Magic Formula Investing: Why Does it Work?

Cartoonist: Brown, David; – Sunday, 15 January 2017 A Magic Formula Investing post has become an annual ritual on Sentiments & Bubbles. Using the Magic Formula as an investing strategy was popularised by Joel Greenblatt in The Little Book that ‘Still’ Beats the Market Magic Formula Investing is a strategy whereby we end up buying shares in companies that have both, a high earnings yield and a high return on capital. In other words, we buy shares in good […]

Forecasting 2017: Are You Nuts; Why Not Throw Darts Instead?

Cartoonist: Morris, John; – Sunday, 1 January 2017 It does appear that forecasting has become little more than an excuse for sloppy thinking. Hence, it would be easy to conclude that we should ignore forecasts altogether. But just as we don’t throw out an ideology because it has been used disingenuously, we shouldn’t be too quick to dismiss forecasting skills. Burton G Malkiel in his seminal book A Random Walk Down Wall Street – The Time-Tested Strategy for Successful […]

Mutual Fund Investing: Have You Heard of Survivorship Bias?

Cartoonist: Bacall, Aaron; – Sunday, 18 December 2016 What does Survivorship Bias mean in the investing world and how is it relevant in the Indian context? Survivorship Bias – Definition Survivorship Bias is defined as the logical error of concentrating on the people or things that “survived” some process and inadvertently overlooking those that did not because of their lack of visibility. I’ll try and make sense of the above definition. Mutual Fund Schemes now account for the bulk […]

Investing Edge: Why You Should Index Invest?

Cartoonist: Hesse, Peter; – Sunday, 4 December 2016 In the investing world, can one be a Do It Yourself (DIY) investor? Of course, why not? All you need is an investing edge. What is an ‘investing edge’? In the book titled The Little Book That Still Beats The Market, the authors Joel Greenblatt has hinted at what is meant by an investing edge. In his words: “Choosing individual stocks without any idea what you’re looking for is like running […]

Stray Thoughts: Demonetisation – Make India Great Again

(Image Courtesy, 20 November 2016)   And, for a Monday morning, a few stray thoughts and a few general observations and a few points of view: Like the Indian Stock Market has been in a tailspin since the demonetisation of high-value currency notes was announced by the Prime Minister on the 8th of November 2016. Bulls got punched in the mouth twice, once as a result of the demonetisation and again as Emerging Markets (EM’s) cratered in response to […]

Is Benchmarking a Curse or an Opportunity?

Cartoonist: Rosandich, Dan; – Sunday, 6 November 2016 Do you benchmark? More often than not, the answer to this question will be in the negative. Reality is a bit nuanced. Investors do end up getting caught up in the benchmarking process, albeit inadvertently. Benchmarking  Benchmarking is the act of comparing our investment performance with that of a standard. I have written on benchmarking before. But I have never spelled out how it works in the market. I need to […]

Algorithmic Trading: Is the Stock Market Rigged?

Cartoonist: Bacall, Aaron; – Sunday, 23 October 2016 Algorithmic Trading refers to the use of electronic strategies for enhancing the speed and execution of orders on the stock exchange. What is Algorithmic Trading?  A trading algorithm (ALGO) is a set of rules that are used to enter and exit a trade. Instead of manually entering buy and sell orders, a computer program (Algorithm) is used to trigger the same. For this post, I have used the term ALGO to […]

How to Generate Alpha – The Nifty Alpha 50 Index

(Cartoonist: Bacall, Aaron;, 9 October 2016) The connotation of the term Alpha in the investing world has nothing to do with it being the first letter of the Greek alphabet. What is Alpha? Before talking about investing Alpha, a word about benchmarking. In the investing world, a benchmark is considered to be representative of the returns of the market. A benchmark is a barometer against which a fund’s performance is measured. It is supposed to be an investing lifeline. […]

How to Build a Coffee Can Portfolio?

(Cartoonist: Schwadron, Harley;, 25 September 2016) The Coffee Can Portfolio is a buy and hold portfolio strategy. Much like the ‘fill it, forget it’ motorcycle commercial, a Coffee Can Portfolio is a ‘Buy it and Forget it’ investing idea. The Coffee Can Portfolio In 1984 Robert G. Kirby wrote an article about portfolio construction and management. He called it the Coffee Can Portfolio. Click here to read. In the words of Robert Kirby: “The Coffee Can Portfolio concept harkens […]

Why is India Underperforming the Emerging Markets Rally?

(Cartoonist: Schwadron, Harley;, 11 September 2016) Emerging Markets (EM’s) have been moving higher since February 2016. Before I get into the performance of the Indian Stock Market, the question is how long can EM’s continue to rally. Does the rally in Emerging Markets have Legs? While trying to guess market direction in the EM world, one does need to remember that what happens in EM’s is a function of what happens to global stock markets. The decoupling rhetoric is trash. In other […]