Tag Archives: valueinvesting

Book updates

Finished the following books:
Little Book that Beats the Market Great book on investing! Very easy to read and short too! Joel Greenblatt describes a "magic formula" to rank stocks (based on two criteria: Return on Assets and Earnings yield (reverse of P/E!), rank stocks with higher numbers for both. Add the two ranks and rerank based on sum of the two ranks). Then buy a basket of 20-30 stocks who are top ranked and hold them for 1 year. Sell them all after 1 year, re-apply the formula and buy new stocks with highest rankings. Rinse and Repeat. Based on backtesting with different ways, this portfolio has handily beaten the market averages. I wonder why backtesting was only done for past 13 years when comprehensive US market data is available for 75+ years.

The strategy seems sound and is well supported by theory. (High ROA companies means, good earnings on slim assets. High Earnings yield means they are currently cheap. Using the book's website you can very easily find the rankings and stocks that you need. The only problem I see with this strategy is implementation. Buying and selling 30 stocks every year (60 transactions) is not cheap (okay, I am an index fund person - 0.19% fund expenses). I could possibly use buyandhold.com or foliofn.com, but they are not cheap. Also the author might turn the website into a paysite (so you have to use something like moneycentral.com to screen your stocks. I will make a couple of mock portfolios to keep watching the strategy for sure.

The Tipping Point I guess I am not a Malcom Gladwell person! This book was on my to-read list for a long time and though I liked the basic premise of the book, somehow I was disappointed by the presentation. I had the exact same reaction after I finished Blink. Anyway...