Home Value Investing Here’s How Evidence Based Investing Works – (MGI) Up 73%

Here’s How Evidence Based Investing Works – (MGI) Up 73%

Back in December 23, 2015 I wrote about a stock in our All Investable Screener, which you can register for here, called Moneygram International Inc (NASDAQ:MGI). You can read the article here.

MoneyGram is of course the money transfer and payment services company.

As you can see (below), at the time I wrote the article, MoneyGram’s share price had dropped over 23% in the preceding 12 months, and was trading at around $6.80.

(Source: Google Finance)

(SOURCE: GOOGLE FINANCE)

There was much speculation around Moneygram including the impact that Walmart would have on their money transfer business.

Wal-Mart Stores Inc. had unveiled their new service, Walmart-2-Walmart, which allowed customers to send and receive up to $900 at a time at more than 4,000 stores. Their aim was to take a bite out of the roughly $900 billion in so-called person-to-person payments made each year in the U.S., often in the form of cash or checks.

Shares in MoneyGram had been crushed on the news as the company had been providing money-transfer services in Wal-Mart stores.

I bought the stock when it was $7.08 and watched it fall a further 33% to $4.75 on February 11 this year.

(Source: Google Finance)

(SOURCE: GOOGLE FINANCE)

The stock fell out of the screen completely and I received a number of emails asking what to do. My advice was to hold the stock for one year and one day, as we do here at The Acquirer’s Multiple, and then re-balance. But, a number of investors had become impatient about the prospects of the stock and sold their positions.

The problem for these investors was their inclination to sell a stock when the share price continues to fall after purchase. Thinking that they’ve made the wrong decision and selling out of their positions to mitigate any further ‘loss’.

Now I want you to see what happens with a little patience and a sound evidence based strategy.

Following is Moneygram’s share price history over the past twelve months, including the time at which I bought it on December 22, 2015.

As you can see, Moneygram’s share price fell 33% after I bought it and has subsequently climbed 158% to $12.26 today. The stock price is up 73% from the time that I purchased it.

In the world of value investing you need to be able to live through drawdowns in order to achieve maximum performance. As Charlie Munger once said, “If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get. Compared to the people who do have the temperament who can… be more philosophical about these market fluctuations.”

So, regardless of what’s happening around you, live through the drawdowns and stick with your evidence based strategy.

Don’t forget to check out our FREE Large Cap 1000 Deep Value Stock Screener at The Acquirer’s Multiple.

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The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of acquirersmultiple.com. The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at acquirersmultiple.com, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”

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