This Is Not Financial Advice

Love these guys! If you’ve never listened to their podcast it is very good.

Month 3 update on my “Magic Formula” IRA investments. About 3 months ago I used the formula outlined by Joel Greenblatt’s book “The Little Book That Beats the Market” and the data provided for free on his website magicformulainvesting.com to use as a guide to invest in an IRA account through Robinhood due to their 1% ”no employer required” match program. I built a spreadsheet to tabulate the performance by snapshot. After three months the portfolio of 29 stocks fell back to being down about 1.89%. I am also building up cash in the account to buy into new positions this next year. Feel free to look back at the information I used to set up the account in my previous posts. I intend to hold all positions for about a year, sell the losers before the year ends and the winners just after to help with taxes. TMF just stands for The Magic Formula.

Month 2 update on my “Magic Formula” IRA investments. About 2 months ago I used the formula outlined by Joel Greenblatt’s book “The Little Book That Beats the Market” and the data provided for free on his website magicformulainvesting.com to use as a guide to invest in an IRA account through Robinhood due to their 1% ”no employer required” match program. I built a spreadsheet to tabulate the performance by snapshot. After two months the portfolio of 29 stocks fell back to being up just over 6%. I am also building up cash in the account to buy into new positions this next year. Feel free to look back at the information I used to set up the account in my previous posts. I intend to hold all positions for about a year, sell the losers before the year ends and the winners just after to help with taxes. TMF just stands for The Magic Formula.

One month update on my “Magic Formula” IRA investments. About a month ago I used the formula outlined by Joel Greenblatt’s book “The Little Book That Beats the Market” and the data provided for free on his website magicformulainvesting.com to use as a guide to invest in an IRA account through Robinhood due to their 1% ”no employer required” match program. I built a spreadsheet to tabulate the performance by snapshot. After one month the portfolio of 29 stocks is up over 8%. I am also building up cash in the account to buy into new positions this next year. Feel free to look back at the information I used to set up the account in my previous posts. I intend to hold all positions for about a year, sell the losers before the year ends and the winners just after to help with taxes. TMF just stands for The Magic Formula.

This week I started an IRA with Robinhood to take advantage of their 1% “no employer required” match. I also decided to start by using Joel Greenblatt’s “magic formula” as described in his book “The Little Book that Still Beats the Market.” I decided to start this small so I funded the account with $200, with Robinhood’s instantaneous match I had $202 to spend on equities. Wanting to jump in head first I used the website magicformulainvesting.com. I had already created a free account, I logged in and made the selection of $50M market cap and selected the option for 30 businesses. The screenshot below is the list I worked off of. I divided the $202 by 30 and had $6.73 to invest per business (I know not a lot). If this were any other brokerage account it likely would not work, but because Robinhood allows fractional shares I was able to place orders for 29 of the 30 businesses on my list. For some reason Unit Corp is not listed on Robinhood. I decided to leave that cash uninvested at this time. Now I wait until next December. Then I take any losers and sell them the day before the 1 year mark and harvest the tax loss, any winners I wait over a year to limit tax liability. In the meantime I will add funds to the account to the tune of $25/week which should give me by next year $1313 plus whatever I have earned off of the $202 I have already invested. I will post updates on this account going forward. I hope you find it informative.

As always,
This Is Not Financial Advice

Merry Christmas to all!

Before the fall(s)…

I began investing in the last 5 or 6 years. I did not however, do so in a vacuum. I read, and studied a lot. I especially followed value investors like Warren Buffett, Charlie Munger, I listened to podcasts, I read books on macro economics, I read about value investors, I read about asymmetrical investments, and I read about people who you’d never expect to be millionaires but who are none the less. I have always been one to learn not just by reading and learning, but experiantially. I opened a couple of brokerage accounts and began to pay my tuition to learn (meaning I promptly lost about $2000 on poor quality investments). It wasn’t about what I lost, to me it was about what I learned.
I learned to save. I learned who to pay attention to. I learned that penny stocks and pink sheet markets are very unpredictable. I learned by accident about a short squeeze. I learned to lose money and be ok with that. I learned to make money and be ok with that. I spent $2000 to learn all of these valuable lessons over the years all while reading books and listening to podcasts, looking at Reddit and Facebook posts. At the end of it all I also learned how to make money back, to pick myself back up from my mistakes and guard my capital and put it to work.
Of the $2000 I lost I made back that and more only to watch it drop again. I also learned that when the market drops it’s time to buy, while everyone is running scared to find value and hold on. I also learned that there’s a lot of pride and suspension of reason that comes before falls.
When I first started investing it was easy to get caught up in the noise of the crowd, the entertainment of the meme stocks. It was easy to believe my picks would only go up. Every time I felt self assured that’s when I was most sure to fall.
Now I look for the VALUE. The thing that is boring, but grows every year. The thing that may lose, but not as much as everything else. The thing that makes a profit, pays it out in a dividend. The thing that isn’t going to take me 30, 100, or 1000 years to get a return on my investment.
Now when I fall I just get back up.

As always,
This Is Not Financial Advice

Happiest of thanksgivings to you and yours!

Book review: The Little Book That Still Beats The Market by Joel Greenblatt

I first heard about this book while reading Guy Spier’s book The Education of a Value Investor. I will write on that book at another time as it is currently one of my favorite books. I was so impressed with Guy’s style of writing and his story that I went ahead and bought The Little Book that Still Beats the Market on Audible. I’ve now listened to it in its entirety at least 3 times.
After years of reading books and listening to podcasts about value investing I can say that the way The Little Book breaks it down to a very understandable level is really great. He begins by talking about wanting to leave a tool for his children to continue to make money the way he does. Being a professor at a prestigious school he talks about taking advantage of a situation with his son who sees a kid at school selling gum to teach the basics of value investing. If this kid buys 5 sticks of gum for 25 cents and then sells each stick for 25 cents he profits $1 for every pack he sells, if he sells 3 packs that’s $3 in profit a day. If he did that every day until he graduates (he’s in 6th grade) he will earn safely $3000. So if he offered to sell you half his business how much would you pay for the profits now? $1500? No, his son says, because he may not make that much, and why would I give him $1500 just to get $1500 back in 6 years. What’s a good price to pay for the possibility of $1500 in profits? His son settles on $450 today would be a fair price. Congratulations, he says, now you know what I do for a living.
This basic illustration of market pricing and valuation I found so approachable in its simplicity. Too often true valuation in the market gets drowned out by so much noise and discussions of price. In the age of meme stocks and the stonk crowd it’s easy to lose sight of what it is you’re actually buying, a functional (or not) business.
The Little Book is refreshingly self deprecating Joel often makes fun of how he may be perceived. For being an intelligent investor and a professor he does an amazing job conveying truth without sounding as Ivy League as that other great professor who wrote a book Benjamin Graham. Like Graham, Greenblatt also includes in his book a formula for beating the market. As Joel says he didn’t call it a “magic formula” because he had a shred of self respect. Although that doesn’t seem to stop Joel.
His formula is less a formula and more a system of ranking stocks by free cash flow and comparing/contrasting that with stocks with high capitalization but relatively low price to earnings. A stock that has an excess of one of these two criteria but none or low on the other is excluded from the list.
With some high quality data he has back tested his theory over 17 years with astounding results. Claiming as high as 30% returns.
In order that he might sleep well at night Joel has built a website for the formula: magicformulainvesting.com where he can be assured that people interested in using his formula can input some target criteria and it will generate a list of stocks using very reliable information using the criteria of the formula as he intended it.
I have not yet attempted to use this criteria, but I will in the coming months and I’ll post about it here.
All in all I loved the practicality of the book.

As always,
This is Not Financial Advice

Magic Formula Investing Use a free and simple stock screening tool to select Magic Formula stocks, as described in Joel Greenblatt's book The Little Book That Beats the Market.

What is tax-loss harvesting and should I use it?

Tax-loss harvesting is a tool to consider using during a market downturn. It works like this:

Say you own a stock in a particular sector that you believe will perform well over time: say energy for example.
You own company a+ energy. But during the market downturn a+ energy dropped significantly so that you are now showing a loss. Perhaps your confidence in a+ energy has diminished due to poor performance. At the same time company a++ energy which is a better company with stronger book value has also dropped with the rest of the market and it’s price is looking far more attractive now. This would be a good time to sell your position in a+ energy and take the loss on your taxes for this year and buy in to a++ energy and ride it back up when the market recovers. In this example you are not penalized by taxation for selling your stock as long as it is sold at a loss and you are maintaining a similar position in the same sector. In this way you can reduce taxable income you may have incurred through any other sales of securities you may have made throughout the year and you moved your capital into a similar position maintaining your thesis in this sector.

Just remember if you do want to do this you must first make certain you are selling at a loss, otherwise you may incur a taxable event making this decision potentially costly.

Also important: you cannot purchase or sell the same position you plan to tax loss harvest within 30 days on either side of your sale.

As always,
This Is Not Financial Advice

Book review: The Richest Man in Babylon

For the last 5 or 6 years I have been learning with a group of friends about economics, the stock market and business in general.

Recently we read through The Richest Man in Babylon. The book was written around the time of the Great Depression. It has very practical steps for holding onto and building wealth set in the backdrop of ancient Babylon.

Some of the biggest simple steps set forth in the book are:
Make sure to set aside 10% of your income into savings.
It is often in the mind of people that setting aside 10% is impossible, but once we start to do it we find it is a lot easier to maintain than we first thought.
Make sure to put that 10% to work so that it earns more for you.
Only invest with people or organizations that truly understand the investment they are making. Don’t give a mason money to invest in jewels. Invest in people who know the business they intend to venture into.

There are many other great ideas in the book including very practical ways to get out of debt. It is definitely worth the read.

For anyone looking to build lasting wealthy set aside that 10% and find ways to put it to work. Rinse, and repeat!

As Always,
This is Not Financial Advice