Blog Archives

Company Valuation using Discounted Cash Flows

October 18, 2012
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Company Valuation using Discounted Cash Flows

Today I want to show a simple example of how we can value a company using Discounted Cash Flow (DCF) analysis. The idea is to compute the company’s Intrinsic Value based on the discounted future cash-flows. To compute future cash-flows I will use the historical Free Cash Flow growth rate. To compute present value of

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Permanent Portfolio – Transaction Cost and better Risk Parity

October 9, 2012
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Permanent Portfolio – Transaction Cost and better Risk Parity

I want to address comments that were asked in my last post, Permanent Portfolio – Simple Tools, about Permanent Portfolio strategy. Specifically: The impact of transaction costs on the perfromance and Create a modified version of risk allocation portfolio that distributes weights across 3 asset classes: stocks(SPY), gold(GLD), and treasuries(TLT), and only invests into cash(SHY)

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Weekend Reading – Facebook’s P/E ratio

October 7, 2012
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Weekend Reading – Facebook’s P/E ratio

The Barron’s article Still Too Pricey by Andrew Bary looks at the share price of the Facebook and based on the P/E ration valuation metrics concludes that even at the current prices, stock is overvalued. I want to show how to do this type of fundamental analysis using the Systematic Investor Toolbox. First let’s load

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Permanent Portfolio – Simple Tools

October 4, 2012
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Permanent Portfolio – Simple Tools

I have previously described and back-tested the Permanent Portfolio strategy based on the series of posts at the GestaltU blog. Today I want to show how we can improve the Permanent Portfolio strategy perfromance using following simple tools: Volatility targeting Risk allocation Tactical market filter First, let’s load the historical prices for the stocks(SPY), gold(GLD),

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Weekend Reading – Gold in October

September 28, 2012
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Weekend Reading – Gold in October

I recently came across the “An early Halloween for gold traders” article by Mark Hulbert. I have discussed this type of seasonality analysis in my presentation at R/Finance this year. It is very easy to run the seasonality analysis using the Systematic Investor Toolbox. This confirms that October have been historically bad for Gold, but

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Calling Minimum Correlation Algorithm from Excel using RExcel & VBA

September 26, 2012
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Calling Minimum Correlation Algorithm from Excel using RExcel & VBA

I want to show the example of calling the Minimum Correlation Algorithm from Excel. I will use RExcel to connect R and Excel and will create a small VBA cell array function to communicate between Excel and R. I have previously discussed the concept of connecting R and Excel in the “Calling Systematic Investor Toolbox

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Minimum Correlation Algorithm Speed comparison

September 25, 2012
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Minimum Correlation Algorithm Speed comparison

The Minimum Correlation Algorithm is a heuristic method discovered by David Varadi. Below I will benchmark the execution speed of 2 versions of the Minimum Correlation Algorithm versus the traditional minimum variance optimization that relies on solving a quadratic programming problem. I have run the code above for n=10 (10 assets), n=100 (100 assets), n=500

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Minimum Correlation Algorithm Example

September 23, 2012
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Minimum Correlation Algorithm Example

Today I want to follow up with the Minimum Correlation Algorithm Paper post and show how to incorporate the Minimum Correlation Algorithm into your portfolio construction work flow and also explain why I like the Minimum Correlation Algorithm. First, let’s load the ETF’s data set used in the Minimum Correlation Algorithm Paper using the Systematic

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Minimum Correlation Algorithm Paper

September 21, 2012
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Minimum Correlation Algorithm Paper

Over summer I was busy collaborating with David Varadi on the Minimum Correlation Algorithm paper. Today I want to share the results of our collaboration: Minimum Correlation Algorithm Paper Back Test reports Supporting R code The Minimum Correlation Algorithm is fast, robust, and easy to implement. Please add it to you portfolio construction toolbox and

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Permanent Portfolio

September 17, 2012
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Permanent Portfolio

First, just a quick update: I’m moving the release date of the SIT package a few months down the road, probably in November. Now back to the post. Recently I came across a series of interesting posts about the Permanent Portfolio at the GestaltU blog. Today I want to show you how to back-test the

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