Keep INVESTING Simple and Safe (KISS)
****Investment Philosophy, Strategy and various Valuation Methods****
The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
The Little Book that Beats the Market by Joel Greenblatt
The Little Book That Beats The Market opens with a simple story about a boy selling bubble gum on the playground. The author and his son attempt to place a value on the business. In the end, it’s made clear that putting a value on a business is the key to investing in individual companies.
The Magic Formula In A Nutshell
The book concludes with a multi-page appendix that lays out how to apply the magic formula. Here’s that explanation in a nutshell:
Go to a website that lets you filter stocks by certain criteria (like this one at Yahoo!). Filter for stocks that have a ROA (return on assets) of at least 25%, then rank them according to their P/E ratios, with the lowest at the top. Toss out all stocks with a P/E lower than 5 (something’s fishy there), all utility and financial stocks, and all foreign stocks. Buy five or seven of these stocks a month for five months (or so). When you near a year of owning one of these stocks, if it’s at a loss, sell it when you’ve owned it one day less than a year and if it’s a gain sell it when you’ve owned it one day morethan a year (playing games with the capital gains tax, basically). Then reinvest what’s left. Keep doing this for at least five years. That’s it!