“The secret to successful investing is to figure out the value of something and then-pay a lot less”
Joel Greenblatt
In investing, I like to follow some established, proven successful, and plausible methods and strategies used by super investors, especially those from the matured markets such as that in US. One such investing strategy is the Magic Formula investing strategy by Joel Greenblatt, a top-performing hedge fund manager who have made billions USD for himself and his investors. Incidentally, Joel is also a university professor in finance.
Anyone interested in the Magic Formula Investing, how fantastic it has been performing, and why it worked and continues to work, can refer to this link below:
http://klse.i3investor.com/blogs/kcchongnz/51631.jsp
The secret of his magic formula is no magic to it at all. It is basically “a long-term investment strategy designed to buy a group of above-average companies (High return of capital) when they are available at below-average prices (low EV/Ebit)”.
The key driving formulas used by Greenblatt for his Magic Formula are:
My investing experience in Bursa
I have shared my experience of two portfolios stocks, “The GE13 Stock Watch” and “Stock Pick Challenge 2013 2H”, published in i3investor just recently in this article, “2017 New Year Reflection on Fundamental Value Investing in Bursa here.
http://klse.i3investor.com/blogs/kcchongnz/112906.jsp
Basically, most of the stocks in the portfolios were chosen using the principles of The Magic Formula. The portfolios returned 132% and 119% for the four years and three and a half years respectively, compared to the almost flat broad market over the same period.
The Magic Formula is plausible. It is intuitive; investing in good companies when they are selling cheap. It has proven to work in the US and other matured markets around the world. I have had good experience that it worked well, and continues to work well for my investing experience in Bursa, and that of the regional markets too. That is why I have chosen this sound principle of the Magic Formula for my stock picks in i3investor for 2017.
The Magic Formula has been proven to work for long-term, although my own experience shows that it worked for short-term too, very well indeed. However, I am still aiming for satisfactory return over a long-term period, rather than looking at quick gain.
“Investing
should be more like watching paint dry or watching grass grows. If you
want excitement, take $800 and go to Las Vegas.”
– Paul Samuelson
My 2017 i3investor stock picks
I, as a small-time retail investor, am just using the principle of the Magic Formula (MF), rather than a quantitative investing methodology used by Greenblatt, a hedge fund manager, who must invest a large sum of money. I do not have to know many stocks and invest in all of them, but just some of them, and can select the few best MF scores, rather than spreading over say 30 counters. I can also incorporate some other metrics to tighten my election to avoid investing in lemon stocks, and look at some qualitative issues too. I did just that by incorporating an additional metric, the cash yield, CY, besides the two MF metrics of ROIC and Earnings Yields, as shown in the appended link and Table 1 below for my 2017 i3investor stock picks.
http://klse.i3investor.com/servlets/forum/1100071070.jsp
Table 1: Magic Formula Scores for Stock Pick 2017
The constituents of the MF are all accounting numbers. I like to look at cash flows too, Free cash flows (FCF) in particular, to avoid companies using financial shenanigans to boast earnings. For those who wish to understand my preference of this may refer to this link below,
http://klse.i3investor.com/blogs/kcchongnz/76694.jsp
Table 1 above summarizes some of the highest MF plus CY scores for the stocks in my list, basing on the latest twelve months’ financial results. I tweak a little to exclude one-time gain such as foreign exchange gains/loss, gains/loss on disposal of PPE etc.
All the five stocks above meet all the individual criterion of ROIC, EY and CY. It is not easy to find free screeners for those metrics as few compute “Invested Capital (IC)”, and “Enterprise value (EV)”. FCF is lumpy and subjective, and it requires some personal judgment too.
“If something is easy to compute and understand, it is extremely unlikely that the market will misinterpret it. Therefore, such information will not, by itself, provide evidence of mispricing.”
The metrics may appear to be complicated, so much as that they have been regarded as “jargons’ and mumbo jumbos used to “impress” or to “mislead” people. Believe me, on the contrary, they are very useful, and if you care to learn, they are not difficult, compared to what we study in Engineering, computer science, and even high school mathematics. But of course, one must be interested in it for the purpose of building long-term wealth, and willing to spend some time and effort to learn it.
I, as an engineer, found this stuff highly interesting, and rewarding too, and they are so simple and yet so useful. I often puzzle why aren’t people investing in the stock market with tens, hundreds of thousands, or even millions, not interested in learning a proper way and which is proven successful.
Hence, if you wish to do that, you may contact me at,
ckc13invest@gmail.com
It is just my passion to educate those interested to be a better investor with higher probability of success investing in the stock market, with lower risk, and in a more stress free environment.
There are also many other investing strategies besides this MF, such as the “Dividend Investing Strategy”, “The Coldeye 5 yardsticks”, “Graham net net”, “Value on the Move” etc. taught in this flexible online course.
Besides, how nice it is to have regular watch lists with various investing strategies, plus stocks picked with detail analysis and comprehensive reports for you to consider to invest or not.
Happy investing.
KC Chong
http://klse.i3investor.com/blogs/kcchongnz/113511.jsp
Joel Greenblatt
In investing, I like to follow some established, proven successful, and plausible methods and strategies used by super investors, especially those from the matured markets such as that in US. One such investing strategy is the Magic Formula investing strategy by Joel Greenblatt, a top-performing hedge fund manager who have made billions USD for himself and his investors. Incidentally, Joel is also a university professor in finance.
Anyone interested in the Magic Formula Investing, how fantastic it has been performing, and why it worked and continues to work, can refer to this link below:
http://klse.i3investor.com/blogs/kcchongnz/51631.jsp
The secret of his magic formula is no magic to it at all. It is basically “a long-term investment strategy designed to buy a group of above-average companies (High return of capital) when they are available at below-average prices (low EV/Ebit)”.
The key driving formulas used by Greenblatt for his Magic Formula are:
- Earnings Yield = EBIT / Enterprise Value
- Return on Capital = EBIT / (Fixed Assets + Net Working Capital)
My investing experience in Bursa
I have shared my experience of two portfolios stocks, “The GE13 Stock Watch” and “Stock Pick Challenge 2013 2H”, published in i3investor just recently in this article, “2017 New Year Reflection on Fundamental Value Investing in Bursa here.
http://klse.i3investor.com/blogs/kcchongnz/112906.jsp
Basically, most of the stocks in the portfolios were chosen using the principles of The Magic Formula. The portfolios returned 132% and 119% for the four years and three and a half years respectively, compared to the almost flat broad market over the same period.
The Magic Formula is plausible. It is intuitive; investing in good companies when they are selling cheap. It has proven to work in the US and other matured markets around the world. I have had good experience that it worked well, and continues to work well for my investing experience in Bursa, and that of the regional markets too. That is why I have chosen this sound principle of the Magic Formula for my stock picks in i3investor for 2017.
The Magic Formula has been proven to work for long-term, although my own experience shows that it worked for short-term too, very well indeed. However, I am still aiming for satisfactory return over a long-term period, rather than looking at quick gain.
“Investing
should be more like watching paint dry or watching grass grows. If you
want excitement, take $800 and go to Las Vegas.”– Paul Samuelson
My 2017 i3investor stock picks
I, as a small-time retail investor, am just using the principle of the Magic Formula (MF), rather than a quantitative investing methodology used by Greenblatt, a hedge fund manager, who must invest a large sum of money. I do not have to know many stocks and invest in all of them, but just some of them, and can select the few best MF scores, rather than spreading over say 30 counters. I can also incorporate some other metrics to tighten my election to avoid investing in lemon stocks, and look at some qualitative issues too. I did just that by incorporating an additional metric, the cash yield, CY, besides the two MF metrics of ROIC and Earnings Yields, as shown in the appended link and Table 1 below for my 2017 i3investor stock picks.
http://klse.i3investor.com/servlets/forum/1100071070.jsp
Table 1: Magic Formula Scores for Stock Pick 2017
The constituents of the MF are all accounting numbers. I like to look at cash flows too, Free cash flows (FCF) in particular, to avoid companies using financial shenanigans to boast earnings. For those who wish to understand my preference of this may refer to this link below,
http://klse.i3investor.com/blogs/kcchongnz/76694.jsp
Table 1 above summarizes some of the highest MF plus CY scores for the stocks in my list, basing on the latest twelve months’ financial results. I tweak a little to exclude one-time gain such as foreign exchange gains/loss, gains/loss on disposal of PPE etc.
All the five stocks above meet all the individual criterion of ROIC, EY and CY. It is not easy to find free screeners for those metrics as few compute “Invested Capital (IC)”, and “Enterprise value (EV)”. FCF is lumpy and subjective, and it requires some personal judgment too.
“If something is easy to compute and understand, it is extremely unlikely that the market will misinterpret it. Therefore, such information will not, by itself, provide evidence of mispricing.”
The metrics may appear to be complicated, so much as that they have been regarded as “jargons’ and mumbo jumbos used to “impress” or to “mislead” people. Believe me, on the contrary, they are very useful, and if you care to learn, they are not difficult, compared to what we study in Engineering, computer science, and even high school mathematics. But of course, one must be interested in it for the purpose of building long-term wealth, and willing to spend some time and effort to learn it.
I, as an engineer, found this stuff highly interesting, and rewarding too, and they are so simple and yet so useful. I often puzzle why aren’t people investing in the stock market with tens, hundreds of thousands, or even millions, not interested in learning a proper way and which is proven successful.
Hence, if you wish to do that, you may contact me at,
ckc13invest@gmail.com
It is just my passion to educate those interested to be a better investor with higher probability of success investing in the stock market, with lower risk, and in a more stress free environment.
There are also many other investing strategies besides this MF, such as the “Dividend Investing Strategy”, “The Coldeye 5 yardsticks”, “Graham net net”, “Value on the Move” etc. taught in this flexible online course.
Besides, how nice it is to have regular watch lists with various investing strategies, plus stocks picked with detail analysis and comprehensive reports for you to consider to invest or not.
Happy investing.
KC Chong
http://klse.i3investor.com/blogs/kcchongnz/113511.jsp
