Nov 43 min read

Newsletter - November 4th, 2024

Dear Reader,

Attached is a recent list of stocks that passed value screens (e.g. below net current asset value, below tangible equity, etc.) but don’t meet our investment criteria - and our reasoning.

This may help you avoid some ‘value traps’, and stocks that aren’t sufficiently attractive compared to opportunities available today.

For reports of stocks that pass our quantitative and qualitative standards:

Join Here

Joel Greenblatt Latest

Notes on a recent interview of Joel Greenblatt below:

0:30 Patience

The real "secret" to successful common stock investing is patience. If we do good valuation work, the market will eventually agree with us - we just don't know when. The simplest way to deal with the timing problem is to stay invested in the market.

4:00 Disadvantages of the Index

The S&P 500 and most other indices are market-cap weighted. Therefore, if a company is overvalued, you'll own more of it, and vice versa.

5:15 Get compensated for the risks you take

While benchmarks provide valid alternatives for your funds, your main job as an investor is to get paid for the risks you take. Our approach is to minimize risk (of permanent capital loss), and earn satisfactory returns over time.

9:15 Mr. Market

Even the S&P 500 has had highly volatile moves over the decades - and this is the most-followed group of companies in the world. This implies that individual stocks aren't 'fairly' priced at all times. Small changes in perceived growth rates can result in large changes in prices.

Ben Graham's analogy of Mr. Market is still valid - Exploit Mr. Market's emotional swings rather than being directed by them.

12:00 Diversification and Insurance Underwriting

Wide diversification in stocks is similar to insurance underwriting - idiosyncratic risks can't hurt the underwriter, and he is more likely to achieve the expected returns on his portfolio.

13:00 Factor investing

Simply back-testing 'factors' and looking for correlations may not be enough for individual investors - they have to make logical sense too. Otherwise when the factors aren't working, it's hard to stick with the strategy.

Greenblatt gives the example of the momentum factor that has worked in the past. and asks how people would stick with it if it didn't work for a few years. It's a fundamentally illogical strategy to systematically allocate funds to assets that have gone up the most in price.

Investing is distinct from speculation. Investing focuses on business values instead of price appreciation. As Buffett said: Speculation isn't illegal or immoral - but it isn't financially fattening either.

It's far more sensible to stick to a value investing philosophy where you aim to get as much in value (earnings, cash flows, dividends, assets, etc.) for your money as you can.

23:00 Valuing businesses

Valuing businesses is a crucial skill in investing. If you're not confident in valuing businesses, you're probably better off indexing.

While we don't try to predict the future of businesses, we do seek a quantitative margin of safety based on rigorous financial analysis, and future prospects that aren't entirely bleak.

33:45 'Growing' Margin of Safety

The quantitative margin of safety (particularly with respect to liquid assets) is most clear-cut in companies facing severe challenges to future growth. Greenblatt pays attention to growth and returns on invested capital as well, which can result in an ultimately larger quantitative margin of safety over time.

We look at both types of companies: 1) 'NCAV' companies selling below liquidation values, and 2) Companies of above-average quality selling at low multiples of earnings.

For reports on the best investment values in stocks worldwide:

Join Here

Wish you an excellent week ahead.

Newsletter - November 4th, 2024

Dear Reader,

Attached is a recent list of stocks that passed value screens (e.g. below net current asset value, below tangible equity, etc.) but don’t meet our investment criteria - and our reasoning.

This may help you avoid some ‘value traps’, and stocks that aren’t sufficiently attractive compared to opportunities available today.

For reports of stocks that pass our quantitative and qualitative standards:

Joel Greenblatt Latest

Notes on a recent interview of Joel Greenblatt below:

0:30 Patience

The real "secret" to successful common stock investing is patience. If we do good valuation work, the market will eventually agree with us - we just don't know when. The simplest way to deal with the timing problem is to stay invested in the market.

4:00 Disadvantages of the Index

The S&P 500 and most other indices are market-cap weighted. Therefore, if a company is overvalued, you'll own more of it, and vice versa.

5:15 Get compensated for the risks you take

While benchmarks provide valid alternatives for your funds, your main job as an investor is to get paid for the risks you take. Our approach is to minimize risk (of permanent capital loss), and earn satisfactory returns over time.

9:15 Mr. Market

Even the S&P 500 has had highly volatile moves over the decades - and this is the most-followed group of companies in the world. This implies that individual stocks aren't 'fairly' priced at all times. Small changes in perceived growth rates can result in large changes in prices.

Ben Graham's analogy of Mr. Market is still valid - Exploit Mr. Market's emotional swings rather than being directed by them.

12:00 Diversification and Insurance Underwriting

Wide diversification in stocks is similar to insurance underwriting - idiosyncratic risks can't hurt the underwriter, and he is more likely to achieve the expected returns on his portfolio.

13:00 Factor investing

Simply back-testing 'factors' and looking for correlations may not be enough for individual investors - they have to make logical sense too. Otherwise when the factors aren't working, it's hard to stick with the strategy.

Greenblatt gives the example of the momentum factor that has worked in the past. and asks how people would stick with it if it didn't work for a few years. It's a fundamentally illogical strategy to systematically allocate funds to assets that have gone up the most in price.

Investing is distinct from speculation. Investing focuses on business values instead of price appreciation. As Buffett said: Speculation isn't illegal or immoral - but it isn't financially fattening either.

It's far more sensible to stick to a value investing philosophy where you aim to get as much in value (earnings, cash flows, dividends, assets, etc.) for your money as you can.

23:00 Valuing businesses

Valuing businesses is a crucial skill in investing. If you're not confident in valuing businesses, you're probably better off indexing.

While we don't try to predict the future of businesses, we do seek a quantitative margin of safety based on rigorous financial analysis, and future prospects that aren't entirely bleak.

33:45 'Growing' Margin of Safety

We look at both types of companies: 1) 'NCAV' companies selling below liquidation values, and 2) Companies of above-average quality selling at low multiples of earnings.

For reports on the best investment values in stocks worldwide:

Wish you an excellent week ahead.

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