What's Working
Book-Value Bargains
Book value isn't necessarily the best valuation metric, even though its definition (the dollar value of what investors own by virtue of their holding shares of a corporation) sounds good on paper. Practical realities (intangible assets, changes in value over time, revised notions of usefulness, etc.) often don't match up well with accounting formulas. But with other performance-based valuation metrics (EPS, sales, cash flow, EBITDA, etc.) being so volatile right now, classic book value can be a useful guide to uncovering stocks that may be unduly cheap.
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Idea Lab
A Portfolio123 Strategy: The Prudent Yield Hog
Income investing has long been popular because many investors value the cash streams thrown off by such portfolios while others cherish the lesser volatility we usually associate with them. Most income strategies, though, require users to suppress natural tendencies to reach for the highest yields they can find. The reasons for this are sensible: The highest-yielding stocks are often too-risky and wind up performing badly as business deteriorates and dividends get cut. But perhaps we go further than we must in the interest of safety. Maybe there is a way to chase yield without stumbling over the edge of a cliff.
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What's Working
The Greenblatt Strategy: K-I-S-S, Or Not
In this context, K-I-S-S does not refer to the rock band, but to the adage "Keep it simple stupid." The phrase was coined as part of a plea to military aircraft designers to build in such a way as to facilitate repair by a typical combat field mechanic with no more than a very basic set of tools. Beyond that, the phrase seems to have found another home in internet-era Wall Street, where data and tools are so ubiquitous as to make it seem that anybody could analyze stocks as well as any guru.
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What's Working
Slippage: A Fresh Look
In backtesting and simulation, it seems an article of faith that we need to include an assumption for slippage. But I'm not so sure. For holding periods of a week or more, we may want to give serious consideration to testing with a minimal, or even zero, slippage assumption.
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