White Christmas: A Spicy Novella

You have great investment ideas. If you turn them into highly profitable portfolios, this book is for you. Advanced Portfolio Management: A Quant’s Guide for Fundamental Investors is for fundamental equity analysts and portfolio managers, present, and future. Whatever stage you are at in your career, you have valuable investment ideas but always need knowledge to turn them into money. This book will introduce you to a framework for portfolio construction and risk management that is grounded in sound theory and tested by successful fundamental portfolio managers. The emphasis is on theory relevant to fundamental portfolio managers that works in practice, enabling you to convert ideas into a strategy portfolio that is both profitable and resilient. Intuition always comes first, and this book helps to lay out simple but effective "rules of thumb" that require little effort to implement and understand. At the same time, the book shows how to implement sophisticated techniques in order to meet the challenges a successful investor faces as his or her strategy grows in size and complexity. Advanced Portfolio Management also contains more advanced material and a quantitative appendix, which benefit quantitative researchers who are members of fundamental teams. You will learn how to: Separate stock-specific return drivers from the investment environment’s return drivers Understand current investment themes Size your cash positions based on Your investment ideas Understand your performance Measure and decompose risk Hedge the risk you don’t want Use diversification to your advantage Manage losses and control tail risk Set your leverage Author Giuseppe A. Paleologo has consulted, collaborated, taught, and drank strong wine with some of the best stock-pickers in the world; he has traded tens of billions of dollars hedging and optimizing their books and has helped them navigate through big drawdowns and even bigger recoveries. Whether or not you have access to risk models or advanced mathematical background, you will benefit from the techniques and the insights contained in the book—and won't find them covered anywhere else. Cover Title Page Copyright Page Contents Chapter 1 For Whom? Why? And How? 1.1 What You Will Find Here 1.2 Asterisks; Or, How to Read This Book 1.3 Acknowledgments Chapter 2 The Problem: From Ideas to Profit 2.1 How to Invest in Your Edge, and Hedge the Rest 2.2 How to Size Your Positions 2.3 How to Learn from Your History 2.4 How to Trade Efficiently 2.5 How to Limit Factor Risk 2.6 How to Control Maximum Losses 2.7 How to Determine Your Leverage 2.8 How to Analyze New Sources of Data Chapter 3 A Tour of Risk and Performance 3.1 Introduction 3.2 Alpha and Beta 3.3 Where Does Alpha Come From? 3.4 Estimate Risk in Advance 3.4.1 What Is Risk? 3.4.2 Measuring Risk and Performance 3.5 First Steps in Risk Decomposition 3.6 Simple Hedging 3.7 Separation of Concerns 3.8 Takeaway Messages Chapter 4 An Introduction to Multi‐Factor Models 4.1 From One Factor to Many 4.2 ★Frequently Asked Questions About Risk 4.3 ★The Machinery of Risk Models 4.4 Takeaway Messages Chapter 5 Understand Factors 5.1 The Economic Environment 5.1.1 Country 5.1.2 Industries 5.1.3 Beta 5.1.4 Volatility 5.2 The Trading Environment 5.2.1 Short Interest 5.2.2 Active Manager Holdings (AMH) 5.2.3 Momentum 5.3 The Company: Valuation Factors 5.3.1 Value 5.4 Takeaway Messages Chapter 6 Use Effective Heuristics for Alpha Sizing 6.1 Sharpe Ratio 6.2 Estimating Expected Returns 6.3 Risk‐Based Sizing 6.4 ★Empirical Analysis of the Sizing Rules 6.5 From Ideas to Positions 6.6 Time‐Series Risk‐Based Portfolio Targeting 6.7 ★Frequently Asked Questions About Performance 6.8 Takeaway Messages Chapter 7 Manage Factor Risk 7.1 Tactical Factor Risk Management 7.1.1 Optimize If You Must 7.2 Strategic Factor Risk Management 7.2.1 Setting an Upper Limit on Factor Risk 7.2.2 Setting a Limit on Market Exposure 7.2.3 Setting an Upper Limit on Single-Stock Holdings 7.2.4 Setting an Upper Limit on Single-Factor Exposures 7.3 Systematic Hedging and Portfolio Management 7.4 Takeaway Messages Chapter 8 Understand Your Performance 8.1 Factor 8.1.1 Performance Attribution 8.2 Idiosyncratic 8.2.1 Selection, Sizing, Timing 8.2.2 The Relationship Between Performance and Diversification 8.3 Trade Events Efficiently 8.4 ★Use Alternative Data! 8.5 ★Frequently Asked Questions About Performance 8.6 Takeaway Messages Chapter 9 Manage Your Losses 9.1 How Stop‐Loss Works 9.2 Why a Stop‐Loss Policy? 9.3 The Costs and Benefits of Stop‐Loss 9.4 Takeaway Messages Chapter 10 ★Set Your Leverage Ratio for a Sustainable Business 10.1 A Framework for Leverage Decisions 10.2 Takeaway Messages Chapter 11 ★★Appendix 11.1 Essential Risk Model Formulas 11.1.1 Factor Model 11.1.2 Factor-Mimicking Portfolios 11.1.3 Percentage Idio Variance 11.1.4 Betas 11.1.5 Marginal Contribution to Factor Risk 11.2 Diversification 11.3 Mean‐Variance Formulations 11.3.1 Mean-Variance Portfolios 11.3.2 A Robust Mean-Variance Formulation 11.4 Proportional‐Rule Formulations 11.5 Generating Custom Factors 11.5.1 Interpretation and Use 11.6 Optimization Formulations 11.6.1 Equal-Sized Portfolio with Constraints on Participation Rate 11.7 Tactical Portfolio Optimization 11.7.1 Variants 11.8 Hedging Formulations 11.9 Optimal Event Trading References Index EULA **You have great investment ideas. If you turn them into highly profitable portfolios, this book is for you.** __Advanced Portfolio Management: A Quant’s Guide for Fundamental Investors__ is for fundamental equity analysts and portfolio managers, present, and future. Whatever stage you are at in your career, you have valuable investment ideas but always need knowledge to turn them into money. This book will introduce you to a framework for portfolio construction and risk management that is grounded in sound theory and tested by successful fundamental portfolio managers. The emphasis is on theory relevant to fundamental portfolio managers that works in practice, enabling you to convert ideas into a strategy portfolio that is both profitable and resilient. Intuition always comes first, and this book helps to lay out simple but effective "rules of thumb" that require little effort to implement and understand. At the same time, the book shows how to implement sophisticated techniques in order to meet the challenges a successful investor faces as his or her strategy grows in size and complexity. __Advanced Portfolio Management__ also contains more advanced material and a quantitative appendix, which benefit quantitative researchers who are members of fundamental teams. You will learn how to: * Separate stock-specific return drivers from the investment environment’s return drivers * Understand current investment themes * Size your cash positions based on * Your investment ideas * Understand your performance * Measure and decompose risk * Hedge the risk you don’t want * Use diversification to your advantage * Manage losses and control tail risk * Set your leverage "The number of fundamental portfolio managers and investment analysts is very large. There are over 9,000 hedge funds in the world, the overwhelming majority of them managing exclusively or in part an equity portfolio. In addition, institutional managers actively manage trillions of dollars. Finally, no sell-side analyst can provide any recommendation to their buy-side interlocutor without having a good understanding of their investment process. Finally, risk managers on the buy-side and the sell-side alike, offer advisory to portfolio managers on optimization and risk quantification. The primary audience of my book is made of buy-side investors and analysts, who easily number in the thousands, and possibly the tens of thousands. The professional organizations supporting these investors are the Chartered Alternative Investment Analyst Association (CAIA) and the Chartered Financial Analyst (CFA) Institute. The secondary market comprises sell-side fundamental analysis and risk managers; as a rule of thumb, a well-established fund employs one risk manager for every 10 fundamental analysis, while banks and service firms have large rosters of industry-focused analysis. These professionals are served by the CFA Institute and two risk management associations: the Global Association of Risk Professionals (GARP) and the Professional Risk Managers' International Association (PRMIA). Despite this large audience, a guide on how to convert insights into portfolios is still missing"-- Provided by publisher.