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

To: Spekulatius who wrote (43159)	7/3/2011 2:08:20 PM
From: Jurgis Bekepuris	Read Replies (1) \| Respond to of 78715

So are you outperforming Magic formula? ;) And just for fun, which Value Investing valuation methods are forward looking and do you use them? DCF? Buffettology? When was the last time someone did DCF on this board? ;) (I'm not even asking if they got it right ;))

To: Spekulatius who wrote (43159)	7/4/2011 9:47:23 PM
From: Mark Marcellus	1 Recommendation Read Replies (1) \| Respond to of 78715

Now you need to ask yourself, why a stock went down to begin with - in most cases there will be good reasons. The market pays for future earnings, not the past ones. When you are doing your own DD, I absolutely agree with the above. However, that has nothing to do with the MF strategy. The beauty of MF is that you don't have to worry about all that. You regularly buy baskets of stocks that have been good businesses in the past, are now cheap for what are indeed very good reasons, and for which you can have confidence that over time most of them will recover, return to form, and give superior returns. That's been true historically and I see no reason why it should change in the future.

To: Spekulatius who wrote (43159)	7/5/2011 11:38:26 PM
From: Shane M	1 Recommendation Respond to of 78715

The problem with the Magic formula screen is that it only looks at backward data by design. The underlying assumption is that companies that have shown a good cash yield in the past, have a strong business and the stock will come back (to get into the screen they have to get cheap first). I'm a big Magic Formula fan. I like the type of stocks it turns up, and I utilize a variation of MF in one of my stock selection approaches (I put a third leg into the approach that looks at various growth rates, but still very much MF at it's core). while some may view it as a problem, Greenblatt's backtests on the MF approach have generated considerable alpha over time - I think around 5pp or so vs. market. Also, I guess it depends on definition of cheap, but some of the trendier names will make the MF list if other metrics are strong enough - for example AAPL is currently a MF stock. For this reason I say AAPL looks cheap - but others will disagree.