This is great. Always lots to chew on with your videos so thank you. I would love to see some additional factors folded into the formula… You can add some of your own magic.
Glad you were able to do this one! Thanks! I agree that the first part is discipline - this method seems like it would require more discipline. Mr Market's mood swings seem much much higher. I like your take on applying a formula to the S&P 500 directly.
It was a great question; thanks for the inspiration, Jeff! It does require more discipline; I imagine following a formula that you didn't come up with and likely buying stocks that you've never heard of would make it hard. I was thinking about possibly running an experimental portfolio and investing like $1,000 into the Magic Formula (or maybe my own version) to see how it did over time. That could be interesting.
@@NathanWinklepleckCFA yea I plan to start a position. Given the buying and selling I’ll be doing this within my Roth - gonna transfer Jan 1 for next year. Taxes will be much higher than my usual buy and hold strategy so I figured this was the best account type to do anything where the strategy involves selling.
Yes, I did post this video a few days ago but re-did it. My prior video discussed P/E when, in reality, Greenblatt uses EBIT/EV. Sorry for those of you that saw this already. :)
Meb Faber shareholder yield from his book called Shareholder Yield would be interesting to test and back test. Validea has a screen of it as one of their Guru's but finding a screener that has all the criteria is hard to find.
Value investing basically hold onto cash having it melt away to inflation, than buying during a correction or crash to" try" to make up the difference. Way too many market participants and indexing make buying at a discount difficult as hell.
Yeah, it’s hard to find value today. Buffett had an interview where he talked about better to just buy it if you think it’s a great company - even if it’s a bit expensive.
Bravo ! I read this book when it came out but I never acted on it …. I sure like the mechanical approach and the modifications that you are considering
Thanks for this video, great content! And it would definitely be interesting to see additional simulations. I'm a bit surprised to see that Altria and PMI came up at more than 30% lower on ROIC in the competitor comparison. If I'm not mistaken they both have had 30-60% ROIC over the last 5 years or so (depending on where you take the numbers from). What peer group did you choose for comparison? According to seeking alpha, PMI is 500% better than the sector when it comes to ROTC.
@@NathanWinklepleckCFA I think that there must be something wrong....PMI is the most profitable company among big tobacco peers. If it is not tobacco, another comparison would be the FMCG sector, but the margins are lower for other consumer goods companies.
@@hansschmidt8292 Yeah, it could be that. Hmmm... I'll have to look into it further with Portfolio123. I simply compared to the standard "industry" metric they had without doing a lot of digging into what specifically it was comparing.
I scanned through the comments and nobody mentioned The Acquirer's Multiple. Essentially it takes the magic formula and removes the ROIC metric to only focus finding cheap companies. It outperformed the Magic Formula but I can't remember by how much. I'd very much like to hear your thoughts.
I've been working on a video for that, Willie. Unfortunately, I'm losing access to my backtesting software. They want to charge me $6,000 for it since I have a UA-cam channel...
Hi Nathan, Thank you for the awesome videos. Learning so much and putting your Momentum analysis videos to work in my own investing. Can you do a video and breakdown on an ETF. Ticker symbol: JOET. It’s a quality momentum etf and it’s a unique approach that uses both quality and momentum factor. Thanks!
I have another strategy idea. Just curious if you wanted to analyze. It's not part of the magical model. They say small cap outperform mid and large, but because vbk tracks small cap, as they get bigger they drop out of the etf. What if you buy the stocks in vbk and just hold forever? Can you back check that? Love your channel.
Man, I LOVE that idea. I really do. I have a feeling that would work, although I'm not 100% sure how to test it. My backtesting capabilities (for some reason) require a 52 week rebalance at the minimum...
@@NathanWinklepleckCFA Thank you for responding I meant ROCE, Investopedia is useful for such explanations. Coffee Can Investing Strategy is a interesting way of diversifying risk and creating asymmetrical returns vehicle.
Please tell me the top 5 dividend stocks to own..I am a senior and I was always buying and selling stocks...omg this year my portfolio is in RED and HALF is HUGE LOSSES..I am happy to READ your ideas...let the winners keep winning, I use to trim winners and put money into my many losers..or like TELADOC I SOLD at a HUGE LOSS, my plan was to buy some TELADOC in 31 days.
One thing I'd add after watching the video a second time - Joel Greenblatt has had superior returns to Buffet for a long time. (Going off of Monesh Pabrai's book - 40%) However I don't think Joel Greenblatt could achieve his rates of return if he had as much money. In other Greenblatt books, he talks about what he does well (buying companies for below what they are worth) and what Buffett does well is waiting for an opportunity to buy a great business with a moat.
I'm not sure that Greenblatt has even had better returns, unless you're looking only at the backtest. If you're looking at backtest, then yes. But looking at his actual fund performance, they really aren't that impressive. But the large funds definitely hurt returns. Buffett says he could earn 50% per year with $1 million. But not with $300 billion. :)
I would say the biggest take away is there is never a magic formula that will always work under every market condition. There are many factors to consider. Cyclical events, black swan events, fiscal policies, and a whole consortium of other policies in play. The big take away: no system is perfect, and constantly try to at least perform minor evaluations on your portfolio from time to time to see how you're holding up. Whether the competition to your holdings has performed better because of or inspite of current market conditions. Maybe something to cover in the near future would be market saturation. Keep up the good work. Of course I will still be curious how well your research pans out over this. Just the nerd in me 🤓
If forward p/e is less isn’t that priced in? Markets are notoriously bad at predicting the length of a good spell for a company. By bad I mean pessimistic.
@@NathanWinklepleckCFA Yes Nathan, picked the top 20 on both Magic and Acquirer's multiple, Multiple is easier to track, its a cleaner portfolio, ill do better next year with both, buy, hold for year and sell in jan, ill keep you posted
I have his book and pondered using his formula at one time. But after hearing you mention that this may involve underperforming the market for 2-3 years, I think I would do terrible. LOL. I have a hard time keeping a stock more than 2-3 months when underperforming. Unless it is paying me a decent dividend. Then I can usually look the other way.
@@entpguy She's not the only house/senate member that has done well over the past decade. Look at both sides of the aisle. Plus Jerome Powell's portfolio is public and is up big-time.
@@Robls501510 Unbelievable those people are even allowed to trade stocks at all... especially Powell. Well, we're gonna increase rates... let's buy a bunch of banks!
![How to beat the S&P 500... by doing nothing [1935-2022]](http://i.ytimg.com/vi/EeyxZMR9MRU/mqdefault.jpg)
![How to beat the S&P 500... by doing nothing [1935-2022]](/img/tr.png)
![The Power of Dividend Growth Investing [1986-2022]](http://i.ytimg.com/vi/luWaRka9L0Y/mqdefault.jpg)
Good work I really enjoyed your video.
We would love to see the new backtest with your own new parameters to the magic formula.
Thanks! And thank you for alerting me to the error on the first video. ;)
Thanks good stuff
This is great. Always lots to chew on with your videos so thank you.
I would love to see some additional factors folded into the formula… You can add some of your own magic.
Yes, then write a #1 best selling book and charge $15 a pop! :D LOL
Awesome video Nathan! That's a lot of data lol. Hope everyone has a happy and safe New Year. Enjoyed watching 👍
Haha yeah I love the data! ;) Happy New Year, John!
Nathan, nice and informative video. Please do other back tests to enhance the returns. Thanks again.
Thanks, Rob! Will let you know what I find.
Glad you were able to do this one! Thanks! I agree that the first part is discipline - this method seems like it would require more discipline. Mr Market's mood swings seem much much higher. I like your take on applying a formula to the S&P 500 directly.
It was a great question; thanks for the inspiration, Jeff! It does require more discipline; I imagine following a formula that you didn't come up with and likely buying stocks that you've never heard of would make it hard. I was thinking about possibly running an experimental portfolio and investing like $1,000 into the Magic Formula (or maybe my own version) to see how it did over time. That could be interesting.
@@NathanWinklepleckCFA yea I plan to start a position. Given the buying and selling I’ll be doing this within my Roth - gonna transfer Jan 1 for next year. Taxes will be much higher than my usual buy and hold strategy so I figured this was the best account type to do anything where the strategy involves selling.
Great content! Thanks for the research. Much appreciated!
Thanks!
Could you please go into detail how exactly you do the backtest? I would really like to do exactly those backtests myself!!!!
Is there any website or blogger tracking the results of the magic formula for the last two years?
Yes, I did post this video a few days ago but re-did it. My prior video discussed P/E when, in reality, Greenblatt uses EBIT/EV. Sorry for those of you that saw this already. :)
I have a much simpler "magic number" which has paid off very handsomely for me this year...
Haha what's that? 3x or 2x, I'd guess... ;)
@@NathanWinklepleckCFA You know, most people who think they are smart are mostly just a "smartass"...
@@christysittig1200 :)
Great video thanks Nathan
Thanks
Nathan, thanks for getting me to think differently. LOVE IT!
Thanks a lot, John and Madison! Glad to help where I can. :)
Meb Faber shareholder yield from his book called Shareholder Yield would be interesting to test and back test. Validea has a screen of it as one of their Guru's but finding a screener that has all the criteria is hard to find.
Please give us an update on the magic formula!!!
Value investing basically hold onto cash having it melt away to inflation, than buying during a correction or crash to" try" to make up the difference. Way too many market participants and indexing make buying at a discount difficult as hell.
Yeah, it’s hard to find value today. Buffett had an interview where he talked about better to just buy it if you think it’s a great company - even if it’s a bit expensive.
This "Way too many market participants" very under appreciated point.
@@madeleinewinterdown3256 What do you mean?
Thank you so much for your work. Do you consider making same backtest on the acquire’s multiple formula?
Portfolio123 backtest is too expensive for me at $6,000 per year now.
Bravo ! I read this book when it came out but I never acted on it …. I sure like the mechanical approach and the modifications that you are considering
Yeah, it's an interesting read but the testing and scrutiny seem to make it a lot weaker of an argument than he offers in the book.
Can you explain equal weighted sp vs mrkt cap sp?
Nathan, you are amazing!
Thanks, David! :)
Really interesting. Thank you!
Thanks, Jason!
Thanks for this video, great content! And it would definitely be interesting to see additional simulations. I'm a bit surprised to see that Altria and PMI came up at more than 30% lower on ROIC in the competitor comparison. If I'm not mistaken they both have had 30-60% ROIC over the last 5 years or so (depending on where you take the numbers from). What peer group did you choose for comparison? According to seeking alpha, PMI is 500% better than the sector when it comes to ROTC.
The comparison is using the portfolio 1 to 3 peer group. I’m not sure if that’s using the gics sector or sub industry or what it is using exactly.
@@NathanWinklepleckCFA I think that there must be something wrong....PMI is the most profitable company among big tobacco peers. If it is not tobacco, another comparison would be the FMCG sector, but the margins are lower for other consumer goods companies.
@@hansschmidt8292 Yeah, it could be that. Hmmm... I'll have to look into it further with Portfolio123. I simply compared to the standard "industry" metric they had without doing a lot of digging into what specifically it was comparing.
I scanned through the comments and nobody mentioned The Acquirer's Multiple. Essentially it takes the magic formula and removes the ROIC metric to only focus finding cheap companies. It outperformed the Magic Formula but I can't remember by how much. I'd very much like to hear your thoughts.
I've been working on a video for that, Willie. Unfortunately, I'm losing access to my backtesting software. They want to charge me $6,000 for it since I have a UA-cam channel...
@@NathanWinklepleckCFA maybe your wife or one of your parents could start a backtesting software account and you could borrow it a lot?
But dosnt he say the min mrkt cap was 1b.
Hi Nathan,
Thank you for the awesome videos. Learning so much and putting your Momentum analysis videos to work in my own investing.
Can you do a video and breakdown on an ETF.
Ticker symbol: JOET. It’s a quality momentum etf and it’s a unique approach that uses both quality and momentum factor.
Thanks!
Thanks, Piroz! That does sound like an interesting approach; I'll check it out.
A momentum screen might help performance.
Good idea, Evan. I bet you're right! ;)
Are there any ETFs that mimic this strategy?
Not that I’m aware of. Gotham Capital is Greenblatt’s firm, but I don’t know that they offer any ETFs.
I have another strategy idea. Just curious if you wanted to analyze. It's not part of the magical model. They say small cap outperform mid and large, but because vbk tracks small cap, as they get bigger they drop out of the etf. What if you buy the stocks in vbk and just hold forever? Can you back check that? Love your channel.
Man, I LOVE that idea. I really do. I have a feeling that would work, although I'm not 100% sure how to test it. My backtesting capabilities (for some reason) require a 52 week rebalance at the minimum...
My favourite idea of all - very interested to know if there is a way to do this
Why not to use EV/EBITDA and why not use ROIC instead of ROC. Please explain it to me someone 🙏
EBITDA is a worthless metric imho. ROIC and ROC are the same... ???
@@NathanWinklepleckCFA Thank you for responding I meant ROCE, Investopedia is useful for such explanations. Coffee Can Investing Strategy is a interesting way of diversifying risk and creating asymmetrical returns vehicle.
Please tell me the top 5 dividend stocks to own..I am a senior and I was always buying and selling stocks...omg this year my portfolio is in RED and HALF is HUGE LOSSES..I am happy to READ your ideas...let the winners keep winning, I use to trim winners and put money into my many losers..or like TELADOC I SOLD at a HUGE LOSS, my plan was to buy some TELADOC in 31 days.
Patricia - I think you need to seek help from a qualified financial professional in your area that can give you some personalized retirement advice
Can you do a blindfold test where you run this test vs blindly picking 30 stocks out of a hat and run the backrest to see which one performs better?
I'm not sure about that, but comparing to the Dow Jones 30 is probably as good as you're gonna get. ;)
One thing I'd add after watching the video a second time - Joel Greenblatt has had superior returns to Buffet for a long time. (Going off of Monesh Pabrai's book - 40%) However I don't think Joel Greenblatt could achieve his rates of return if he had as much money. In other Greenblatt books, he talks about what he does well (buying companies for below what they are worth) and what Buffett does well is waiting for an opportunity to buy a great business with a moat.
I'm not sure that Greenblatt has even had better returns, unless you're looking only at the backtest. If you're looking at backtest, then yes. But looking at his actual fund performance, they really aren't that impressive. But the large funds definitely hurt returns. Buffett says he could earn 50% per year with $1 million. But not with $300 billion. :)
I would say the biggest take away is there is never a magic formula that will always work under every market condition. There are many factors to consider. Cyclical events, black swan events, fiscal policies, and a whole consortium of other policies in play. The big take away: no system is perfect, and constantly try to at least perform minor evaluations on your portfolio from time to time to see how you're holding up. Whether the competition to your holdings has performed better because of or inspite of current market conditions. Maybe something to cover in the near future would be market saturation. Keep up the good work. Of course I will still be curious how well your research pans out over this. Just the nerd in me 🤓
Absolutely, Rick. Nothing is perfect, so if you can't handle underperforming the market -- then just own the market! :)
If forward p/e is less isn’t that priced in? Markets are notoriously bad at predicting the length of a good spell for a company. By bad I mean pessimistic.
You should start up a fund yourself. Look for Li Lu to be your start-up fund sponsor and investor.
I’m not nearly good enough for Li Lu to be interested, but am honored that you even mention it!
Just calculate ROIC / PE, one step does for all.
That’s a good idea! I’ll have to give that a shot.
Started this year, up about 10%, market down about 17%, interesting, and lazy, i like it
Interesting! Did you just follow the website?
@@NathanWinklepleckCFA Yes Nathan, picked the top 20 on both Magic and Acquirer's multiple, Multiple is easier to track, its a cleaner portfolio, ill do better next year with both, buy, hold for year and sell in jan, ill keep you posted
Nathan. Why not hold 2x leverage? You will be surprised..
ua-cam.com/video/XgTvTCV2NPU/v-deo.html
@@NathanWinklepleckCFA yeah i understand about 3x.. but 2x is different story.
@@wkawk2416 It's not as bad, but the effect is still there.
Like to see a test with Nasdaq 100 ... 30 stocks might be to many... maybe 10 instead
That would be interesting!
So he exaggerated to sell more books.
He'd do well as a modern influencer.
I have his book and pondered using his formula at one time. But after hearing you mention that this may involve underperforming the market for 2-3 years, I think I would do terrible. LOL. I have a hard time keeping a stock more than 2-3 months when underperforming. Unless it is paying me a decent dividend. Then I can usually look the other way.
Yeah, that's pretty much a must have for any strategy. Even looking at Buffett's long history, you had many times where the stock dropped 50%+.
I'd be interested to see how the stocks in the top 30 MTUM current ranks compare to these stocks.
Great suggestion!
Where is Joel and where is Buffett…..
Running bigger funds than me! ;)
Yes, if you have insider information or privileged details not available to the public that Mr Buffett trades on.
Yeah, that would help... ;)
Pelosi’s portfolio or Buffet. Last year, last 5, last two decades?
Pelosi? Like, Nancy? I’m not sure what you’re talking about.
@@NathanWinklepleckCFA apparently Nancy Pelosi’s portfolio of holdings is public and outperforms Buffet over the last decade.
@@entpguy She's not the only house/senate member that has done well over the past decade. Look at both sides of the aisle. Plus Jerome Powell's portfolio is public and is up big-time.
@@Robls501510 Unbelievable those people are even allowed to trade stocks at all... especially Powell. Well, we're gonna increase rates... let's buy a bunch of banks!