Luminous Logic

Simple Linear Regression Example

Lumilog — Mon, 13 May 2013 19:44:35 +0000

Today, let’s dust off the regression analysis material of CFA Level 1 and see if we can use it in a real world example. We’re going to build a simple quantitative model that forecasts future stock price movements! We’ll construct our model using single variable linear regression. You’ll recognize the equation from high school algebra: [...]

Goodwill Hunting

Lumilog — Tue, 07 May 2013 18:22:33 +0000

So I started thinking about how Warren Buffett measures his investment performance – by comparing the change in book value of Berkshire Hathaway to the total return of the S&P 500. …and I thought, that isn’t fair. It seems too easy to game! Here’s how I’d do it. Assume it’s January 1, 2013 and I [...]

The Prudence Trap

Lumilog — Tue, 30 Apr 2013 18:21:58 +0000

Since I just don’t know what to do with myself after finishing the CFA program, I’ve recently begun working my way through Damodaran’s valuation class. He put up a slide that I wish I would have seen years ago, because it highlights a mistake in valuation that I only recently began correcting. Here it is. [...]

Portable Alpha Example

Lumilog — Wed, 24 Apr 2013 20:28:43 +0000

The CFA program is great for getting a wide survey of techniques you might want to add to your investing toolbox. Today’s material is based on Volume 4, Reading 32, Section 7.3 of the CFA Level III 2011 Curriculum. In one corner, there’s you. You’re an expert picker of small cap stocks. Last year, when [...]

Turnaround and Turndown

Lumilog — Fri, 19 Apr 2013 20:17:38 +0000

Value investors love the “out” of the Too Hard Pile. Q: “Do you think JCP is a buy after having dropped so much?” A: “You know with JCP… I’d just have to put that one in the too hard pile!” Q: “But isn’t this just like Dillard’s a few years ago? You remember what happened [...]

CPPI Strategy

Lumilog — Sat, 13 Apr 2013 19:51:22 +0000

The CFA program is great for getting a wide survey of techniques you might want to add to your investing toolbox. Today’s material is based on Volume 6, Reading 45, Section 3.3.3 of the CFA Level III 2011 Curriculum. We all know the tenets of the most basic asset allocation. Pick the desired % you [...]

Reminiscences of a Candidate Analyst

Lumilog — Thu, 21 Feb 2013 23:02:20 +0000

These days it seems every blogger is turning their homespun philosophies into ebooks. They’re cashing in and selling out, peddling PDFs of common bleeping sense that everyone knows, but no one can put into action. Quite frankly, it’s disgusting. And you won’t find me… …Oh, hi there! New to the CFA Program? Just curious? Testing [...]

Mensa IQ

Lumilog — Thu, 24 Jan 2013 20:48:52 +0000

Calling all egos! Calling all A-types! Mensa has an online version of their exam that they’re letting you take for FREE until the end of January. Maybe they do this every year? http://www.us.mensa.org/join/mht/ It takes about 30 minutes, so I gave it a shot. I ended up doing not so badly! That was a surprise, [...]

Stock Puzzle: Boston Beer Company

Lumilog — Wed, 17 Oct 2012 19:00:15 +0000

If you like puzzles, here’s one I looked into lately. What in the world is going on with Boston Beer Company SAM? Check out Morningstar’s Key Ratios for SAM. Shares out decreasing, ROC and net margins high and increasing, working capital the same in 2011 as in 2002 despite sales having more than doubled. Heavy [...]

CAIA vs CFA

Lumilog — Fri, 07 Sep 2012 19:35:38 +0000

I know! I know! I promised I wouldn’t ever again consider signing up for any formal education programs, because after the CFA, I was D-U-N, done! But in a moment of weakness – after one of those 7.2% ABV Sierra Nevada Torpedoes – I found myself at caia.org doing some recon. If the CFA essentially [...]