THE RATIONAL INVESTOR

Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with management of the highest integrity and ability. Then you own those shares forever. I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.

April 29, 2007

Beat the market - Magic Formula

Yesterday I read the <> basically what the author told in the first several chapters are in syn with my knowledge - view a share as taking a portion of the business, evaluating how much the business worth and how much you would like to pay for it. This is the fundemental principals. It eventually come up with the formula:
1. select 3500 large cap companies, rank them according to earning/(working captial+ net fixed asset) and assign the seq for each
2. rank each of them a number for the EBIT/EV
3. compare the value of number assigned by #1 and #2.

i think it can be used as a first step to filter the stocks, but it also requires detail analysis of the fundemental.
anyway, the formula addresses "Good company" - from #1.

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