What little book that beats the market teaches?
Credit to Joel Greenblatt for writing the book & Arora sir (@EPSContrarian) for recomm. the book. Thread is my interpretation of the book.
@midcap_mantra @chetanrambhia @FI_InvestIndia @RichifyMeClub @dmuthuk
Correct me, learning🙏
1/ Investment in no risk assets is good but investment in growing businesses is better.
2/ Buying a share of any business is entitling yourself for a portion of company's gain or lose. Yes it involves some amount of estimating, may be guessing.
3/ Buy at discount.. huge discount. Will provide you with margin of safety which in turn results in higher returns.
4/ Always beware of that stock prices move daily and not underlying business.
5/ Magic Formula - helps us find good companies at bargain price, whether its big or small doesn't matter.
6/ Magic Formula has successfully worked for years. Whether it will work in future or not? You can wait and watch ;)
7/ Magic Formula works beautifully over long run; best part is it often doesn't work for several years in a row ;). That actually helps patient investor because most investors won't stick with a strategy that hasn't worked for several years in a row.
8/ Believing and maintaining long term investment horizon is the key to success with Magic Formula
9/ It's all about Earning Yield and ROCE. It is average of EY and ROCE. Based on the average of previous year, rank all the businesses. Quality to Kachra :)
10/ Purchase a business which can invest its earnings at high rates of return.
11/ Most people have no business investing in individual stocks on their own! If in case, you have and you think that you don't need this formula then read next point ;)
12/ You can predict normalized future earnings estimates, which in turn can help you figure out Earnings Yield and ROCE. On top of that apply the principle of Magic Formula to look for good companies at bargain prices based on your estimates.
13/ If you truly understand the business you own, it's no harm to live with 5 to 8 bargain priced stocks in different industries
14/ I have done analysis of stocks falling in Automobile two and three wheelers segment using Magic Formula. I have used stockedge app to get the numbers in the sheet you can use screener or whatever source you feel is reliable.
15/ In this case, I didn't use EBIT/EV to calculate Earnings yield; to overcome that i ensured that there is very negligible debt to equity ratio of the company for the one's which I am considering as top ranked.
16/ After this kind of shortlisting you will be left with handful of stocks in each segment for which you need to further deep dive into there annual reports and business to understand them before investing. In this case, as per Magic Formula Hero is the Hero.
Guys, I am learning. This book is very simple. Just loved it, so thought of sharing it. Please correct if my interpretation is incorrect 🙏
@midcap_mantra bhai thanks for pointing out a mistake. ;)🤘🙏 Atul Auto price is 352. It's not a complete formula based sheet. So it won't be impacting MagicFormula column.
Man you have eagle eyes. Numbers and Businesses are like 😍for you.
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