Education
During the 1940s Jones worked for Fortune magazine and wrote articles on non-financial subjects such as Atlantic convoys, farm cooperatives, and boys' prep schools. In March 1949, Jones was investigating technical methods of market analysis for an article titled "Fashions in Forecasting", reporting on a new class of stock-market timers and the approaches they employed to call the market. He studied a dozen or so of these "technicians", whose approaches ranged from volume/price ratios to odd-lot statistics to the outcome of the Harvard–Yale football game.
In "Fashions," Jones assessed each approach, sometimes harshly and other times positively. For example, Jones commented on one analysis that "…the market trend succeeded itself 62.5 times out of a hundred and reversed itself 37.5 times. The probability of obtaining such a result in a penny tossing series is infinitesimal." Jones was looking for approaches that offered better than a 'fair game.' He noted that certain approaches require trending markets, others work in higher volatility environments, still others in improving credit markets. He was beginning to feel his way down a dimly lit path toward what today would be considered a factor-based approach to portfolio construction.
Jones's comments on Nicholas Molodovsky's work showed he thought highly of it. In one passage on Molodovsky he said, "Well controlled experimental work of this nature is important and likely to become more accurate as the methods are further developed." He hinted at the approach of risk-weighting individual stocks, as well as quantifying how far a stock has diverged from its fundamental value.
The research gave him the idea to try his own hand at investing. Two months before the Fortune article went to press, Jones had established an investment partnership that would exploit this new style of investing. He raised a total of $100,000, $40,000 of which was his own. In its first year the partnership's gain on its capital came to a very respectable 17.3 percent.
Read more about this topic: Alfred Winslow Jones
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