I don’t know about you, but over the past couple of months, things have been extraordinarily busy. My usual 1-2 company analysis per week has now become 1-2 stock analysis per month.
So with 2010 just around the corner, I wanted to try something for next year.
Something that will resonate with many folks out there, especially for those who
My idea is to track the progress of a passive investing portfolio where stocks are added whenever all three of my intrinsic value calculation methods is greater than the market price with a reasonable margin of safety.
Margin of safety doesn’t have to be 50% which is my personal strict requirement but the safety margin should be at least greater than 10%.
Don’t misunderstand that I am advocating an automatic portfolio or passive investing. The reason for this is that if you’re a regular here at OSV, you’d know that I screen and filter through literally hundreds of companies each year.
Even now, trying to go through 200 companies is time consuming and in the process, I often miss a few real gems due to my haste. So I want to know whether a group of undervalued stocks that I deem undervalued will beat the market without me having to do so much research.
Call it another version of Joel Greenblatt’s Magic Formula, except I base my decision not on the earnings yield, but on my ability to calculate and apply a realistic growth rate, discount rate and few other factors to calculate the intrinsic value.
Basically this is how it will work.
The only condition is that the company is not a net net, distressed opportunity or special situation. This portfolio is suited more for passive investing and auto portfolios.
Check out the few companies that are likely to make it to the portfolio highlighted in magenta below. Click to enlarge image.
Assuming you at least know how to adjust variables to calculate the intrinsic value, I expect that buying undervalued companies should beat the market.
I’ll update you with a monthly progress status and hopefully, things will look good.