Tim Melvin’s Banking on Profit Monthly Newsletter: The Deep Value Investor
The very best way to decide if you like something is to try it. So rather than browbeat you about how good I think The Deep Value Investor (formerly The Bottom Decile Report) really is, I am just going to give you the latest copy and let you see what you think for yourself. I made a lot of changes recently to make it the best source you will have available to find the very best safe and cheap stocks each month.
Each Month you will get:
My commentary on markets and the economy
Michael Mauboussin: Here’s what active managers can do
The debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More
The Ben Graham Two Factor Value portfolio
The Three Factor Safe and Cheap Portfolio
Net Current Asset Bargains
Double Cheap Stocks with high appreciation potential
Bargain stocks with recent insider buying
The List of Perfect Stocks- safe, cheap, profitable, dividend paying companies
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Free copy of the Deep Value Investor
Tim Melvin: The Deep Value Investor
The Graham Screen
In an interview shortly before he died, Ben Graham said most people would be better off with a simple quantitative value model. He suggested buying stocks with debt-to-equity ratios of less than 50 and P/E ratios of less than 10. He suggested buying a portfolio of about 30 stocks. Graham claimed that over a period of 50 years, this simple approach had earned an average rate of return of about 15%. In their excellent book Quantitative Value, Wesley Gray and Tobias Carlisle looked at the strategy from 1976 through 2011 and found that the average rate of return was 17.8%, well above the broader market’s return of 11.05%.
I am going to run this strictly as a quant screen and portfolio. The thirty lowest trailing price to earnings ratios will make the cut each month. Graham also favored larger enterprises for this approach so we limited our screen to those companies larger than $500 million in market cap as I did in the backtest. Here is this months Graham 2 factor portfolio.
The Graham 3 Factor Market Portfolio
In another interview shortly before he passed away Graham discussed a ten pont checklist he developed dealing with valuation and risk as a guide to tock selection. He more of the ten characteristics a stock passed the better according to his formula, I have tested the criteria many times and found that the best combination of the ten had to do with price to book value, a big current ratio and low debt levels. This screen outperforms the market in 9 of the last 15 years It is best for patient investors as the returns can be lumpy at times.
Here is this month’s Graham 3 factor Market Portfolio:
I am a big fan of the work of Joseph Piotroski, who developed the nine-point F-score model that measures a company’s conditions and prospects to identify winning cheap stocks I am even a bigger fan of combining his model in combination with the Altman Z-score, developed by New York University professor Edward Altman to measure the financial strength of a company. The result is a portfolio of companies that are strong and seeing improved business conditions yet still trade at a discount to book value. Over the past 15 years, the screen earns an average annual return of 20.41% vs. the market return of just 3.29%. For the 10-year period, it’s 18.2% against 5.72% for the S&P 500, and for the last five years the combination wins by 20.66% to 11.43% for the broad market. The screen outperforms in both up and down markets and, like so many value screens, dramatically reduces the number of positions near market peaks. At the end of 2006, there were just six stocks, and in 1999 no stocks passed the screen.
See full PDF below.