Advanced Portfolio Management

Book description

You have great investment ideas. If you turn them into highly profitable portfolios, this book is for you.

Advanced Portfolio Management: A Quant’s Guide for Fundamental Investors is for fundamental equity analysts and portfolio managers, present, and future. Whatever stage you are at in your career, you have valuable investment ideas but always need knowledge to turn them into money. This book will introduce you to a framework for portfolio construction and risk management that is grounded in sound theory and tested by successful fundamental portfolio managers. The emphasis is on theory relevant to fundamental portfolio managers that works in practice, enabling you to convert ideas into a strategy portfolio that is both profitable and resilient. Intuition always comes first, and this book helps to lay out simple but effective "rules of thumb" that require little effort to implement and understand. At the same time, the book shows how to implement sophisticated techniques in order to meet the challenges a successful investor faces as his or her strategy grows in size and complexity. Advanced Portfolio Management also contains more advanced material and a quantitative appendix, which benefit quantitative researchers who are members of fundamental teams.

You will learn how to:

  • Separate stock-specific return drivers from the investment environment’s return drivers
  • Understand current investment themes
  • Size your cash positions based on
  • Your investment ideas
  • Understand your performance
  • Measure and decompose risk
  • Hedge the risk you don’t want
  • Use diversification to your advantage
  • Manage losses and control tail risk
  • Set your leverage

Author Giuseppe A. Paleologo has consulted, collaborated, taught, and drank strong wine with some of the best stock-pickers in the world; he has traded tens of billions of dollars hedging and optimizing their books and has helped them navigate through big drawdowns and even bigger recoveries.  Whether or not you have access to risk models or advanced mathematical background, you will benefit from the techniques and the insights contained in the book—and won't find them covered anywhere else.

Table of contents

  1. Cover
  2. Title Page
  3. Copyright
  4. Dedication
  5. Chapter 1: For Whom? Why? And How?
    1. 1.1 What You Will Find Here
    2. 1.2 Asterisks; Or, How to Read This Book
    3. 1.3 Acknowledgments
  6. Chapter 2: The Problem: From Ideas to Profit
    1. 2.1 How to Invest in Your Edge, and Hedge the Rest
    2. 2.2 How to Size Your Positions
    3. 2.3 How to Learn from Your History
    4. 2.4 How to Trade Efficiently
    5. 2.5 How to Limit Factor Risk
    6. 2.6 How to Control Maximum Losses
    7. 2.7 How to Determine Your Leverage
    8. 2.8 How to Analyze New Sources of Data
    9. Notes
  7. Chapter 3: A Tour of Risk and Performance
    1. 3.1 Introduction
    2. 3.2 Alpha and Beta
    3. 3.3 Where Does Alpha Come From?
    4. 3.4 Estimate Risk in Advance
    5. 3.5 First Steps in Risk Decomposition
    6. 3.6 Simple Hedging
    7. 3.7 Separation of Concerns
    8. 3.8 Takeaway Messages
    9. Notes
  8. Chapter 4: An Introduction to Multi-Factor Models
    1. 4.1 From One Factor to Many
    2. 4.2 ★Frequently Asked Questions About Risk
    3. 4.3 ★The Machinery of Risk Models
    4. 4.4 Takeaway Messages
    5. Notes
  9. Chapter 5: Understand Factors
    1. 5.1 The Economic Environment
    2. 5.2 The Trading Environment
    3. 5.3 The Company: Valuation Factors
    4. 5.4 Takeaway Messages
    5. Notes
  10. Chapter 6: Use Effective Heuristics for Alpha Sizing
    1. 6.1 Sharpe Ratio
    2. 6.2 Estimating Expected Returns
    3. 6.3 Risk-Based Sizing
    4. 6.4 ★Empirical Analysis of the Sizing Rules
    5. 6.5 From Ideas to Positions
    6. 6.6 Time-Series Risk-Based Portfolio Targeting
    7. 6.7 ★Frequently Asked Questions About Performance
    8. 6.8 Takeaway Messages
    9. Notes
  11. Chapter 7: Manage Factor Risk
    1. 7.1 Tactical Factor Risk Management
    2. 7.2 Strategic Factor Risk Management
    3. 7.3 Systematic Hedging and Portfolio Management
    4. 7.4 Takeaway Messages
    5. Notes
  12. Chapter 8: Understand Your Performance
    1. 8.1 Factor
    2. 8.2 Idiosyncratic
    3. 8.3 Trade Events Efficiently
    4. 8.4 ★Use Alternative Data!
    5. 8.5 ★Frequently Asked Questions About Performance
    6. 8.6 Takeaway Messages
    7. Notes
  13. Chapter 9: Manage Your Losses
    1. 9.1 How Stop-Loss Works
    2. 9.2 Why a Stop-Loss Policy?
    3. 9.3 The Costs and Benefits of Stop-Loss
    4. 9.4 Takeaway Messages
    5. Notes
  14. Chapter 10: ★Set Your Leverage Ratio for a Sustainable Business
    1. 10.1 A Framework for Leverage Decisions
    2. 10.2 Takeaway Messages
    3. Notes
  15. Chapter 11: ★★Appendix
    1. 11.1 Essential Risk Model Formulas
    2. 11.2 Diversification
    3. 11.3 Mean-Variance Formulations
    4. 11.4 Proportional-Rule Formulations
    5. 11.5 Generating Custom Factors
    6. 11.6 Optimization Formulations
    7. 11.7 Tactical Portfolio Optimization
    8. 11.8 Hedging Formulations
    9. 11.9 Optimal Event Trading
    10. Notes
  16. References
  17. Index
  18. End User License Agreement

Product information

  • Title: Advanced Portfolio Management
  • Author(s): Giuseppe A. Paleologo
  • Release date: August 2021
  • Publisher(s): Wiley
  • ISBN: 9781119789796