Quantitative value investing removes emotion from value selection. Instead of relying on analyst judgment, quantitative models identify undervalued securities through systematic analysis. Data-driven value investing is more consistent, less prone to behavioral biases, and more scalable than traditional approaches.
Valuation Metrics
Price-to-earnings, price-to-book, price-to-sales, EV/EBITDA all measure cheapness relative to fundamentals. Different metrics work better in different periods. A diversified set of valuation metrics reduces false signals from single-metric approaches.
Forward vs. backward looking metrics matter. A company with cheap trailing P/E but terrible forward earnings is a value trap. Quantitative models incorporate both current valuations and future earnings growth estimates to identify true value opportunities.
Quality Filters
Deep value often contains value traps. A stock is cheap for a reason sometimes. Quality filters separate true value from traps. High debt levels, declining margins, poor asset quality all signal problems. Combining value with quality improves returns significantly.
Profitability filters (high ROE, strong FCF conversion) identify sustainable value. A cheap stock with improving profitability is more attractive than cheap stock with declining profitability. Quantitative models weight these factors systematically.
Relative and Absolute Value
Relative value identifies undervalued securities vs. peers. A stock trading at 10x earnings might be cheap if peers trade at 15x. Absolute value compares to intrinsic value estimates. Combining relative and absolute perspectives improves judgment on fair value.
Peer group selection is critical. Comparing semiconductor manufacturers to banks creates meaningless ratios. Identifying true peer groups requires domain knowledge. Quantitative approaches define peers by characteristics (industry, size, profitability) systematically.
Rebalancing and Timing
Quantitative value portfolios rebalance systematically. As valuations change, portfolio weights adjust. Rebalancing forces buying weakness and selling strength, automatically capturing value dynamics. Rebalancing frequency (quarterly, semi-annually) balances transaction costs against drift.
Educational content only. Not investment advice.