Behavioural Investing by James Montier

Author:James Montier
Language: eng
Format: epub
Publisher: John Wiley & Sons, Ltd.
Published: 2010-05-10T16:00:00+00:00

Figure 28.3 Top and bottom value decile performance using EBIT/EV plus ROC.

Source: DrKW Macro research.

WHAT ABOUT THE LONG/SHORT VIEW?

So far we have really only concerned ourselves with the long-only strategies - buying the top 30 ranked companies by the various criteria, although in the previous section we did highlight the performance of the bottom deciles. Could this strategy be deployed by those in hedge fund land?

In theory, yes. Figure 28.4 shows the spread in performance between the highest and lowest deciles for the various criteria we have tested. All show very high potential alpha. None is clearly any better than the rest across all regions but most suggest that a value plus quality strategy should be a viable option for those of the long/short persuasion. However, it should be noted that we only computed annual returns. The monthly profile may be less attractive for a hedge fund perspective (more on this below).

Figure 28.4 Spreads between the highest and lowest deciles across strategies (1993-2005).

Source: DrKW Macro research.

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