MAGIC FORMULA INVESTING 2011. MAGIC FORMULA

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Magic Formula Investing 2011


magic formula investing 2011
    formula investing
  • An investment technique. One formula calls for the shifting of funds from common shares to preferred shares or bonds as a selected market indicator rises above a certain predetermined point - and the return of funds to common share investments as the market average declines.
  • A formula-based investment technique in which investment decisions are made using predetermined timing or asset allocation models, e.g., dollar cost averaging.
    magic
  • The power of apparently influencing the course of events by using mysterious or supernatural forces
  • Mysterious tricks, such as making things disappear and appear again, performed as entertainment
  • charming: possessing or using or characteristic of or appropriate to supernatural powers; "charming incantations"; "magic signs that protect against adverse influence"; "a magical spell"; "'tis now the very witching time of night"- Shakespeare; "wizard wands"; "wizardly powers"
  • any art that invokes supernatural powers
  • magic trick: an illusory feat; considered magical by naive observers
  • A quality that makes something seem removed from everyday life, esp. in a way that gives delight
    2011
  • 2011 (MMXI) will be a common year starting on a Saturday. In the Gregorian calendar, it will be the 2011th year of the Common Era, or of Anno Domini; the 11th year of the 3rd millennium and of the 21st century; and the 2nd of the 2010s decade.
magic formula investing 2011 - The Little
The Little Book That Beats the Market
The Little Book That Beats the Market
Two years in MBA school won't teach you how to double the market's return. Two hours with The Little Book That Beats the Market will.
In The Little Book, Joel Greenblatt, Founder and Managing Partner at Gotham Capital (with average annualized returns of 40% for over 20 years), does more than simply set out the basic principles for successful stock market investing. He provides a "magic formula" that is easy to use and makes buying good companies at bargain prices automatic. Though the formula has been extensively tested and is a breakthrough in the academic and professional world, Greenblatt explains it using 6th grade math, plain language and humor. You'll learn how to use this low risk method to beat the market and professional managers by a wide margin. You'll also learn how to view the stock market, why success eludes almost all individual and professional investors, and why the formula will continue to work even after everyone "knows" it.

An Exclusive Q&A with Author Joel Greenblatt

It's been five years since you first published The Little Book That Beats the Market. Have your thoughts changed at all about the effectiveness of value investing?

In my mind, the principles of value investing have not changed. As we've learned yet again, markets can be volatile and emotional. They often go to extremes of pessimism and optimism, and prices can and often do fluctuate wildly and significantly over short periods of time. As a result, Mr. Market can provide some excellent opportunities to purchase bargain priced stocks when people are unduly pessimistic. This is where value investing comes in. Buying companies below their true value is the road to being a successful investor. The magic formula found in the Little Book seeks to buy a group of above average companies but only when they are available at below average prices. Because it is a formula, it seeks to do this in an unemotional way that can take advantage of the market's mood swings. Ben Graham taught us these lessons in the 1930s and the principles still hold as well today as when he first wrote them down more than 70 years ago.

Do you think individual investors should re-think their investment strategy as a result of the recent market crash and recession?

I think the best lesson that can be learned from the recent price drop and partial recovery is that stocks are volatile. For most people, stocks should represent a portion of their investment portfolio because I still believe that over the long term they will provide superior returns relative to most alternative investments. However, whether that portion of an investment portfolio devoted to stock investments should be 40% of an investor's portfolio or 80% is a very individual decision. How much are you willing (or able) to lose before you panic out? There's no sense investing such a large portion of your assets in a long-term strategy if you can't take the pain when your chosen strategy doesn't work out for a period of years. The "magic formula" found in the book can underperform the market for years. It can also lose money if the market goes down. But it is also a strategy that makes a lot of sense and that should work well for investors over the long term.

Can you explain the Magic Formula's basic strategy in one sentence?

The Magic Formula strategy is a long-term investment strategy designed to help investors buy a group of above-average companies but only when they are available at below-average prices.

You make reference in the new afterword to receiving a number of emails from readers after the The Little Book That Beats the Market was published. Could you share with us some of the comments you received?

I received many emails after the first edition of the book was published. Some suggested that the strategy was working great for them while others reported that they had waited over a year and the strategy was underperforming. These results and emails are consistent with the message of the book. Over the five years since the book was published, the strategy earned very nice returns for investors, but the ride was bumpy. Not only did the formula underperform for a period of time, in 2008 it lost money along with the market. Overall, the formula performed quite well but only for those who maintained a true long-term perspective. This is easier said than done. In the new afterword, I try to give more facts, color and information about the strategy that I hope will help investors be successful in taking full advantage of the magic formula over the long term. Of course, I also got plenty of emails where investors just asked us to do it all for them. Other emails asked us to apply the formula internationally. As a result, we have worked on both of these projects over the last several years.

In the new afterword, you write "Beating the market isn't the same thing as making money." Can you elaborate on this and why it's a difficult concept to swallow at times?

Since the strategy involves buying a portfolio that is 100% long the stock market, if the stock market goes down, our portfolio may well go down, too. If the market drops 40% and we beat the market by losing only 38%, this is small consolation. As I say in the afterword, while I firmly believe that for most people an investment in the stock market should represent a substantial portion of your investment portfolio, how big that portion should be can vary widely. For some it can be well over half of assets, for others well less than half might be appropriate. The magic formula strategy is a wonderful strategy for that portion of your portfolio that you choose to invest in the stock market. In fact, I truly believe that the magic formula remains one of your best options. How much to invest in the stock market, however, is a very personal decision that should be partially based on your ability to withstand short-term negative price movements. One encouraging fact, though, discussed in the afterword is the performance of our large cap portfolio over the last decade. Over that period, the market as measured by the S&P 500 was actually down, yet our backtests showed that following the formula over those same ten years would have resulted in a more than tripling of your money. Unfortunately, those great long-term returns came with plenty of bumps, including some not so short periods of losses and underperformance. But once again, if the formula worked every day, every month and every year, everyone would follow it and it would be ruined. Fortunately, it's not so great, and as a result I strongly believe that long-term investors should continue to benefit from the magic formula for many years to come.

86% (19)
Jenson Button / McLaren-Mercedes
Jenson Button / McLaren-Mercedes
Jenson at Turn 11 during an early part of the race (final). Singapore Grand Prix 2010. Shooting through the fencing was rather souring experience as there were extremely few places one could get close enough to it so that it could be blurred out. The all-knowing organizers left a hefty 2-3m gap between the fence and another barricade that held spectators in all around the track. This being the case I didn't bother exploring the track and instead decided to stick on at the one spots where I seemed to be getting adequate shots where the fence was not the first thing seen in the image. (A more expensive option would of course be to invest in a 200/f2 :P) Notes: Curves and white balance adjustment. Desaturated green and yellow channels to tone down the far wall. USM sharpening and noise reduction. Painted in some positive exposure over the remnants of three fence wires. 450D | EF 70-200mm f/4 L IS USM ISO800 200mm f/4.0 1/250sec
2009-10-18: World Champion 2009
2009-10-18: World Champion 2009
Oktoberfest 18/31: Badger Golden Champion Jenson Button - Formula One Driver's Championship 2009 Brawn GP - Formula One Constructor's Championship 2009 A fairytale ending to an incredible season for the Brawn team. When Honda pulled out of F1 at the end of 2008, the Honda team all looked to be out of a job until team boss Ross Brawn invested his own money to keep them afloat. Turning up for the first race of the season with no sponsors and in the middle of a down-turn, most pundits didn't expect them to last more than a few races. But a stunning 1,2 on the grid, and the same 1,2 (Button, Barrichello) at the chequered flag showed that this team meant business. Another 5 wins for Button (and 2 for Barrichello) helped Jenson and the team to their respective titles clinched this weekend in Brazil. Sometimes the underdog comes out on top!

magic formula investing 2011
magic formula investing 2011
The Little Book That Makes You Rich: A Proven Market-Beating Formula for Growth Investing (Little Books. Big Profits)
Profit from a powerful, proven investment strategy

The Little Book That Makes You Rich is the latest book in the popular "Little Book, Big Profits" series. Written by Louis Navellier -- one of the most well-respected and successful growth investors of our day -- this book offers a fundamental understanding of how to get rich using the best in growth investing strategies. Navellier has made a living by picking top, actively traded stocks and capturing unparalleled profits from them in the process. Now, with The Little Book That Makes You Rich, he shows you how to find stocks that are poised for rapid price increases, regardless of overall stock market direction. Navellier also offers the statistical and quantitative measures needed to measure risk and reward along the path to profitable growth stock investing. Filled with in-depth insights and practical advice, The Little Book That Makes You Rich gives individual investors specific tools for selecting stocks based on the factors that years of research have proven to lead to growth stock profits. These factors include analysts' moves, profit margins expansion, and rapid sales growth. In addition to offering you tips for not paying too much for growth, the author also addresses essential issues that every growth investor must be aware of, including which signs will tell you when it's time to get rid of a stock and how to monitor a portfolio in order to maintain its overall quality. Accessible and engaging, The Little Book That Makes You Rich outlines an effective approach to building true wealth in today's markets.

Louis Navellier (Reno, NV) has one of the most exceptional long-term track records of any financial newsletter editor in America. As a financial analyst and editor of investment newsletters since 1980, Navellier's recommendations (published in Emerging Growth) have gained over 4,806 percent in the last 22 years, as confirmed by a leading independent newsletter rating service, The Hulbert Financial Digest. Emerging Growth is one of Navellier's four services, which also includes his Blue Chip Growth service for large-cap stock investors, his Quantum Growth service for active traders seeking shorter-term gains, and his Global Growth service for active traders focused on high growth global stocks.

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