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Strategies & Market Trends : Greenblatt's Little Book That Beats The Market -- Ignore unavailable to you. Want to Upgrade?

To: Bananawind who wrote (153)	2/7/2008 6:45:04 AM
From: bruwin	Respond to of 218

Well Bananawind, they say that, "the proof of the pudding is in the eating." I suspect that you originally set out to test Greenblatt’s ‘magic formula’ stock selection strategy. And you now have the results of that attempt. As you, yourself, said, "the results were rather uninspiring", ..... but were they ? I would respectfully suggest that they were exactly in line with what I attempted to point out to you in my Messages #135, 139, 147 and 149 below. BLDR, CECO and PACR never had the QUALITY of Fundamentals, where it really mattered, to provide you with the future prospect of a decent Capital Gain. And that, in turn, reflects the inadequacy of Greenblatt’s strategy. There are certainly one or two components of his strategy that are "in the right direction", but there is not sufficient coverage of a company’s relevant Fundamentals, from within its Income Statement and Balance Sheet, to cover all the bases. His EBIT/EV ratio, for example, is fine for "Asset strippers" etc.., but it’s hardly relevant for a company’s current ability to provide Bottom Line Shareholder Value. It reminds me of the obsession some folk have with "Book Value" and the P/Bk ratio. It’s that emphasis they put on buying something that could, apparently, be liquidated and sold off for more than its current share price. But why anyone would want to liquidate a very profitable company, making excellent Bottom Line profits etc.. etc.., is beyond me. And how often does one see that happen to make it a relevant stock selection strategy ?! From way back in February 2007, FCX stood head and shoulders above the rest, with WDC in second place. And that was based on a much broader base of relevant Fundamental criteria such as Turnover, EBITDA, Interest Expense, Profit before Tax, Attributable Income, Long Term Debt and Shareholder’s Interest, as well as Pre-Tax Profit and Capital Employed, as mentioned in #135. At the end of the day, FCX went up over 60% since Feb.’07, and WDC about 38% over the same period. So had you put BLDR, CECO and PACR in the dustbin, you could have averaged about 50% Capital Gain compared to, what you referred to as, an "uninspiring" -2.86%. But I suggest that what you did was probably a worthwhile exercise. You’ve now proven something to yourself, and by your own experience. That’s generally a lot more convincing than just taking someone else’s word or advice.

To: Bananawind who wrote (153)	7/14/2008 8:26:25 AM
From: bruwin	Read Replies (1) \| Respond to of 218

Back in February 2007 you placed on record your choice of 5 stocks that you chose based on Greenblatt’s “Magic Formula” criteria (See #134 below). I suggested, at the time, and since (See #135, #139, #147, #149 and #154 below), that of the 5 companies, only 2 companies, FCX and WDC, showed reasonable Fundamentals, while the balance, BLDR, CECO and PACR, were not worth the trouble. As it happens, you’ve never partaken in a discussion or debate with me regarding these companies. In fact, for reasons better known to yourself, you’ve put me “On Ignore”. But that’s your choice and your business. Fortunately, however, the hard, indisputable facts speak for themselves …. Since early February 2007 we’ve seen the following price performance of those 5 stocks :- BLDR : It was $17.50. It’s now $4.15. That’s a LOSS of -76%. CECO : It was $28.60. It’s now $14.93. That’s a LOSS of -48%. PACR : It was $32.50. It’s now $21.92. That’s a LOSS of -33%. FCX : It was $56.70. It’s now $107.74. That’s a GAIN of 90%. WDC : It was $19.32. It’s now $33.06. That’s a GAIN of 71%. As far as I’m concerned, it supports my contention that Greenblatt’s Magic Formula doesn’t go far enough, nor is it comprehensive enough, from a Fundamental point of view, to adequately choose companies for a positive future outcome. Hopefully, Banana Wind, for the sake of your investment account, you’ve come to the same conclusion.