I recently read “God dobbelt niet op de beurs”. The book is only available in Dutch (for now?) and I can’t give you a good English book that covers similar ground, but I can share some of the lessons I learned.
First and foremost, historically speaking, you should absolutely not invest in actively managed funds. This may be common knowledge, but it’s good to reiterate. Study after study shows that, on average, mutual funds underperform the market. If you don’t want to actively manage your portfolio yourself, your best bet is to buy an ETF that tracks an index of your choice.
Second, retail investors are very unlikely to beat the market, mostly because they don’t have a system (called “investment style” in the book). And because they don’t have a system they tend to buy and sell at the worst possible moments.
That’s what this site is all about: Finding a proper system.
The book goes on to mention that one investment style that, over longer periods, has consistently beaten the market is factor investing.
It’s an investment system that takes one specific quality of stocks and focuses on it. For instance, a typical factor that has been shown to outperform the market is “high and growing dividend”. In general, if you create a portfolio that consists of stock that pays a high dividend and has historically increased the dividend, you will outperform the market over long enough time stretches.
Other popular factors include:
This month, I will focus on the “value” factor.
If you look around, there are many ways to identify value stock and you should most certainly do your own research and think about everything that is proposed.
With that in mind, here are the criteria for this month’s selection:
|Symbol||Name||Current price||Enterprise Value||P/E||P/B|
|SDLP||Seadrill Partners LLC||2.25 USD||3.79B USD||0.60||0.02|
|VVPS.VI||Volksbank Vorarlberg e. Gen.||33.00 EUR||2.51B USD||0.95||0.08|
|SWN||Southwestern Energy Co||2.13 USD||3.53B USD||1.26||0.39|
|XIN||Xinyuan Real Estate Co., Ltd.||4.26 USD||2.86B USD||1.26||0.16|
|GPOR||Gulfport Energy Corp||3.47 USD||3.15B USD||1.38||0.16|
|CRZO||Carrizo Oil & Gas, Inc.||9.63 USD||3.20B USD||1.71||0.79|
|DNR||Denbury Resources Inc||1.08 USD||3.44B USD||1.84||0.42|
|IRS||IRSA Inversiones y Representaciones Sociedad A||10.31 USD||6.23B USD||1.88||0.26|
|AR||Antero Resources Corp||4.30 USD||9.30B USD||2.17||0.15|
|RZA||Reinsurance Group of America, Incorporated||27.66 USD||6.14B USD||2.25||0.18|
A backtest of this criteria is not very promising (I ran my backtest using Uncle Stock). There are some very good years, but the bad years tend to be so bad it doesn’t matter. Potentially, a good stop loss could help here?
My philosophy: If you want to invest and your goal is to try to beat the market, you need a system. You need a system that can decide for you what to buy, when to sell and not to panic when things go down. Everything starts with selecting stock. You should not just select random stock here and there based on whims or things you read. No, create a system that suites your style and follow it. These posts give you example of what such a stock selection could look like.Unless otherwise noted, I do all my research through the Uncle Stock screener. It's a great tool to have in your belt. (note: this is an affiliate link, if you sign up, I get a commision)
Disclaimer: Don't believe anything I say or write. Always do your own research before making any investment decisions.