Trading Costs
  3. Mutual Fund Expenses
  4. The Tax Efficiency of Funds
  5. Minimizing the Tax Effects of Fund Distributions
  6. The Cost of Trading
  7. Bid-Ask Spreads in the OTC Market

Chapter 6: Too Good to be True: Testing Investment Strategies

Topic Details
Overheads Download as pdf file
Data Sets
  1. Funds with highest Sharpe Ratios
  2. Funds with highest Treynor Indices
Spreadsheets  
References Click here
Readings
  1. Biases in testing performance at mutual funds
  2. Survivor Bias in Mutual funds
  3. Return Measurement at Hedge funds

Chapter 7: Smoke and Mirrors: Charting and Technical Analysis

Topic Details
Overheads Download as pdf file
Data Sets
  1. Stocks with highest relative strength
  2. Stocks with the biggest increase in trading volume
Spreadsheets  
References Click here
Readings
  1. Basics of Technical Analysis
  2. Elliott Wave and Fibonacci Numbers
  3. The Language of Charts

Chapter 8: Graham's Disciples: Value Investing

Topic Details
Overheads Download as pdf file
Data Sets
  1. Stocks that pass the Graham screens
  2. Stocks with lowest price to book ratios
  3. Stocks with low price to book and high returns on equity
  4. Stocks with lowest PE ratios
  5. Stocks with lowest price to sales ratios
  6. Stocks with low price to sales and high margins
  7. Stocks with highest dividend yields
  8. Loser Stocks: Stocks that have gone down the most over last year.
Spreadsheets  
References Click here
Readings
  1. The Effects of Hostile Takeovers
  2. The Effects of Spinoffs
  3. The Restructuring of Chase
  4. GM: A Restructuring Candidate
  5. Activist Investing

Chapter 9: The Allure of Growth: Small Cap and Growth Investing

Topic Details
Overheads Download as pdf file
Data Sets
  1. Stocks with highest expected growth
  2. Stocks with lowest PEG ratios
  3. Stocks with low PEG ratios and below average risk
Spreadsheets  
References Click here
Readings
  1. Myths about valuing technology stocks
  2. Peter Lynch on growth stocks
  3. Venture Capital Secrets
  4. Cashing out from a venture capital investment

Chapter 10: Information Pays: Trading on News

Topic Details
Overheads Download as pdf file
Data Sets
  1. Stocks with most insider holdings
  2. Stocks with the biggest increases in earnings per share over previous year.
Spreadsheets  
References Click here
Readings
  1. The Effect of Information: The Case of Insider Trades

 

Chapter 11: A Sure Profit: The Essence of Arbitrage

Topic Details
Overheads Download as pdf file
Data Sets
  1. Price Limits and Contract specifications
  2. Most widely traded ADRs
  3. Most discounted closed end funds
Spreadsheets  
References Click here
Readings
  1. Measuring the Performance of Hedge Funds
  2. The Philosophy of Hedge Funds
  3. Measuring the returns at Hedge Funds
  4. Have hedge fund managers become risk averse?

Chapter 12: The Impossible Dream? Timing the Market

Topic Details
Overheads Download as pdf file
Data Sets
  1. PE Ratios for U.S stocks
  2. Intrinsic value of S&P 500 index
  3. Relative value of S&P 500 index
  4. Relative valuation of emerging markets
  5. Best performing and worst performing sectors
Spreadsheets  
References Click here
Readings
  1. The Importance of Asset Allocation
  2. The Cost of Being Out of the Market
  3. Mutual Fund Cash Positions
  4. Greenspan on Market Timing
  5. A Poll of Money Managers
  6. Market Neutral Mutual Funds
  7. A Warning on the Market
  8. A Technical Warning on the Market
  9. Is the market's PE too high?
  10. Why investors are active

Chapter 13: Ready to Give Up? The Allure of Indexing

Topic Details
Overheads

Download as pdf file

Data Sets
  1. Best performing mutual funds
  2. Funds with highest trading costs
Spreadsheets  
References Click here
Readings
  1. Survival bias in mutual fund performance
  2. Bogle on picking mutual funds
  3. A Test of Market Rationality
  4. The Appeal of Indexing
  5. A Warning on Indexing
  6. The Effect of Indexing

Chapter 14: A Road Map to Choosing an Investment Philosophy

Topic Details
Overheads Download as pdf file

Overheads
Topic Chapters
The Big Picture of Investing Chapter 1
The Basics of Risk Chapter 2
Financial Statements Chapter 3
The Basics of Valuation Chapter 4
Trading Costs and Taxes Chapter 5
Market Efficiency Chapter 6
Charting and Technical Analysis Chapter 7
Value Investing Chapter 8
Small Cap and Growth Investing Chapter 9
Information Trading Chapter 10
Arbitrage: Real, Near and Pseudo Chapter 11
Market Timing Chapter 12
The Allure of Indexing Chapter 13
Choosing a Philosophy

Chapter 14