Monday, 24 January 2011

factor returns;

The Raven runs a small statistical arbitrage portfolio as one his strategies. This week there were some interesting results in terms of factor returns. (ie. a typical "value factor" would be to rank stocks by their cheapness measured by price to book, and to see what a portfolio long the cheapest and short the most expensive would have returned).

Obviously the market factor was a negative;
The average of the universe was down (2.11)%.
Size returned +1.14%
Value +0.86%
Momentum (1.60)%

That is a classical flight to quality and a momentum reversal, with the stocks being punished the hardest, those that don't pay a dividend and have been rallying for months and have reached very high valuations, something like $RAX was off ~10%, whereas something like $GE was up ~7%.

It is also very interesting to note how much popular speculation has occured in US equity markets over the last few months, additionally, how bearish the world has been on European stocks, where we have seen Spain have a monster rally. We haven't reached the end of January and the two most popular trades of the year have been taking out and shot. (If some nutter rocks up with a shotgun and pops off a CEO we've never heard of, my rhetoric wasn't to blame!)

Wednesday, 12 January 2011


After poor trading and announcing that they are closing 40 stores, the stock dropped to ~25p.
At this price its worth a small punt. DB have highlighted it popping up on their LBO model, and so too it has on the Raven's. Very roughly after knocking the balance sheet around a little there is back of the envelope £200mm of net debt after some restructuring costs and sales, with that restructuring the business should earn approx 50mm of cash a year, which put on an market multiple you get to about 46p a share. That is aggressive and rather rough, but it was worth putting in the book as a marked to have some more work done on it when time allows, seperating out the value of the chain waterstones. (obviously there are some pretty awful long term structual problems in the sector, internet retailing, the iphone, etc which should be depressing the price)