Stock Analysis…

Thought you might find this interesting…“KISS”:

Value investors would be wise to stop thinking so hard about the stocks they buy. Evidence shows that the highest long-term results are achieved when applying highly simplified stock-selection strategies.



Last night I linked this same article on Value Hounds…

While the article stresses “keep it simple” the logic of the article says “do it different.” Here are two excerpts:

In 1934, Benjamin Graham and his colleague David Dodd wrote exhaustively on the merits of security analysis. Their book – amply named Security Analysis – has gone on to become one of the most influential financial publications ever written. Today, it’s considered the bible of value investing.

Security Analysis dives deep into the theory of common stock investments and details how to extensively examine financial statements. It’s essentially a textbook for elaborate techniques of finding superior value opportunities.

The major problem with any bible is that it is taken on faith. If it weren’t it would be a scientific theory which one is supposed to find loopholes in. Next, being a textbook of the techniques for finding value stocks, everyone is doing it. If you do it too you have no edge. Statistical analysis has discovered some investing methods that work better than others. These are the “simple” methods suggested by the article. But every so often you have an outlier like Saul who is not using simple but different methods which might or might not be replicable. If a sufficiently large number of investors copy Saul successfully, his method will stop working because the market is a discounting machine and whatever advantage Saul now has will be built into the price.

The market’s efficiency (not in the efficient market theory way) comes from its ability to squeeze out any unnecessary profits meaning it tries to slow down anyone beating the market averages. If just one or a few investors are doing it, the market won’t bother. If lots of investors are doing the same thing, the market goes after them. I have no idea how the market does it but principally the market is an information processing machine that disseminates the best price from buyer to buyer.

Ken Fisher put it this way (I paraphrase): “Your advantage is what you know and others don’t.”

Denny Schlesinger


Good thought piece dumaflotchie, I likened this to analysts raising and lowering stock ratings;

The reason is that when experts are given statistical prediction rules along with permission to override them, the experts find more broken legs than there really are.”


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