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April 24, 2021

Five Things to Do the Week Before the SAT

It's the week before the SAT. You don't know what to do, you say?

1. Re-take a practice test.

With only a week before the test, any studying needs to build confidence and reinforce what you've already learned. Don't spend time learning new material: cramming isn't very effective, and it'll just stress you out.

Choose a practice test you've done before, preferably a long time ago, and take it again under timed conditions. If you've been studying, you should see a large score increase over your first attempt. Review your answers and spend a little bit of time brushing up on any concepts you still need to practice.
Don't be this kid. Seriously.


2. Drive by your test center.

Knowing your exact driving route will build confidence and avoid stress on the morning of your actual test. If you do your practice drive on a Saturday morning, you'll get a good idea of what kind of traffic you'll run into and where to pick up food in case you can't eat at home.

3. Pack your bag.

The day before your test, pack a clear Ziploc bag with everything you'll need and put the bag in your car.

Your admission ticket is really important, as you won't be allowed to enter the test center without it. I usually print three copies of my ticket and leave one in the car, one in my Ziploc bag, and one in my pocket. If you leave the room during the break and forget to bring your admission ticket and photo ID, the proctors won't let you back in!

You can print your admission ticket online by signing into your SAT account.

Here's a complete list of stuff to pack:

  • Multiple copies of your admission ticket
  • Lots of No. 2 pencils with good erasers (bringing too many is better than having too few)
  • A small handheld pencil sharpener to use during breaks
  • A wristwatch with a disabled speaker
  • An SAT-approved calculator
  • A backup calculator
  • Snacks to last through the morning (fruit and nuts are good; starchy or sugary snacks that will spike your blood sugar are bad)
  • Bottled water (avoid any drink that contains sugar)

Leave these in the car:

  • Books and study materials
  • Highlighters
  • Electronic devices other than your calculator
  • Your cell phone (unless it's completely switched off)

4. Get tired.

The day before the test, don't spend too much time studying or doing homework. A good night's sleep is going to help a lot more than a few hours of studying.

Try to make yourself so tired that you can't stay up all night worrying about the test. An afternoon of aerobic exercise is good:
  • Hiking
  • Biking
  • Dancing
  • Yard work

5. Set your alarm.

You'll want to fall asleep without having to worry about whether you'll get up again. The day will come when you never wake from slumber, but that hopefully won't be due to the SAT!

Dress in layers on the morning of the test. You'll be able to remove layers as the room gets warmer without having to get anything from your backpack.

Plan to leave early enough that you get to the test center ten minutes before the doors open. You can entertain yourself with your phone while you're waiting as long as you remember to turn it completely off before the test starts.

Bonus

If you're serious about achieving consistent performance in stressful situations, check out the two podcasts episodes below:

How To! with Charles Duhigg
In this special episode of Happiness Lab, we feature an episode of the podcast How To! with Charles Duhigg. Mike’s dream job of playing bass in a Chicago orchestra is within reach — if only he can conquer his nerves and master the audition. Duhigg brings in Dr. Don Greene, a peak performance psychologist who’s worked with Wall Street traders and Olympic athletes, to see if he can help Mike perform his best under the spotlight. The secret? Jumping jacks, extra sleep, and watching reruns of The Office.

How to Perform Your Best Under Pressure
After serving as an Army Ranger and Green Beret, and getting his PhD in sports psychology, Don has spent decades coaching Olympic divers, professional athletes, race car drivers, opera singers, classical musicians, and Wall Street traders in how not to choke under pressure. He shares the principles he uses as a stress coach in Fight Your Fear and Win: Seven Skills for Performing Your Best Under Pressure. Today we talk about those skills, beginning with why people choke in the first place, and what’s going on in your mind when that happens. We then talk about the fundamentals of managing performance anxiety and staying in right brain flow, including making adrenaline work for instead of against you, getting your mind centered, ignoring distractions, and becoming mentally tough. We also discuss how to thwart negative self-talk through a practice Don calls “thought monitoring,” and his 5-step strategy for recovering when you do make a mistake. 


Do you have other tips for the week before the SAT? Comment below and share them with us!

Seven Ways to Improve Your Vocabulary

Update: I've added several books to the reading list.

Whether you're preparing for the ACT or SAT, working toward an A in AP English, or writing your college application essays, a stronger vocabulary will make you a better reader and writer. Here are seven ways to work on your vocabulary:

1. Use the dictionary, but AVOID FLASH CARDS.

A truly nuanced vocabulary isn't something you can create by pure memorization. Good writers like to play with words, so you have to be familiar with how each word is used in a variety of contexts.

Watch the video below and then answer the vocabulary question that follows:



When Mrs. Bennett tells Mary to "find some useful employment," the word employment most nearly means
(a) paid work
(b) trade
(c) profession
(d) task

To answer this question, stick each of the choices into Mrs. Bennett's sentence to see which one works:

"Mary, put that away at once. Find some useful _________."

The first three choices don't work because in the context of the story, Mrs. Bennett is trying to get the house ready for some unexpected guests, and she needs Mary to help tidy up. She's not offering any money, so choice A isn't an option. She's not asking Mary to find a useful career, either, so choices B and C are out. The word task fits: it's consistent with Mrs. Bennett's implied request to clean the house up right away.

Choices A, B, and C are the three definitions that Google's dictionary provides for the word employment. Choice D isn't one of Google's definitions, but it's the correct answer!

ACT and SAT vocab questions look a lot like the one we just did. The most obvious answer is almost always wrong; it's there to trap people who memorize definitions using flash cards. The tests' writers are trying to see if you really understand what you read.

The dictionary can help, since there is some overlap between the meanings of the words employment and task. Just make sure you pay attention to the author's meaning as opposed to your own preconceived notions!

2. Enjoy what you read.

I can't emphasize this enough. Your brain has to draw connections between what you're learning and what you already know, and it's not going to do that very effectively if you're bored.

What you read doesn't matter very much as long as you really enjoy it. Just make sure that, on average, there's at least one vocabulary word you can learn on each page.

I keep a stash of Post-It notes inside the cover of whatever book I'm currently reading. If I run across a word I can't figure out in context, I put a Post-It under the word and use Google to look it up when I have time.

I went to the library last week and flipped through copies of some of the books in the list below. I've put them roughly in order from easiest to hardest. At the hardest level, there are words that even I don't know. You can always find something interesting to learn no matter what your current reading level is.

Roll of Thunder, Hear My Cry (Mildred Taylor)
Hatchet (Gary Paulsen)
The Outsiders (S.E. Hinton)
The Catcher in the Rye (J.D. Salinger)
The Joy Luck Club (Amy Tan)
The Hunger Games (Suzanne Collins)
Body Brokers: Inside America's Underground Trade in Human Remains (Annie Cheney)
Bitcoin Billionaires: A True Story of Genius, Betrayal, and Redemption (Ben Mezrich)
The Great Beanie Baby Bubble by Zac Bissonnette
One Flew Over the Cuckoo's Nest (Ken Kesey)
The Perfect Score Project: One Mother's Journey to Discover the Secrets of the SAT (Debbie Stier)
White Fang (Jack London)
Cat's Cradle (Kurt Vonnegut)
The Art of Non-Conformity (Chris Guillebeau)
Underwater: How Our American Dream of Homeownership Became a Nightmare (Ryan Dezember)
The Big Short: Inside the Doomsday Machine (Michael Lewis)
Interpreter of Maladies (Jhumpa Lahiri)
Jurassic Park (Michael Crichton)
33 Questions about American History You're Not Supposed to Ask (Thomas Woods)
Sophie's World: A Novel About the History of Philosophy (Jostein Gaardner)
Church Refugees (Josh Packard and Ashleigh Hope)
Animals in Translation (Temple Grandin)
When Genius Failed: The Rise and Fall of Long-Term Capital Management (Roger Lowenstein)
The Great Depression: A Diary (Benjamin Roth)
Wealth, War, and Wisdom (Barton Biggs)
Bad Blood: Secrets and Lies in a Silicon Valley Startup (John Carreyrou)
The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution (Gregory Zuckerman)
The Undoing Project (Michael Lewis)
The Great Gatsby (F. Scott. Fitzgerald)
The Screwtape Letters (C.S. Lewis)
The Great Depression: A Diary (Benjamin Roth)
Cheaper by the Dozen (Frank and Ernestine Gilbreth)
The Hobbit (J.R. Tolkien)
Superforecasting (Philip Tetlock)
Anticancer: A New Way of Life (David Servan-Schreiber)
Lifespan: Why We Age―and Why We Don't Have To (David Sinclair and Matthew LaPlante)
The Construction of Modern Science (Richard Westfall)
Pride and Prejudice (Jane Austen)
Frankenstein (Mary Shelley) This edition of the book includes definitions of the vocabulary words.
The Structure of Scientific Revolutions (Thomas Kuhn)

You can use magazines and blogs, too, as long as there's at least one vocabulary word you can learn on each page.

Newsweek
The New York Times
The Wall Street Journal - This is my personal favorite!
The Economist
Scientific journals: If you're interested in these, find a science blog on a topic you like and download the articles it recommends.

3. Use Professor Word.

Professor Word is a tool that automatically pulls up SAT and ACT words as you're reading on the Internet. If you click on a word, the tool will offer several definitions for it.

You'll be able to literally see how good writing relies on interesting, offbeat definitions of otherwise "easy" words.

4. Listen to audiobooks in the car.

Audiobooks aren't quite as effective as the printed page, but they still offer a way to turn otherwise wasted driving time into something useful.

The app Podcast Republic searches for podcasts and plays them on your Android phone. It also works with audiobooks you've saved on your phone's memory card. (Overcast is a great podcast app for the iPhone.)

Here are a few podcasts I've enjoyed. (I didn't go to Stanford intending to become interested in combining science, technology, and business, but it looks like the school had a good influence on me.)

The Science of Success Podcast
This podcast focuses on using science to help you become successful in life. Its evidence-based focus sets it apart from typical business success and pop psychology shows.

Vaya's podcast focuses on recent research about business and psychology.

Advanced Worldview Analysis (Dr. Ronald Nash)
Dr. Ronald Nash provides one particular point of view on how the Bible interacts with the world's philosophies.

History of Philosophy and Christian Thought (Dr. Ronald Nash)
Dr. Nash teaches the history of philosophy from a Christian point of view.

Seth Godin's Startup School
This is a series of excerpts from Godin's seminars on developing a creative business.

The Meb Faber Show
This is an excellent research-based podcast about what works in investing and what doesn't.

The Politically Incorrect Guide to American History Podcast
If you find the SAT's American History passages to be challenging, this is the podcast to listen to. It covers the American Revolution, the Constitution, the Civil War, and abolitionism. The only major topic on the SAT this podcast doesn't cover is early feminism. The author, Thomas Woods, is a senior fellow in history at the libertarian Mises Institute, so he tilts overtly toward individual and state rights rather than toward a large federal government.

The American Military History Podcast
This podcast takes the interesting approach of telling American history through the eyes of people who served in the military. Its focus on engagements keeps the episodes interesting.

It's History Podcast
This started out as a series of episodes covering the history of the Cold War and has since expanded to a variety of topics.

Pride and Prejudice (written by Jane Austen and read by Elizabeth Klett)
This is the most beautiful rendition of Austen's work that I've ever heard.

MIT courses on various topics
These courses are for advanced students who want to "sit in" on college classes.

5. Watch TV with the subtitles turned on.

Some shows are better than others. Generally speaking, shows that describe a unfamiliar world use advanced vocabulary to tell the viewer what's going on. Science fiction, fantasy, documentaries, and movie adaptations of classic books are all in this category. Music videos also work if the songs are very sophisticated.

If possible, watch with the subtitles on! Reading and writing happen with actual words.

Science Fiction


Fantasy


Documentaries


Classics


Sophisticated Music

6. Become friends with the "smart kids."

Peer pressure works. I usually consider mob psychology to be a bad thing, but you can sometimes harness it to push yourself to do something amazing.

If you go to a good college, you'll make friends with intelligent, ambitious people. They'll prod you to learn faster, work harder, and accomplish more than you would have on your own. Your vocabulary will improve as a result. Why not start that process today?

7. Find a tutor with good grammar and an excellent vocabulary.

Every section of the ACT requires you to be a good reader. ACT Math has word problems, and the Science section is one huge word problem. Recent changes to the SAT have made it even more reading-dependent than the ACT.

A good tutor is the ultimate "smart kid." You'll pick up strong reading and writing skills that will carry you through classes, standardized tests, and college application essays. In the process, you might even become an independent thinker and an effective communicator.

The best way to get into top schools is, after all, to be what they're looking for.

April 12, 2021

SAT: The Best Prep Books

Update: I've revised my review of IES Prep's SAT Reading books.

This is a current list of the books I'm using with my own students. I'll revise it as new books are released.


This new edition eight official practice tests with answer explanations, though the College Board is no longer recommending that students take tests 2 and 4. The 2020 edition of this book has two replacement tests that are already available online.

Pros
Official material is a true confidence builder. Every question you get wrong contains skills you need to practice.

Most prep books have poorly written questions, answer key errors, and questions that are unrealistically easy, difficult, or off-topic. If you get questions wrong or run out of time on unofficial tests, you'll have trouble figuring out whether the fault lies with you or with the book you're using.

Not all unofficial prep guides have a good feel for the SAT yet, so it's doubly important to practice with official material.

Cons
The practice tests and answer explanations are already available for free online. However, it is cheaper to buy a $16 book than to print 1280 pages. Even with a laser printer at two cents a page, you'd have to pay $25.60 to print the book out yourself.

The book itself doesn't contain the conversion tables that you need to figure out your scaled (out of 1600) scores. You can download those online by visiting the SAT practice test page and clicking on the Scoring Chart link underneath each test.

The first four tests in this book were released as practice material, and the raw/scaled score conversion tables may not be accurate. (The College Board is now recommending that students skip Tests 2 and 4.) Tests 5-8 were taken by real students in 2016 and 2017.


SAT Prep Black Book, Second Edition

If you don't have a tutor, this is the book to start with. Barrett's answer explanations are very detailed, and he uses only official SAT practice tests.

You have to use College Board practice tests 1-4 from Official SAT Study Guide, since Barrett's book has answer explanations for those tests but doesn't include the questions themselves. Fortunately, you can also download the tests online for free..

Pros
A top tutor can explain any officially released ACT question to you in as much detail as you want. Barrett's answer explanations are almost as good. At $27, it's a lot more affordable than hiring a real tutor.

His book really shines in its strategy suggestions for the Critical Reading section, where the right approach to the test is more important than reviewing content.

The answer explanations in this book are more organized and easy to read than the ones from the (older) ACT Prep Black Book. Unlike his ACT book, in which he skips some problems but explains others, Barrett includes explanations for every single SAT practice problem.

Cons
Since Barrett chooses to use only official SAT practice questions, he doesn't include any practice questions in the content review chapters. You have to read the entire book and then take an official practice test. For this reason, I suggest treating your first few tests as untimed practice.

Barrett's content review for the Math section is limited, and he emphasizes the use of guessing strategies and calculator tricks over doing problems the "right" way. If you're shooting for a perfect score on the Math section, you really need to know both calculator shortcuts and the "correct" methods in order to decide which approach is the fastest. His English grammar content review is limited and written in a confusing way.


IvyGlobal's New SAT Guide

IvyGlobal's SAT 6 Practice Tests

IvyGlobal's 3 New PSAT Practice Tests

Answer Explanations for IvyGlobal's Practice Tests

These are the best unofficial SAT practice tests I've seen. Even better, IvyGlobal's Web site has detailed answer explanations that are much more helpful that the ones the College Board provides for its tests. I've been impressed enough to include two IvyGlobal tests alongside the College Board tests on my SAT practice test page.

My evaluation is based on four practice tests in a 2015 edition IvyGlobal book. One of my students took all four Critical Reading sections and one of the Writing/Grammar sections and checked IvyGlobal's answer explanations for the questions he got wrong. He made a list of the questions he still couldn't figure out and brought them to me. After spending an hour going through the list with him, I couldn't find any problems that felt ambiguous or inauthentic. Overall, I've been impressed with both the tests and my student's performance on them.

(Update: He ended up getting a 1520 on the real SAT, largely due to practicing with Ivy Global's tests.)

I've taken Ivy Global online practice test #1 on a timed basis and was impressed. The questions are tricky without being unfair, and the answer explanations are concise but accurate.

Pros
IvyGlobal continually revises its books to correct mistakes. It publishes the corrections alongside its answer explanations online for students who don't own the revised books.

Ivy Global's Web site automatically scores practice tests and generates score reports. Select the test you want to score from Ivy Global's menu and enter the answers from your bubble sheet into the online interface.

Cons
It would have been convenient for the answer explanations to have been published inside the books instead of online. IvyGlobal's Amazon book reviews reveal that not everyone is aware that the answer explanations exist.

Errata
Ivy Global's "Six Practice Tests book" doesn't give you enough information to definitively solve #38 on page 300 (practice test #3, section 4). The third column of the table isn't labeled clearly enough.

#41 on page 476 (practice test #6, section 2) can't be solved unless you replace the phrase "no dollar signs" with "numerals only."

#20 on page 483 (practice test #6, section 3) can't be solved unless you assume that segment CG is perpendicular to segment AE.


Marks Prep: Four Realistic SAT Practice Tests
Marks Prep: Four Realistic SAT Practice Tests

These four high-quality practice tests are about as good as Ivy Global's (see the link above) and also come with helpful answer explanations at the back of the book.

I've had several students work through these tests with no issues.

Pros
The answer explanations for the tests are at the back of the book (unlike Ivy Global's, which you have to find online).

Cons
Unlike Ivy Global, Marks Prep doesn't offer online scoring. It can also be a bit of a pain to score and review the tests, as the four tests begin on page 7, the scoring instructions are on page 228, the answer keys are on pages 229-237, and the answer explanations start on page 237. You'll be flipping back and forth a lot.

There's also no bubble sheet in the book, so you'll have to find and print out your own.


Khan Academy's SAT program

Khan Academy provides an online SAT practice program that's great if you don't have time to buy and read prep books.

Pros
The practice tests are the same as the ones in the May edition of The Official SAT Study Guide, but you can print them from Khan Academy for free without having to wait for the book to arrive. Note that Khan Academy doesn't have links to the answer explanations. You can find the links at my SAT practice test page.

I consider the questions in the Web site's drills to be semi-official. They've been approved by the College Board but haven't been tested on students on actual SATs. That may change in the future if the College Board decides to add some of its real SAT questions to Khan Academy's practice pool.

Cons
Khan Academy provides good SAT practice, but its answer explanations aren't always helpful. SAT Math problems always have more than one solution, and the fastest solution takes 30 seconds or less. Khan Academy's explanations only include one solution per problem, and it may not be the one that is fastest or easiest for everyone.

Its answer explanations for the SAT's Critical Reading section can be particularly incomplete and confusing. To be fair, I've looked at most of the prep books for the SAT, and all of them have this problem to some extent.

If you miss questions, Khan Academy doesn't offer related questions for targeted practice. Khan Academy's normal math courses do do this, so I hope these features are added to its SAT program in the next few years.



Critical Reading is the hardest section to write good practice questions for. Erica does a very good job of emulating the trickiness of the real test. 

She includes great strategies for managing time, skimming, taking notes, and answering tricky questions.

Pros
Erica's practice questions and strategies are several levels better than anything else that's out there. She has detailed strategy descriptions and plenty of practice material.

The Suggested Reading list has a good sweep of different types of writing, from financial journalism to historical United States documents.

Erica's Web site offers several reading quizzes.

Cons
This is a big one: Critical Reading questions are very tricky, and Erica's answer explanations aren't long enough to fully explain why each question has three objectively wrong answer choices and one objectively correct choice.

Supporting Evidence questions on the SAT are hard, and some of them seem to have two correct answers unless you read very carefully. She mentions this in Chapter 5, but there's not enough information there for most people to apply her strategies to the toughest one or two questions on the test. To fill the gap, I've written detailed instructions for conquering Supporting Evidence questions.




IES SAT Reading: World Literature (Advanced Practice Series)

IES SAT Reading: Vice and Virtue in the Exploration of Democracy (Advanced Practice Series)

I used to use AP English Language and Literature tests to over-prep students for SAT Reading - at least until I ran across these two IES books.

Since each book focuses on a specific passage type (either Literature/Fiction or History), you can choose the one that best matches what you need to work on.

The SAT is designed to reward the use of background knowledge from AP Euro, AP U.S. History, and AP English Language/Literature classes. (Did you know that Abraham Lincoln was not an abolitionist and that early feminism resembles modern Christianity more than it does modern feminism?) Keep that in mind as you work through these books, especially when you read history passages. The "Vice and Virtue" book has a page with historical background information at the beginning of each chapter.

Pros
The practice tests are very accurate in their passage selections and practice questions. The answer explanations are detailed enough that most students haven't needed my help when reviewing their work.

Once you graduate from these IES books, you should be able to move on to AP English Language practice tests if you still need to over-prep. The AP Lang released exams don't have any answer explanations, so I strongly suggest either doing both IES books first or getting a tutor to help you.

Cons
These books are more about practice than strategy, so I suggest starting with the SAT Black Book unless you've taken AP English.

The science-based passage at the end of the Reading section can also be challenging, but IES hasn't produced a dedicated book to help students with that yet.

Errata
#7 on page 105 of the World Literature book has four answer choices that are all incorrect. The answer key indicates that (D) is the answer, but the passage doesn't provide evidence that the author progressively withdrew from social events during the holidays.




This two-book set is similar to Erica's ACT English book in its comprehensive grammar rules, practice questions, and answer explanations. Unlike the ACT version, the SAT version has a second volume called the Workbook that contains six extra practice tests.

Pros
If you understand every grammar rule Erica teaches, SAT Writing questions become objective, and you can tackle them like math questions. This doesn't mean they're easy, but it does mean that you can figure out why the wrong choices are actually wrong.

Since the first volume has a practice test and the Workbook has six, you get a total of seven practice tests with answer explanations.

Erica's Web site has a complete list of grammar rules and and reading/grammar quizzes.

Cons
Of the six tests in the Workbook, only tests 1, 3, 5, and 6 are useful for timed practice. Tests 2 and 4 contain a few confusing questions and answer key errors. It only takes one confusing question to throw your timing off for the whole test, so it's better to use tests 2 and 4 for light practice.

Erica's strategies are great for all of the question types except those that involve adding and deleting sentences. For those, read the Relevance and Purpose article on the College Panda's blog.

Her books are like textbooks (long and possibly boring). Decide now that you're going to be dedicated enough to read everything, including the answer explanations for the practice questions.



This unusual book addresses vocabulary skills that can help with both the Critical Reading and Grammar sections.

Chapter 5 is devoted entirely to the SAT Essay and includes two student essays that earned perfect scores.

Pros
Instead of drilling vocab words using flash cards, Erica groups words by their function in the English language and provides practice questions for those functions. This is a practical approach that will pay dividends in college later: words like hypothesis, tentative, and analogous often occur in science-related passages, so it makes sense to group them together.

Because Erica's focus is on practical reading, her book is equally helpful for ACT English and Reading passages. The section on passage-based vocabulary for science passages (pages 31-35) will even help you on the ACT's Science section.

Cons
If you already score higher than 700 on SAT Verbal and 30 on ACT English/Reading/Science, this book might be too easy. You'd benefit more from taking practice tests and reading 10th-to-12th grade level books to build an advanced vocabulary.


A Guide to SAT Math (Richard Corn)

This is the closest thing to an SAT Math textbook I've seen. It organizes content review and practice drills by topic. If you don't feel comfortable with high school math, start your prep with this book.

Students who get A's in school math often struggle with the SAT. A school test focuses on one chapter of your book at a time, and a good teacher tells you exactly what's going to be on that test. The SAT, on the other hand, tests knowledge that ranges from 7th grade to trigonometry and includes Common Core material that not all students have seen yet.

Disclaimer: I received a free copy of this book from the author. I get free copies of books on a regular basis, but this one is unique enough to earn a spot on my SAT book review page.

Pros
Richard Corn's book is enough like a textbook to get you comfortable with the topics that are tested on the SAT, but it's not long enough to be truly intimidating.

Cons
The main strength of Corn's book, its textbook-style organization, is also its weakness. The real SAT won't tell you whether a particular problem is testing the standard-form equation of a circle, the area of a circle, or right triangles within the unit circle. It could potentially test all three topics at the same time!

To truly be ready for the SAT, you have to learn how to think on your feet. Corn's book is great if you need content review as a primer, but you'll want to graduate quickly to more advanced practice materials.

This is the first edition of Corn's SAT Math book, so you may notice some typos and ambiguously written questions.


28 SAT Math Lessons - ADVANCED Course: For Students Currently Scoring Above 600 and Want to Score 800
Each of these books is a strategy guide combined with a large set of problems and answer explanations.

Pros
The practice material is very similar to real SAT Math tests.

Dr. Warner presents strategy, followed by practice problems, followed by more strategy. The cycle repeats with increasingly difficult problems.

If you do one lesson a day, you can finish each book in a month, although many people will need more time than that.

The answer explanations provide more than one way to do each problem, and the fastest method is marked with a star.

Cons
You can use this book without a tutor, but the problems near the end of the advanced book get so hard that you might throw your pencil at the wall and give up. Dr. Warner is trying to help you get an 800 on the Math section, so you'll be seriously challenged.



If you absolutely must get a perfect score in SAT Math, you'll want Dr. Chung's 626-page tome for its extremely hard practice problems. Be warned: this is not a book for wimps.

Note that Dr. Chung's book is great for practicing difficult algebra and geometry problems but that it doesn't have nearly as many word problems as the SAT itself does. If word problems are your weakness, you're better off practicing with Dr. Warner's books and Ivy Global's practice tests.

The most recent version of this book is the fourth edition, which is basically the third edition with different page numbers and an additional practice test. (The page numbers are different because the fourth edition uses less empty space in between its answer explanations. The questions are identical; even the errors in the Third and Fourth editions are the same.)

The answers to Tips 1-60 start on page 113.

Pros
If you want a perfect score, I'd normally suggest doing a trillion official practice tests. The SAT doesn't have that many, so the next best option is to practice with questions that are difficult while still being accurate in other ways.

Every hard problem on the SAT has an easy solution that take 30 seconds or less; the difficulty involves finding that solution quickly. What you want is a set of accurate problems that looks like SAT Math but has twice as many hard problems and almost none of the easy ones. That way, you can challenge yourself without distorting the timing of the test too much.

Dr. Chung's problems are hard, but they're still doable within the 30-second limit.

There are other books that are unhelpfully difficult: you can get Barron's New SAT if you want problems that are time-soakers or that have to be done by plugging twenty different numbers into a calculator. In case you're wondering, that's not an approach I recommend.

Cons
Dr. Chung's book will frustrate you unless you already understand everything in Dr. Warner's advanced course. The answer explanations tend to skip several steps in a row (exactly the sort of thing your math teacher tells you not to do), and he doesn't always approach problems in the fastest or most intuitive way possible. The explanations also contain numerous typos. Use his book for the excellent practice problems and ignore the answer explanations.

As mentioned earlier, Dr. Chung's book doesn't have as many word problems as the SAT does. If you're better at math than at reading, you may find that your scores on his practice tests are higher than they would be on real College Board exam.

SAT math diagrams are always drawn to scale unless the test indicates otherwise, but the drawings in Dr. Chung's book are generally intentionally distorted. In addition, the SAT always states its assumptions (segment AB is the diameter of a circle, lines CD and EF are perpendicular, lines GH and IF are parallel), but Dr. Chung sometimes doesn't do this. Don't get in the habit of making assumptions that are not explicitly stated in the problem, as doing so can hurt you on the real SAT.

I suggest starting with an official practice test, then Dr. Warner's books, followed by at least one additional official practice test. If you score 750 or higher and want to get to 800, then (and only then) should you use Dr. Chung's encyclopedic volume.

Errata
Page 22: Tip #8, problem #4 has two answers (B and C). To fix the problem, assume that a ≠ 1 and that answer choice B is not an option.

Page 30: Tip #13, problem #1 should state that points P and R are the roots of the parabola. If you don't make that assumption, the problem is unsolvable.

Page 53: Tip #27, problem #1 should state that you are solving for k.

Page 107: Tip #58, problem #1 asks for the correlation coefficient, which is not actually tested on the SAT.

Page 272: Practice Test 4, section 4, problem #22: All four answers are incorrect.

Page 490: Practice Test 12, section 4, problem #35: The answer is 91, not 39.

Page 491: Practice Test 12. section 4, problem #38: The answer is 21.9, not 21.

Page 519: Practice Test 13, section 4, problem #31: The answer is 16, not 6. (The book's answer explanation mistakenly multiplies the trapezoid bases instead of adding them.)

Page 564: Practice Test 15, section 3, problem #15: The problem is un-solvable without a clearer definition of what "does not support the candidate" means. (Does it include both the "Against" and "No Opinion" responses?)

Page 594: Practice Test 16, section 3, problem #20: The answer is 41°, not 39°.

Page 605: Practice Test 16, section 4, problem #30: In the last sentence, replace the phrase "number of algebra workbooks" with "price of each algebra workbook." If you don't do this, all the answer choices will be wrong.

Books to Avoid

I strongly suggest staying away from Peterson's Master the New SAT 2016. Two of students came to me after taking practice tests from this book. There were so many poorly written questions and typos that the students' scores went up 100 points in the Math section alone after I adjusted the answer key.

Peterson's has a 2018 edition now, but you may want to use the excellent free practice tests provided by the College Board and Ivy Global rather than risk your sanity on a new edition of a poorly written book.

Working with Official Practice Tests

If you find unofficial questions to be inaccurate or confusing, you can still prep for the SAT using only official practice tests:
  1. Take a practice test under timed conditions.
  2. Score your test and clearly mark the questions you missed. Use a different symbol to mark the questions that you got right by guessing.
  3. Review the questions you missed or had to guesss on. Spend at least ten minutes on each one. You have to prove to yourself that each question objectively has one right answer and three incorrect ones.
  4. Make a list of the questions you're not able to figure out on your own. Look up the questions on the Internet or use a tutor's help to get to the point where you can clearly identify one correct answer and three incorrect ones for every single question. Your job isn't done until you can do this.
  5. Repeat the process using a new practice test. Keep the cycle going until you're happy with your scores.
This method can work really well if you have a tutor. Do a practice test and hire a tutor to go over some of the answers with you, then spend time at home going over the remaining answers on your own. In your next session, you can go over any questions that are still confusing. When you and your tutor are satisfied that you fully understand the first practice test, repeat the process with a new test.

Going for a Perfect Score

Getting a 1600 on the SAT isn't easy.

On the ACT, you can get two 35's and two 36's, and the four scores will round to a composite of 36. The SAT doesn't offer that luxury: the section scores are added, not averaged. The SAT's Critical Reading passages are tough, and the Math sections contain a large proportion of word problems. You also face the challenge of finding enough practice tests to search for and eliminate the careless mistakes we all have a tendency to make.

You'll really have to go above and beyond in your understanding of the test. Work on improving your vocabulary. Read college-level books for practice and, preferably, for fun. Go through Dr. Chung's SAT Math practice. If you really want to challenge yourself, prep for AP English Language and SAT Literature; SAT Critical Reading will seem like child's play in comparison.

Most of all, go easy on yourself if you don't make it. Colleges want students who will bring them glory, and the difference between a 1550 and a 1600 doesn't say much about that potential in the long run.

April 10, 2021

Five Things to Do the Week Before the ACT

It's the week before the ACT. You don't know what to do, you say?

1. Re-take a practice test.

With only a week before the test, any studying needs to build confidence and reinforce what you've already learned. Don't spend time learning new material: cramming isn't very effective, and it'll just stress you out.

Choose a practice test you've done before, preferably a long time ago, and take it again under timed conditions. If you've been studying, you should see a large score increase over your first attempt. Review your answers and spend a little bit of time brushing up on any concepts you still need to practice.

Review stuff you already know.

2. Drive by your test center.

Knowing your exact driving route will build confidence and avoid stress on the morning of your actual test. If you do your practice drive on a Saturday morning, you'll get a good idea of what kind of traffic you'll run into and where to pick up food in case you can't eat at home.

3. Pack your bag.

The day before your test, pack a clear Ziploc bag with everything you'll need and put the bag in your car.

Your admission ticket is really important, as you won't be allowed to enter the test center without it. I usually print three copies of my ticket and leave one in the car, one in my Ziploc bag, and one in my pocket. If you leave the room during the break and forget to bring your admission ticket and photo ID, the proctors won't let you back in!

You can print your admission ticket online by signing into your ACT account.

Here's a complete list of stuff to pack:

  • Multiple copies of your admission ticket
  • Lots of No. 2 pencils with good erasers (bringing too many is better than having too few)
  • A small handheld pencil sharpener to use during breaks
  • A wristwatch with a disabled speaker
  • An ACT-approved calculator
  • A backup calculator
  • Snacks to last through the morning (fruit and nuts are good; starchy or sugary snacks that will spike your blood sugar are bad)
  • Bottled water (avoid any drink that contains sugar)

Leave these in the car:

  • Books and study materials
  • Highlighters
  • Electronic devices other than your calculator
  • Your cell phone (unless it's completely switched off)

4. Get tired.

The day before the test, don't spend too much time studying or doing homework. A good night's sleep is going to help a lot more than a few hours of studying.

Try to make yourself so tired that you can't stay up all night worrying about the test. An afternoon of aerobic exercise is good:
  • Hiking
  • Biking
  • Dancing
  • Yard work

5. Set your alarm.

You'll want to fall asleep without having to worry about whether you'll get up again. The day will come when you never wake from slumber, but that hopefully won't be due to the ACT!

Dress in layers on the morning of the test. You'll be able to remove layers as the room gets warmer without having to get anything from your backpack.

Plan to leave early enough that you get to the test center ten minutes before the doors open. You can entertain yourself with your phone while you're waiting as long as you remember to turn it completely off before the test starts.

Bonus

If you're serious about achieving consistent performance in stressful situations, check out the two podcasts episodes below:

How To! with Charles Duhigg
In this special episode of Happiness Lab, we feature an episode of the podcast How To! with Charles Duhigg. Mike’s dream job of playing bass in a Chicago orchestra is within reach — if only he can conquer his nerves and master the audition. Duhigg brings in Dr. Don Greene, a peak performance psychologist who’s worked with Wall Street traders and Olympic athletes, to see if he can help Mike perform his best under the spotlight. The secret? Jumping jacks, extra sleep, and watching reruns of The Office.

How to Perform Your Best Under Pressure
After serving as an Army Ranger and Green Beret, and getting his PhD in sports psychology, Don has spent decades coaching Olympic divers, professional athletes, race car drivers, opera singers, classical musicians, and Wall Street traders in how not to choke under pressure. He shares the principles he uses as a stress coach in Fight Your Fear and Win: Seven Skills for Performing Your Best Under Pressure. Today we talk about those skills, beginning with why people choke in the first place, and what’s going on in your mind when that happens. We then talk about the fundamentals of managing performance anxiety and staying in right brain flow, including making adrenaline work for instead of against you, getting your mind centered, ignoring distractions, and becoming mentally tough. We also discuss how to thwart negative self-talk through a practice Don calls “thought monitoring,” and his 5-step strategy for recovering when you do make a mistake. 


Do you have other tips for the week before the ACT? Comment below and share them with us!

November 22, 2020

Online Tutoring Q&A

How effective is online tutoring?  
My online students have seen some large score increases and high final scores

(This isn't a random sample, though: the students who search for and find my Web site tend to be highly motivated individuals.) 

SAT Math Level 2 problem solved on a Jamboard  

How does online tutoring work?  
Before each session starts, I'll share a Google Jamboard with you, which will allow us to write on the computer screen and save up to twenty pages of our work. (If necessary, we can save more than twenty pages of work by creating additional Jamboards.) 

We'll use either Skype or Facetime for the video-conferencing aspect of the session. 

After the session is finished, I'll send you a link to the Jamboard(s) we worked on. 


Do I need to install any software?  
It will be easiest for you to draw on the screen if you use a tablet or a laptop with a touch screen. (Desktops work too, but you'll either have to draw with your mouse or let me draw for you.) 

Jamboards function best in Google Chrome, but you can get by with Firefox if you need to. (Microsoft Edge and Safari are not recommended.) If you have an iPad, you can also use the Jamboard app from the App Store. 


How do I pay for my sessions?  
I'll send you a Venmo or Google Pay invoice after each session is finished. 

Alternatively, you can pre-pay for blocks of ten sessions at a time in order to get an additional 10% discount. 


How can I contact you?  
Please use the contact form at the bottom of my Tutoring page. I look forward to chatting with you! 

October 30, 2020

Quantitative Finance Course

Update: I've recently started trading a combination of strategies from the course, including risk parity, long/short futures factors, long/short equity factors, and long/short volatility. Here's the live performance (March 2019 through September 2020):  

Return (CAGR): 16.6%/year  
CAPM Alpha: 18.5%/year  
AQR alpha: 8.6%/year (controlling for SMB, HML-Dev, Mom Large, QMJ, and BAB)
Sharpe ratio: 1.00  
Sortino ratio: 3.13 = 2.21√2  
CAPM Information Ratio: 4.22

Here's the curriculum I've put together for Quantitative Finance students.

It starts at a fairly basic level (an introduction to diversification, trend following, and relative momentum) and culminates with advanced reading in academic papers.

Prerequisites

  • A deep-seated interest in how financial markets work
  • An A grade in either precalculus or high school statistics (AP Calculus AB or AP Statistics preferred)
  • Ability to commit a minimum of six hours per week to finance homework

Introductory Books

The Ivy Portfolio (Meb Faber)

I've screened dozens of books and have chosen this one because of its readability and balanced introduction to a variety of topics.

Part I discusses how the well-known Yale and Harvard endowments invest and how individual investors can replicate those strategies using index funds.

Part II provides a brief introduction to private equity and hedge fund strategies.

Part III introduces a simple trend-following system that has historically increased risk-adjusted returns while cutting the size of large losses in half.

For example, adding a 10-month moving average filter to the S&P 500 increased its return from 9.3% to 10.6% and lowered its volatility from 15.6% to 11.9%, nearly doubling the risk-adjusted return. The maximum drawdown (largest peak-to-trough loss) was cut from 45% to 23%.

The book also discusses a 13F strategy that can be used to track the stocks that hedge funds buy, cloning their exposures without paying fees.


The Way of the Turtle (Curtis Faith)

Curtis Faith's book is the most accessible introduction to building trading strategies that I've seen.

Chapters 1 and 2 cover the trader's greatest enemy: himself and his own biases. We can reduce these effects by using objective trading strategies that have historically had consistent performance across asset classes, especially if the results survive small tweaks to the strategies' rules.

Chapters 3-8 introduces trend following trading, risk management, and basic statistical metrics that are used to evaluate strategies.

Chapters 9-10 discuss specific indicators that are used to build trend-following trading systems.

Chapters 11-14 go into some of the pitfalls of building systems, including overfitting, small sample sizes, and under-diversification.

The epilogue presents the full-fledged trend trading system that the author, one of the original Turtle traders, used when he was in his twenties working for Richard Dennis.

Strategy Research and Paper Trading

To practice screening for stocks, students initially sign up for StockRover's free plan.

When they're ready to start testing to start testing stock market strategies, they'll need to sign up for Portfolio123. Students that are serious about doing their own research will find the Ultimate plan to be most helpful, as it will allow them to use variable position sizing (as opposed to equally weighting all the stocks) when they run their tests.

Paper trading for stocks and options can be done for free through TD Ameritrade's ThinkorSwim platform. (It's the paperMoney feature.) Your broker probably also offers a paper-trading system, though it may not be as sophisticated as Thinkorswim's.

Students who are interested in futures trading should start with the free Web site FuturesBacktest.

Academic Research (organized by topic)

Within each topic, I've sorted the research so that the easiest material is at the top of the list.

Read These First

A friend asked me to summarize factor investing in a simple way. I didn't do a good job of it over lunch, so here's a (hopefully) better attempt.

Does Higher Risk Actually Lead to Higher Returns?
This is a thread for weird stuff that's hard to explain. In my opinion, there's a lot evidence against the random walk and Capital Asset Pricing Model interpretations of the Efficient Market Hypothesis. That suggests that finance has the same difficulties as other fields in finding a model that works both conceptually and empirically.

Passive Investing

The Rate of Return on Everything
Our new, comprehensive data set includes total returns for equity, housing, bonds, and bills in 16 advanced economies from 1870-2015, revealing new insights and puzzles.

Momentum

AQR addresses criticisms of momentum by pointing to its strong premium, pervasive evidence (both through time and across markets), and negative correlation to value.

Adaptive Asset Allocation
Estimates of parameters for portfolio optimization based on long-term observed average values are inferior to estimates based on observations over much shorter time frames.
NOTE #1: You can play around with Portfolio Visualizer's mean-variance optimizer if you want to get a hands-on idea of what the paper is talking about.
NOTE #2: This is one of the papers featured in my $10,000 financial adviser offer.

Volatility-Adjusted Momentum
Incorporating volatility estimates in constructing stock momentum leads to a Sharpe ratio increase (0.34 to 1.14) and strongly reduced crash risk. Similar improvements are found in corporate bonds.

Short-Term Momentum (Almost) Everywhere
Contrary to stock-level evidence, we find a short-term momentum pattern in five major asset classes: the most recent month’s return positively predicts future performance.

Alpha Momentum and Alpha Reversal in Country and Industry Equity Indexes
Past short-term (long-term) alphas positively (negatively) predict future returns, subsuming their return-based counterparts.

Trend Following

We show that the returns of Managed Futures funds and CTAs can be explained by time series momentum strategies and we discuss the economic intuition behind these strategies. Time series momentum strategies produce large correlations and high-R-squares with Managed Futures indices and individual manager returns, including the largest and most successful managers. While the largest Managed Futures managers have realized significant alphas to traditional long-only benchmarks, controlling for time series momentum strategies drives the alphas of most managers to zero. We consider a number of implementation issues relevant to time series momentum strategies, including risk management, risk allocation across asset classes and trend horizons, portfolio re-balancing frequency, transaction costs, and fees.

Time Series Momentum
A diversified portfolio of time series momentum strategies across asset classes delivers abnormal returns with little exposure to standard asset pricing factors & performs best during extreme markets.

Trends Everywhere
AQR examines out-of-sample evidence for trend following in factors and alternative assets. They find that it works, provides substantial diversification, and isn't explained by vol targeting.

Enduring Effect of Time-Series Momentum on Stock Returns Over Nearly 100 Years
Trend following works in individual U.S. (1927-2014) and international (1975-2014) stocks without January losses or momentum crashes.

Two Centuries of Trend Following
Trend following on commodities/currencies/stock indices/bonds is profitable using spot data going back as far as 1800 (both before and after accounting for upward drift).

Dual Momentum – A Craftsman’s Perspective
Our objectives were twofold:
1.Verify the strength and robustness of the Dual Momentum concept and specifically the Global Equity Momentum strategy
2.Describe how to use ensemble methods to preserve expected performance while minimizing the probability of adverse outcomes

Can Sustainable Withdrawal Rates Be Enhanced by Trend Following?
While diversification across asset classes leads to higher withdrawal rates than equity/bond portfolios, trend following itself is far more powerful.

You Can't Always Trend When You Want
Trend following has continued to profit from market moves and diversification. However, the average size of global market moves has been more muted than usual.

Glitch
The convexity profile for a short-term trend following system is most significant when measured over weekly or monthly horizons. Long-term systems, on the other hand, exhibit negative or insignificant convexity profiles over these horizons.

Cross-Sectional and Time-Series Tests of Return Predictability: What Is the Difference?
The difference between the performances of TS and CS strategies is largely due to a time-varying net-long investment in risky assets.

Do Stocks Outperform Treasury Bills?
The best-performing 4% of listed companies explain the net gain for the entire U.S. stock market since 1926; other stocks collectively matched Treasury bills.


Value

Fact, Fiction, and Value Investing
With characteristic wit, AQR corrects misconceptions. Topics include concentration, profitability, momentum, value in other asset classes, composite metrics, and large caps.

Equal-Weight Benchmarking: Raising the Monkey Bars
In the period from 1969 to 2011, if you had picked stocks at random, there is a 99.9% chance you would have beaten the market. It is certainly remarkable that, at a time when the vast majority of hypothetical monkeys flinging darts at the financial pages outperformed, less than half of active managers managed to do so.
NOTE: This is the paper featured in my Introduction to Quantitative Finance page.

Combination Metric Backtest and Comparison of Value Deciles (1951 to 2013)
Over the long run, and with some regularity, cheap stocks tend to outperform more expensive stocks. The PB, PE and PCF ratios are all very useful metrics for sorting cheap stocks from expensive stocks, but we can’t know which will be the better bet at any given point in time. The combo spreads the risk of underperformance relative to any single metric, and, in doing so, generates reliable investment performance over the full period without lagging far behind the front-runner at any point.

Will Value Survive Its Long Winter?
Value and other premiums carry the risk of being negative for as long as a decade. Allocating to value, even when it is not providing a premium, reduces long-term portfolio risk.

Do 'Dogs of the World' Bark or Bite? Evidence From Single-Country ETFs
Mean reversion in financial markets is commonly accepted as a powerful force. This paper examines the performance of a simple mean-reversion-based strategy -- Dogs of the World -- designed to take advantage of return reversals in national equity markets. Both a simulated application of the strategy using indexes since 1971 and application using single-country ETFs since 1997 produces higher compounded average returns than those of a comparable market index. Although the Dogs strategy also produces higher volatility than the index, the information ratio for the strategy suggests that the return more than compensates. An advantage of this strategy is that its implementation using single-country ETFs is straightforward and inexpensive. [NOTE: This paper is no longer available at the SSRN link provided.]

Industry Long-Term Return Reversal
Long-term reversals (3-10 year formations): all U.S. stocks are grouped into 48 industries, and the industries are ranked and traded L/S against each other.

Valuation changes unnecessarily reduce the precision of our estimates of true long-term expected market and factor returns. The usual examination of long-run average returns is not all it’s cracked up to be.

Deep Value
Examining deep value (wide valuation spreads) across global individual equities, equity index futures, currencies, and global bonds provides new evidence on competing theories for the value premium.

Returns of equity & other asset classes generally underperform after banking crises. Investors do not fully anticipate the consequences of debt overhang, which results in lower long-run dividends.

Returns to value in equities, industries, commodities, currencies, bonds, and stock indexes are predictable by their respective value spreads.

Betting-Against-Beta

We present a model with leverage and margin constraints that vary across investors and time. We find evidence consistent with each of the model’s five central predictions: (1) Since constrained investors bid up high-beta assets, high beta is associated with low alpha, as we find empirically for U.S. equities, 20 international equity markets, Treasury bonds, corporate bonds, and futures; (2) A betting-against-beta (BAB) factor, which is long leveraged low beta assets and short high-beta assets, produces significant positive risk-adjusted returns; (3) When funding constraints tighten, the return of the BAB factor is low; (4) Increased funding liquidity risk compresses betas toward one; (5) More constrained investors hold riskier assets.

Fact and Fiction about Low-Risk Investing
This article presents five facts and dispels five fictions about low-risk investing within equities and across other asset classes.

Betting Against Correlation
What drives BAB - leverage constraints or behavioral effects? AQR digs in by dividing BAB into B.A.Correlation and B.A.Volatility factors.

Quality

Accounting for both quality and value yields dramatic performance improvements over traditional value strategies. Gross profitability is particularly powerful, especially for large cap stocks and long-only investors.

Higher-quality stocks have higher prices (P/B) on average, but not by a very large margin. A quality-minus-junk (QMJ) factor earns significant risk-adjusted returns in the U.S. and globally.

Size

We examine many claims about the size effect and aim to clarify some of the misunderstanding surrounding it by performing simple tests using publicly available data.

Short-Term Reversal

Limiting the universe to large cap stocks and applying more sophisticated portfolio construction to lower turnover reduces short-term reversal's trading costs.

Only the component of short-term reversal which isolates reaction to recent “nonfundamental” price changes is significant and positive; it generates a risk-adjusted return 3x as large.

Seasonality

Halloween and turn-of-the month (TOM) are the strongest calendar effects, fully diminishing the other three (the January effect, weekend effect and holiday effect) to zero.


* Stocks, L/S factors, commodities, and country indices have seasonality
* Factor seasonalities are comparable in size to factors themselves
* Stock seasonality may originate from factor seasonality

Using a sample of 97 stock return anomalies, we find that returns are 6 times higher on earnings announcement days. Results are consistent with biased expectations being at least partially corrected.

Sentiment

The Short of It: Investor Sentiment and Anomalies
Following high levels of market-wide sentiment:
* Anomalies in individual stocks tend to be stronger
* The short leg becomes more profitable
* The long leg's returns are not affected

Why Do Short Interest Levels Predict Stock Returns?
Short sellers are sophisticated investors who have value relevant information about firms and position themselves in stocks with deteriorating fundamentals.

Stocks with high borrowing fees tend to underperform their peers over the short term, but persistence of high borrowing fees is fast-decaying and not systematically predictable.

Equity loan fees are the best predictor of cross-sectional returns. 28% is explained by the best-performing anomalies; 72% is from unique information.

Want Smart Beta? Follow the Smart Money: Market and Factor Timing Using Relative Sentiment
We present a real-time, cross-asset, positions-based relative sentiment indicator derived from the COT report to predict the U.S. equity market.

Multi-Factor

A simple formula based on low vol, high net payout yield, and 12-1 momentum provides "full and efficient exposure to the most important factor premiums" worldwide.

Value and Momentum Everywhere
Value and momentum are more positively correlated across asset classes than the asset classes are themselves. However, value and momentum are negatively correlated both within and across asset classes.

Superstar Investors
Identify structural edges and commit to seeing them through inevitable periods of underperformance. As each of our superstars shows, “merely good” edges over time compound to great long-term performance.

Buffett's Alpha
AQR finds that Berkshire Hathaway's large 13% CAPM alpha and 0.79 Sharpe ratio become insignificant after controlling for BAB and QMJ. Warren Buffett may have been the first multifactor investor.
NOTE #1: Here's a thread about Berkshire Hathaway's factor loadings. You can also check them yourself at Portfolio Visualizer.
NOTE #2: This is one of the papers featured in my $10,000 financial adviser offer.

Death of Diversification Has Been Greatly Exaggerated
Factor diversification is the best answer for the many investors whose risk is dominated by stock market directionality and who will take the time to understand the approach.

Investing with Style
Value, Momentum, Carry and Defensive deliver positive returns with low correlation in out-of-sample tests across a multitude of asset classes and time periods using very liquid securities.

Strategic Allocation to Commodity Factor Premiums
Portfolios of commodity factor premiums exhibit significantly better risk-adj performance than the commodity market portfolio and add value to a stock/bond portfolio.

When Diversification Fails
To fully appreciate extreme correlations, we take an in-depth look at stock-to-credit, stock-to–hedge fund, stock-to-private asset, stock-to-factor, and stock-to-bond correlations during tail events.

Two Centuries of Commodity Futures Premia: Momentum, Value and Basis
* Commodity factors work in hand-collected pre-sample data (back to 1877)
* Long commodities + factor tilts earn higher Sharpes and are still able to hedge inflation

Global Factor Premiums
New sample evidence reveals that the large majority of global factors are strongly present under conservative p-hacking perspectives, with limited out-of-sample decay.

Factor Performance 2010-2019: A Lost Decade?
There appears to be a clear dichotomy in recent factor performance: while generally accepted factors struggled, various factors that are considered to be inferior or redundant remained effective.

Exploiting Commodity Momentum Along the Futures Curves
Momentum strategies that invest in contracts on the futures curve with the largest expected roll-yield or the strongest momentum earn higher risk-adjusted returns.

Factor returns can experience downside shocks far larger than expected. In certain conditions, returns also become more correlated.

Ignored Risks of Factor Investing
The risks of factor investing are usually understated (perhaps, severely so), and the diversification benefits tend to be overstated.

Best Strategies for Inflationary Times
Unexpected inflation is bad for bonds and equities, with local inflation mattering most, while commodities and futures trend following performance is strong.

Stocks, currencies, and commodity futures only hedge against energy inflation rather than core inflation. Hedging against core inflation is costly.

Factor Momentum and the Momentum Factor
Factors are positively autocorrelated [and time-series momentum strategies work on them]. Momentum is not a distinct risk factor; it aggregates the autocorrelations found in other factors.

Factor-Based Commodity Investing
A multi-factor portfolio combining the momentum, basis, basis-momentum, hedging pressure and value commodity factor portfolios outperforms widely used commodity benchmarks.


Craftsmanship Alpha

Leveraged Trading (Robert Carver)
* Systematic > discretionary
* Be careful with leverage
* Execution costs and financing spreads matter
* Adjust signals for volatility
* Measure position sizes in dollar × standard deviation units
* Diversification works wonders: add markets and create ensembles

Seemingly inconsequential design decisions can actually matter a lot. The skillful targeting and capturing of style premia may constitute a form of alpha on its own.

Leverage Aversion and Risk Parity
Consuming the high risk-adjusted returns of safer assets requires leverage. Risk parity portfolios exploit this opportunity by equalizing the risk allocation across asset classes.

Risk parity can outperform 60/40 in a moderately rising rate environment, even if the cumulative rate increase is large. Its modest edge can compound to a large advantage over time.

We gauge the potential of four strategies: cap weighting, 60/40, unlevered and levered risk parity. Costs can reverse the ranking, especially when leverage is employed.

Long-Only Style Investing: Don't Just Mix, Integrate
AQR compares "mixing" styles via stand-alone portfolios and "integrating" by combining signals during the stock selection process. Integrating is better b/c it minimizes the impact of constraints.

For low-to-moderate factor exposures, portfolio blending works better than signal blending due to interaction effects between factors.

Role of Shorting, Firm Size, and Time on Market Anomalies
AQR dives into the sources of alpha for L/S size, value, and momentum and whether the alphas have weakened over time.

When Equity Factors Drop Their Shorts
* The alphas of equity factor short legs are subsumed by those of the long legs.
* Only the short (not long) legs of HML, low vol, and low beta are subsumed by FF5.

Shorting Costs and Profitability of Long–Short Strategies
Shorting costs amount to almost 40 percent of gross long–short returns. If other trade-related transaction costs were considered, long–short profits would be reduced further.

Equity Factors: To Short Or Not To Short, That is the Question
A long-short implementation leads to better risk-adjusted returns than its hedged long-only counterpart, at least when AUM are not too large.

We examine the causal effect of limits to arbitrage using Regulation SHO, which relaxed short-sale constraints for a set of pilot stocks, as a natural experiment.

Live momentum portfolios are capable of capturing the momentum premium, even after expenses, trading costs, taxes, & other frictions associated with real-life portfolios.

This paper compares the efficacy of three common transaction cost mitigation techniques: limiting a strategy to cheap-to-trade securities, rebalancing less frequently, and “banding.”

To Trade or Not to Trade? Informed Trading With Short-Term Signals for Long-Term Investors
Strategic trade modification [timing] provides exposure to short-term signals without imposing additional transaction costs/capacity limits.

Commodities

Returns of commodity futures indexes have, on average, been positive over the long run. Commodities are a potentially attractive asset class in portfolios of stocks and bonds.

Conquering Misperceptions about Commodity Futures Investing
Three misperceptions:
(1) Commodities are a play on commodity prices
(2) Commodity prices provide an inflation hedge
(3) Commodity markets can absorb abundant capital

Commodity Futures Risk Premium: 1871–2018
* New database (newspaper data)
* Non-surviving contracts have a minor impact
* Unlike stocks, median commodity has a positive return
* Long-only, carry, and trend strategies work but have prolonged drawdowns

Carry

Carry predicts returns cross-sectionally and in time series for a host of different asset classes, including global equities, global bonds, commodities, US Treasuries, credit, and options.

Anatomy of Commodity Futures Risk Premia
A single factor, high-minus-low from basis sorts, explains the cross-section of spot premia. Two additional basis factors are needed to explain the term premia.

Tax Alpha

Tax-managed factor tilts (β=1) generated average tax alphas of 1.6%-1.9%/year. Alpha for tax-managed indexing was 2.3%/year. This can be attributed to loss harvesting and the tax rate differential.

Tax Benefits of Separating Alpha from Beta
The turnover of a strategy that separates α from β is concentrated on the long-short component and enables the deferral of capital gains on the passive market component.

The authors construct basic value and momentum strategies. The long-short portfolio has a tax BENEFIT of 0.3%, which can be increased to 6.1% through tax-aware stock selection and timing.

Relaxing the long-only constraint results in a large increase in their tax benefits in particular due to an increase in the character benefit.

Understanding the Tax Efficiency of Relaxed-Constraint Equity Strategies
* Tax benefits of relaxed-constraint (130/30) equity strategies (character and deferral components)
* Potential impact of the Tax Cuts & Jobs Act of 2017

Volatility Targeting

The authors look at a strategy that uses volatility to adjust the leverage of individual factors (SMB, HML, Mom, RMW, CMA, Carry) as well as country equity indices.

This paper looks at volatility targeting over equities, futures and bonds. Volatility is generally autocorrelated, BUT targeting works better for equity and credit than Treasuries and commodities.

Options

Options as a Strategic Investment (Lawrence McMillan)

Selling a call against stock does NOT provide a reliable cushion against declines. The cushion comes from the call's negative delta and its exposure to the volatility risk premium, not from the premium that you initially collect.

Delta-hedged covered calls outperform unhedged covered calls. This is the case in equity indices throughout the world. The VRP appears to add more diversification than the equity component of the strategy.

Equity index covered calls have historically provided attractive risk-adjusted returns largely because they collect equity and volatility risk premia. However, they also embed exposure to an uncompensated risk, a naïve equity market reversal strategy.

(1) Long-short trend-following and (2) covered calls each have higher Sharpes than buy-and-hold but negative correlations to each other. [This paper is no longer available at the original SSRN download page.]

Collaring the Cube: Protection Options for a QQQ ETF Portfolio
Diagonal collars on QQQ, 3/1999-3/2008, generated higher returns, lower volatility, lower drawdowns, and lower kurtosis than QQQ itself. Purchases were made at ask and sales at bid.

Embedded Leverage
Many financial instruments are designed with embedded leverage such as options and leveraged exchange traded funds (ETFs). Embedded leverage alleviates investors' leverage constraints and, therefore, we hypothesize that embedded leverage lowers required returns. Consistent with this hypothesis, we find that asset classes with embedded leverage offer low risk-adjusted returns and, in the cross-section, higher embedded leverage is associated with lower returns. A portfolio which is long low-embedded-leverage securities and short high-embedded-leverage securities earns large abnormal returns, with t-statistics of 8.6 for equity options, 6.3 for index options, and 2.5 for ETFs. We provide extensive robustness tests and discuss the broader implications of embedded leverage for financial economics.

Portfolio Strategies for Volatility Investing
The degree of VIX futures contango has been shown to hold predictive power over volatility returns. This study proposes a conditional strategy which allocates to market and volatility risk.

Risk Premia and the VIX Term Structure
A single principal component, Slope, predicts the excess returns of S&P 500 variance swaps, VIX futures, and S&P 500 straddles for all maturities to the exclusion of the rest of the term structure.

Risk Parity is Not Short Volatility (Not That There's Anything Wrong with Short Volatility)
The two strategies’ similarities are overstated, and we find no empirical evidence to support the claimed hidden exposure.

Options price changes are predictable at high frequency. Effective spreads of traders who time executions are less than 40% of the size given by conventional measures.

Term Structure of Short Selling Costs
Forward short selling costs (derived from put-call parity) predict future costs and stock returns. Short selling costs are higher over horizons when negative information is more likely to arrive.

Volatility Trading (Euan Sinclair)


Closed-End Funds

We estimate CEF expected returns as a function of the history of premiums and current premium. Previous studies understated the value of this information.

The average CEF's monthly return is 64% more volatile than its assets'. Although largely idiosyncratic, 15% of excess risk is explained by market risk, small-firm risk, and risk that affects other CEFs.

Bonds

Investors chase bond funds with higher yields, even controlling for past returns. The return spread is less than half of the yield spread and comes from higher risk.

Based on an extensive new data set (1866-2008 period), corporate bond market default events are only weakly correlated with business downturns.

Real Estate

Modeling private real estate is not straightforward. We consider theoretical arguments, historical average returns, and forward-looking yields.

Financial Advisors

Misguided Beliefs of Financial Advisors
Advisors trade frequently, chase returns, prefer expensive, actively managed funds, and underdiversify. Their net returns [alphas] of −3%/year are similar to their clients'.

More Strategies

I stay abreast of current research via the FinTwit community and maintain lists of the more interesting developments below (organized by topic):
  1. Benchmarks
  2. Value, Long-Term Reversal, Low Volatility, and Quality
  3. Trend-Following, Cross-Sectional Momentum, and Carry
  4. Volatility Risk Premium
  5. Calendar and Diagonal Spreads
  6. Real Estate, Commodities, and Bonds
  7. Seasonality, Sentiment, Macro, and Short-Term Mean Reversion
  8. Craftsmanship Alpha
  9. Tax Alpha
  10. Sarlacc Pits (things to avoid buying)
  11. Market Psychology and Bubbles
You'll also find a very useful collection of research summaries at CXO Advisory, though you'll have to pay for a membership if you want to access any material written after July 2017.

If you're interested in learning more, please use the form below to contact me. I look forward to meeting you!

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