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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Shane M who wrote (40617)	12/15/2010 9:00:07 PM
From: Mark Marcellus	Read Replies (2) \| Respond to of 78774

I saw video clip where Greenblatt discusses how it's easy to pretty much come up with good reasons to avoid most of the stocks at the top of the list and advise maybe it's just best to hold your nose and buy - in aggregate it works out. I just can't quite do that though even though it might be self defeating. Just want to try to improve my odds if I can, and it's kindof fun to try! After applying the MF system for a few years, I've come to a few conclusions: - It works really well if you just follow it the way Greenblatt laid it out. - It's a great screener for good ideas to follow up on your own. - If you try to both of the above at the same time, you will probably impair your results. I've come to think of my mechanical MF stocks as being like a mutual fund. Look at it this way - if you own a mutual fund, do you have to agree with every decision the manager makes? For example Dr. Burry, the founder of this thread, was a pounding of the table supporter of OSTK, a stock I believed then, and continue to believe now, was a piece of crap. I would still invest with Dr. Burry in a heartbeat, if given the opportunity. It's the same with MF. Sure, some of the stocks won't work out, but it's not like I'm infallible. Early on in my MF career, I tried to add value. For example, when Biovail showed up on the screen I immediately rejected it because of all the issues surrounding it (which were arguably legit). Meanwhile, in the next year Biovail outperformed three out of the four picks I made in that cycle. The beauty of MF is that it's like a mutual fund manager who picks out of favor value stocks but has a really low expense ratio and is not subject to redemption risk. At this point, I've decided to let it do its thing, and I just pick random stocks (though I do try to distribute them across a range of market caps). Having said that, I do also use MF as a screener, and I will exclude stocks where I think I have an edge. In those cases I'll do my own analysis and make my own buy decisions. Even then, it's more for practical reasons than anything else that I leave them out of my MF group. It would be too confusing to keep track of which is which if I start buying the same stocks for the MF piece of my portfolio and the actively managed piece of my portfolio. Maybe some day I'll just set up a completely separate MF account, but so far I've been too lazy.

To: Shane M who wrote (40617)	12/16/2010 12:32:44 AM
From: Jurgis Bekepuris	Read Replies (3) \| Respond to of 78774

I guess it is a huge question whether we can do better than auto-MF. My guess would be that we can do better when we step outside MF universe and invest (or choose not to invest) in something different. E.g. if I decide that E&Ps are the way to go due to Peak Oil and low POI (like it was in 2009), I may outperform auto-MF, because I compete outside its universe. Or similarly, if I decide that stocks are overpriced and I should hold cash, I may outperform by being outside the universe again. (Obviously, I can also underperform if my calls are bad). IMHO, it is very hard to outperform MF by adding adjustments inside the universe. I saw the same video you mention and Greenblatt mentions adding/changing a bunch of criteria and most things backtested worse than original MF. If we start picking and choosing, we risk to lose the turnarounds of our hated sectors like for-profit education or home healthcare or Chinese stocks or RIMM/GRMN. I'm still in a picker and chooser camp, but more because I look for value in various other places and I run my own valuation. If I only chose from MF stocks, I'd probably go with auto-MF. From the stocks you mentioned: - MICC is actually a good company, I missed it when it went cheap in 2009 crash. - PPD. I don't think it's a pyramid scheme, since the revenues (and income) have not grown for four years. The issue is more that the revenues and income have not grown, so perhaps the pool of people who would buy prepaid legal services has been exhausted. That's not a positive, since it's unclear if they can diversify into something else without diworsifying. It's also unclear if there would be a price war at some point (probably not, but I'm not sure). Worth watching IMO, but good price has been missed. :/ - I own some ARO, but I'd like a better price before buying more. - GRMN/RIMM - I own token positions. GRMN may survive on vertical markets. It's unclear how profitable they will be with only that. RIMM is still in pretty good position due to their email/texting franchise, though long-term they may have problems. Tough to see either of them prosper a lot.