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Falling Knives: Extreme Value Investing, Ladd Kochman, James Tompkins
Falling Knives: Extreme Value Investing, Ladd Kochman, James Tompkins
Ladd Kochman
We identified 979 stocks with year-ending losses of 60 percent or more during the 1993-2002 period. Post-fall returns extended our analysis through 2005. Unlike previous research, we screened our "falling knives" for financial strength to promote a greater likelihood of recovery and minimize any survivorship bias. When we added the constraint of Altman Z-Scores > 3.0, our data set shrank to 790 stocks and produced two-year and three-year average annual returns that tripled their market counterparts.
Portfolio Evaluation, Downside Risk And An Anomaly, Ladd Kochman
Portfolio Evaluation, Downside Risk And An Anomaly, Ladd Kochman
Ladd Kochman
Owing to the developments in portfolio theory in the 1960s, the evaluation of portfolio performance has evolved from a return-only mentality to a process that makes risk no less important than return. Earliest efforts to combine the two dimensions into a single (or composite) measure belong to Treynor (1965) and Sharpe (1966), who suggested dividing a portfolio's return in excess of the risk-free rate by the portfolio's bets and standard deviation, respectively. When Fama (1972) recommended that portfolios pay premiums that capture both market and diversification risk, he was implicitly asking whether Jensen's (1968) use of beta sufficiently measures the …