Quantitative Value: Book Review

by: Mitchell Mauer

Originally published on July 11, 2016

Quantitative Value Book Cover

In Quantitative Value, Wesley Gray and Tobias Carlisle make a compelling case for a purely quantitative approach to value investing. As the title appropriately conveys, the book equally emphasizes the benefits of applying a value investing approach, along with the advantages of using quantitative analysis to select investments.

Sound, Fundamental Analysis

The authors expand on the foundational work of Benjamin Graham by showing readers how to perform sound, fundamental analysis without allowing human emotions to dictate bad decisions. Additionally, they combine the techniques of Ed Thorpe and Warren Buffett to select high quality value stocks using a quantitative method.

The book sophistically explains how to sift through a universe of stocks to identify financially strong investments with large margins of safety selling at tremendous prices.

Quantitative Value Formula

Like Joel Greenblatt's Magic Formula in The Little Book that Beats the Market, Gray and Carlisle promote one specific equation which will "buy the cheapest, highest quality value stocks." They call the formula Quantitative Value (QV).

QV differs from the Magic Formula in that it doesn't pay more for quality. Instead, Gray and Carlisle show the importance of finding cheap stocks first and filtering for quality second. The secondary filters include:

  • Avoiding earnings manipulators
  • Identifying financial distress
  • Long-term profitability metrics
  • Financial strength
  • Smart money signals

Benefits of QV

The individual concepts of QV all make intuitive sense and are simple in theory. Although the formula as a whole is complex and nearly impossible for individual investors to duplicate, there are strong benefits to understanding its key components. Each QV criteria demonstrates a way any value investing strategy can be improved.

Even if the QV formula isn't followed to the "T", investors will take away profound insights on how to improve their investment approach. Quantitative Value is a book that belongs on every individual investor's shelf. It doesn't matter if it's the first investing book an aspiring investor reads, or the last book read by a retiring investment professional.