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Newsletter - July 15th, 2023

Dear Reader,

Attached is our latest list of stocks generated from basic value screens (low p/e, ev/ebitda, debt/equity, etc.), which don’t meet our investment criteria - and our reasoning.

This may help you avoid a few ‘value traps’ or stocks that aren’t sufficiently attractive compared to the opportunities available today.

For reports of stock ideas that pass our quantitative and qualitative standards, join at the link below:


Greenblatt at Columbia University


Joel Greenblatt Critique

Greenblatt critiques his MBA students' stock reports - notes below:

1:42:45 Concise Thesis

The investment thesis must be explainable in a few lines/paragraphs. If you can't simplify it, you may not understand it enough. (We strive to do this in our reports.)

1:46:45 Downside Risk not Annualized Return

In the risk arbitrage business, focus on downside risk rather than extrapolating returns - also applicable to investing generally. (Greenblatt also talks here about examining incentives, and observing how insiders behave for clues to intrinsic value.)

We generally seek downside protection via tangible equity, demonstrated earning power, and/or business quality when selecting stocks.

1:50:00 Earnings Multiples

Greenblatt used a 6% after-tax discount rate or ~10x ebit (in the early 2000s) for good businesses equivalent in safety to government bonds - higher multiples only for better business quality, and definite growth prospects.

1:51:15 Normalized Earnings

Figure out normal earnings, and what it will look like in 3-4 years.

Though we don't forecast performance, we try to understand demonstrated average earnings - and assess whether the margin of safety is sufficient to protect against future vicissitudes.

1:56:15 'Good' Returns on Equity

12-13% returns on equity (RoE) was average for public companies - or 20% pre-tax - in the US during the early 2000s.

Recent RoE for S&P 500 companies hovered above 15%, but 12-13% is a reasonable benchmark even today.

Of course, the business needs reinvestment opportunities to capitalize on this - but a high RoE also indicates management fidelity in our view i.e. the avoidance of hoarding, over-expansion, questionable investments, etc.

2:01:30 Net cash and Working capital requirements

Reduce 'net cash' for normal working capital requirements. For simplicity and conservatism, we reduce net cash by the excess of current liabilities over current assets. (We do this before presenting net cash in our reports though not always explicitly.)

2:15:15 Options exercise

Add back cash received on exercise of options for accurate analysis.

2:23:45 Foreign Currency Risks

Foreign currency risks aren't alike - as our most recent stock report highlighted. Sometimes business models are insulated against expected currency risks, and may even profit from them - this factor should be evaluated correctly.


Until next time, Cheers!


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