SMART Market

Inspiring for Smart Investing

Investment Philosophy

Investment philosophy consists of a mixture of financial gurus who have one goal in mind when purchasing securities:finding undervalued securities.

David Dreman

1. Invest in undervalued companies that exhibit strong fundamentals, above-market dividend yields and historic earnings growth, which analysis indicates will persist.
2. Own strong,fundamentally sound companies and to avoid speculative stocks or potential bankruptcies.
3. Markets are not perfectly efficient and that, in particular, behavioral finance plays a considerable role in investor actions and over-reactions and subsequently in stock price movements

Joel Greenblatt-

As for the “complicated” formula, here is the big picture. For “cheap stocks”, the formula uses earnings yield (the inverse of P/E, it is simply earnings divided by market capitalization).

For “good stocks”, the formula uses return on capital. Many analysts use a simple return on equity calculation (earnings/equity) or return on assets (earnings/assets) ratio to determine return on capital. As with earnings yield calculations, we make a couple of adjustments that account for differing debt levels and tax rates between companies. We also compare earnings to the total “net working capital” plus “net fixed assets” required to generate operating profits. Intangible assets are excluded as described in detail in the book.


Benjamin Graham

* “An investment operation is one which,upon thorough analysis promises safety of principle and an adequate return.Operation not meeting these requirements are speculative.”-Security Analysis


The approach mentioned above is almsot 100% mechanical with very little security analysis.Thus, every stock mentioned should not be considered a buy decision.<

January 22, 2009 - Posted by | Investment Guide

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