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Boris Marjanovic  

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  • Simple Sector Adjustment For Value Investing [View article]
    Very good article! Keep up the great work!
    Jun 8, 2015. 11:23 AM | 1 Like Like |Link to Comment
  • Looking For Stability? Stop Looking For Dividends [View article]

    Neither standard deviation nor beta measure true risk. At best, they are measures of uncertainty. Forget the overly-simplified nonsense you learned at business school. Your portfolio can have a very low standard deviation and still blow up. True risk is losing money, and something like standard deviation can't measure it accurately.

    The strategy I described above, however, does work very well in the long run. Whether you use beta or standard deviation makes little difference -- both measure how much a stock moves around. And the simple empirical fact is that stocks that have lower volatility tend to be more stable companies. This is because there is usually less uncertainty about those companies' futures.
    Jun 4, 2015. 07:14 PM | Likes Like |Link to Comment
  • Looking For Stability? Stop Looking For Dividends [View article]
    I have backtested all of these strategies. What I have found is that combining low volatility and dividends together works far better than using any of the two variables on its own. Low volatility (or low beta) dividend paying stocks are essentially high quality companies that pay dividends, exactly what most people are looking for.
    Jun 4, 2015. 11:27 AM | 4 Likes Like |Link to Comment
  • Price-To-Cash Flow: The Most Important Fundamental Stock Indicator [View article]
    "There are other relevant items such as FCF and EBITDA. They actually produce significantly better historical results."

    I was actually going to mention that. In fact, EBIT and EBITDA/Enterprise Value beat all other valuation ratios over the long run, including Cash Flow-based ratios. Sales/Enterprise Value also works very well (and it is harder to manipulate sales than earnings). Moreover, as you alluded to towards the end of your article, ranking stocks based on multiple different valuation ratios is probably the best overall solution.

    I am also interested in seeing more research like this but using normalized earnings, cash flow, etc. Normalizing might help avoid "value traps" that benefit from one-time events that temporarily boost earnings and/or cash flow. I did my own research on this and the results look pretty good.
    May 31, 2015. 12:45 PM | 5 Likes Like |Link to Comment
  • How Not To Beat The Market [View article]

    Yes, it's a very simple allocation strategy. Nice to see there are people who actually implement it in their portfolios. As you mentioned, over time you should increase it to 80/20, and perhaps even 90/10.
    May 30, 2015. 10:20 AM | 2 Likes Like |Link to Comment
  • The No. 1 Stock In The World - Part 2 [View article]
    "What's ignorant about it? And what hand do you recommend they play?"

    The person who said "they have to play the hand they are dealt" must give that answer, since, according to him at least, only skill determines outcomes. What's so ignorant about what he said? Well, the fact that he believes that luck doesn't play a role in life. And he does believe this, just read his ignorant comments. All I said was that good luck + skill = success. It's a very simple equation, but most people don't understand it.
    May 29, 2015. 06:56 PM | 1 Like Like |Link to Comment
  • How Not To Beat The Market [View article]
    Investing Discipline,

    The way I structure my barbell strategy is slightly different from what I described above. Most of my money is invested in my fund (which is a quant fund . . . models chose what to buy/sell, not irrational humans). However, I do use a small amount of my capital in another trading portfolio to speculate. The average person, of course, doesn't have a fund to put money in. So the best solution for them is what I described above. The core of your portfolio goes into a passive index fund (or ETF), the remainder you can use to speculate on individual stocks.
    May 29, 2015. 03:16 PM | Likes Like |Link to Comment
  • A Simple Value Strategy That Kills The S&P 500 [View article]
    Investing Discipline,

    Keep running these backtests and publishing your findings. I am always looking for new ideas that can help improve my quantitative trading process. An article on the best long-term predictive signal would be interesting as well. Valuation is one of the best known long-term predictive signals, but there are others.
    May 29, 2015. 02:59 PM | 1 Like Like |Link to Comment
  • The No. 1 Stock In The World - Part 2 [View article]

    Completely agree. Most people sadly have no understanding of luck. The guy who said that "every person has to play the hand that he is dealt" is very ignorant. I would like to know what he thinks about the kids that were born in Syria and are now forced to go through a horrible civil war. I guess they should just "play the hand they are dealt," so if they don't succeed it's their fault (has nothing to do do with luck, according to him). Like I mentioned above, success = skill + a lot of good luck.
    May 29, 2015. 02:56 PM | 2 Likes Like |Link to Comment
  • The No. 1 Stock In The World - Part 2 [View article]

    Success = skill + luck. It's a simple equation. To say that "luck has nothing to do with XOM success" is very foolish. Every successful company, even if it is run by skilled management and makes good products, benefited from a lot of luck.

    Perhaps the luck factor is easiest to understand if we look at pharma companies. Literally every best selling drug in existence was discovered purely by accident. The most famous examples are Penicillin and Viagra. Non-pharma products are discovered in the same way. People tinker and experiment until they discover something (like a product) that could potentially be a success. It is only after the fact that people attribute these discoveries to "skill." In your profile you say you're a physicist. In that field too most of the great discoveries were made through trial and error. You keep experimenting (or in Einstein's case, day dreaming) until you find something that works. I'm sure you will know what I mean, even if others on Seeking Alpha don't.

    All I am trying to say is that luck plays an enormous factor in life. Now, I'm not saying that successful companies or individuals have no skill. I'm just saying that they have skill plus they benefited from a lot of luck. That's the main reason why I think it is dangerous to put too much money in any one stock. What if luck goes against you? What if a black swan event occurs wiping your portfolio out? You mentioned that "XOM makes a product that people use every day." So what? Enron and WorldCom provided services that people use every day and look what happened to them. This is why the safest thing one can do when it comes to investing is diversify and hedge against black swan events.
    May 29, 2015. 10:09 AM | 2 Likes Like |Link to Comment
  • The No. 1 Stock In The World - Part 2 [View article]

    "The only millionaire that I know got to be rich by investing in stocks. He never bought a single ETF or fund, he just picked individual stocks. His biggest holding for many years was XOM. He has owned stock in XOM for 50 years and will be dead before they ever go out of business."

    I know a lot of people who went bust using that same exact strategy. In this case, the main difference between the millionaire and the broke bum is dumb luck. On one hand, putting all of your eggs in one basket can make you rich (which automatically makes you look smart); on the other, it can put you in the poor house (which automatically makes you look stupid). Both individuals use the same strategy, one just happens to win the lottery. People tend to focus on the lucky winner, and completely ignore the unlucky loser. It's amazing to me how ignorant people are when it comes to things like this (even those on Seeking Alpha who are supposed to know better).

    Perhaps "the only millionaire" you know who got rich that way was the extremely lucky one! Ever think about that? If your concentrated investing strategy worked so well then perhaps you would know "more than one" millionaire! I know a lottery winner, too . . . but just like you, I only know of one (winning the lottery is not that common apparently -- it takes a lot of luck).
    May 28, 2015. 10:08 PM | 3 Likes Like |Link to Comment
  • The No. 1 Stock In The World - Part 2 [View article]
    Some of those companies might not even be around in 10 years. There is one universal fact -- every company that has ever existed and ever will exist has or will eventually go bankrupt (or, at best, close down operations). In life, nothing lasts forever. So putting all your money in one stock -- even a good stock -- for ten years is not wise. If I was forced to only buy one thing and hold it for a very long time, the safest option would be to buy an ETF (or index fund) that tracks the market.
    May 28, 2015. 08:47 PM | Likes Like |Link to Comment
  • Price-To-Earnings Is An Inferior Measure Of Value [View article]
    "The strategy does not buy a cheap stock and hold it forever - that is one of the common mistakes committed by Buffett wannabes."

    Holding a stock forever is not intelligent investing. Stocks are there to make you money. They're not your friends. You own them when they're cheap, sell them when they get expensive. I agree with you that a rules-based, systematic investment strategy is the way to go. This talk about "holding good companies forever" is complete nonsense . . . even Buffett doesn't do that. Almost every stock he bought during his long investing career he eventually sold . . . so much for holding stocks forever! Buffett is a smart guy and we can learn a lot from him, but some people take his words too literally.
    May 28, 2015. 08:33 PM | 3 Likes Like |Link to Comment
  • A Simple Value Strategy That Kills The S&P 500 [View article]
    This strategy can be made even simpler and better. First, quarterly rebalancing for strategies such as the one described above is not necessary. Annual rebalancing works just as well, and often times even better, because of lower trading costs and taxes. And second, instead of using "price" in the numerator of PTBV, using "enterprise value" would work better. EVTBV has been shown to provide slightly better risk adjusted returns in the long run. Hope that adds some value to this discussion.
    May 28, 2015. 08:18 PM | 3 Likes Like |Link to Comment
  • How Not To Beat The Market [View article]

    Try the barbell strategy I described in the article, it will be perfect for you.
    May 20, 2015. 12:51 PM | 1 Like Like |Link to Comment