Stocks

AgPa #9: The Age of Intangible Assets

Equity Investing in the Age of Intangibles (2021)
Amitabh Dugar & Jacob Pozharny
Financial Analysts Journal, 77(2), 21-42, URL

Given the exceptional decade for technology companies, I am late to the party with this one. This week’s AGNOSTIC Paper examines the role of intangible assets for equity investors.

The issue is at the heart of fundamental analysis and also relevant for systematic investors. The authors present several interesting results for a global sample of thousands of companies between 1994 and 2018.

  • A measure for intangible-intensity of industries
  • Book values became less relevant for intangible-intense industries but still remain important

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AgPa #6: Predicting Returns with (Alternative) Consumer Data

Predicting Performance Using Consumer Big Data (2022)
Kenneth Froot, Namho Kang, Gideon Ozik, Ronnie Sadka
The Journal of Portfolio Management 48(3), 47-61, URL

This week’s AGNOSTIC Paper is again more related to my other content. The authors use proxies for in-store activity, brand awareness, and web traffic to predict fundamentals and returns of consumer-oriented companies.

I like the paper because it examines alternative data and is published in a peer-reviewed journal. Other studies on the topic are often just white papers of data providers. So it is nice to have a more scientific analysis.

  • Alternative consumer-data predicts firm fundamentals
  • Trading on alternative consumer-data generated monthly alphas of up to 1.9%

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AgPa #2: What Moves Stock Prices?

What Moves Stock Prices? The Role of News, Noise, and Information (2022)
Jonathan Brogaard, Thanh Huong Nguyen, Talis J. Putnins, Eliza Wu
The Review of Financial Studies, Forthcoming, URL

This week’s AGNOSTIC Paper attempts to answer a very fundamental question: What drives the day-to-day volatility of stock prices? Of course, there are many things active at the same time. News about the underlying businesses, news about the economy, market impact of large investors, and various more.

The authors develop a novel model to isolate the impact of those different types of information. They also applied it to the US stock market and derive some interesting results:

  • Stock-Specific information is most important
  • Markets became more efficient over time
  • Smaller stocks are more noisy

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Report Analytics USA #2

This post contains a lot of unsexy calculations and is fairly technical. But (in my opinion) there are some very interesting results. Not just for my particular strategy but for everyone who is active on Wikifolio.

First. Overall and especially after costs, my two Wikifolios weren’t a good alternative to a standard ETF on the S&P 500 index (from inception to March 11, 2022). To my defense, however, I stressed several times that the two Wikifolios are just a real-world test of my master thesis and I never marketed them as investments.

Second. I still believe that Wikifolio is a great platform to test strategies like mine, but it is not perfect. There are annoying technical issues, pretty high fees, and significant indirect trading costs. Depending on the liquidity of the stock, bid-ask-spreads and/or unfavorable FX rates amount to 40-80 basis points per transaction on average.

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Report Analytics USA #1

This is the start of an ongoing series intended to share updates, insights, and backgrounds on the Report Analytics USA portfolios. To start with, I present the methodology that I currently use to implement the live portfolios on Wikifolio.

Heart of the process is a stock selection based on copy-paste of the most recently published annual and quarterly reports. I further divide this selection by market capitalization to create a “Large” and “Small” version of the Report Analytics USA portfolios.

All of this is just a starting point and I conclude this post with a roadmap of ideas to improve the strategy.

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#2: Copy-Paste Outperformance

Every year, US companies must publish three quarterly and one annual report. Preparing those reports, however, is a lot of effort, does not improve operations, and reveals information to competitors.

How to deal with this? Correct, spend the time to create one comprehensive template and reuse it as long as possible. In an excellent research paper titled “Lazy Prices” (2020), the authors show that US companies are no exception from this: many annual and quarterly reports are basically just updated copies from the previous year.

What does this mean for investors? Since most of the report is just copy-paste, they should rather focus on differences between the current and previous report (for example, new paragraphs). It turns out that such changes are indeed very important: quantitative measures for report copy-paste predict future stock returns and help to achieve outperformance vs. common US indices.


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