KCLarkin

In general, companies retain and reinvest earnings. When you are long, this is a tailwind. When you are short, this is a headwind. Most people who short use it to reduce portfolio volatility not generate alpha. For example, Chanos is not expected to outperform the SP500. The people who hire him are using him to hedge their long portfolio.

How does the ROE/ROC look?

Housing bubble?

Of course. Nobody can call a top or bottom. Markets are too complex.

Long term, it is a dip and a buying opportunity. Whenever you see forced selling you can assume there will be some opportunities. In the short term, the buying activity on this forum suggests there is still room to drop further. Can you explain your latter sentence? As more bargains become available, the "buy-the-dippers" will put cash to work. This temporarily slows the bottoming process. When the buying is exhausted, the bottom will be formed. My instinct says we haven't seen the bottom yet. I don't try to time the market though. IBM hit my target price, so I bought.

Long term, it is a dip and a buying opportunity. Whenever you see forced selling you can assume there will be some opportunities. In the short term, the buying activity on this forum suggests there is still room to drop further.

IBM

I normally ignore Macro, but I found this episode of Wealthtrack very interesting: http://wealthtrack.com/recent-programs/trahan-still-bullish/ The guest is Francois Trahan. Among other things, he predicted we would see 1.x% bond yields in Q4 (which we have).

It is simpler than it appears. Just watch the historical ROE. If ROE drops, there are a few possibilities: a) Return on incremental capital is less than legacy ROE b) Moat broken or business faltering c) Cyclical business (in which case you need to normalize ROE) d) Temporary issue (buying opportunity). All of these are things you want to know about.

Oddly enough, Buffett talked about this ratio in his recent interview with Carol Loomis. He had a similar reaction to Shiller. It is useful in extremes, but we aren't in a clear extreme right now.

No, I think Enterprise is both bigger and better (though private).

Moody's and S&P Westjet and Air Canada

ROE = (Profit margin)*(Asset turnover)*(Equity multiplier) = (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)= (Net Profit/Equity) - Profitability (measured by profit margin) - Operating efficiency (measured by asset turnover) - Financial leverage (measured by equity multiplier) If you are using traditional ROE, you are implicitly valuing high leverage equal to high profitability or efficiency. So if you are using ROE, you need to adjust for the debt somehow (e.g. filter out high debt companies).

To answer the original question, https://www.magicformulainvesting.com/ was designed exactly as a screen for this. Most of the stuff that shows up isn't Buffett quality though. I don't use it is a screen but I do sometimes check to see if something I am buying is on the list.

If I recall, Faber's conclusion was that Shareholder Yield (Div + Net Buyback) was better than just net buybacks. The problem with almost all of these research studies is that they only use 1 year holding periods.

http://video.foxbusiness.com/v/1626191609001/which-newspapers-do-gates-buffett-and-munger-read/#sp=show-clips

Read Shareholder Yield by Faber.

But if the investor is smart enough to spot the "undervalued" companies, why does he hold onto the overvalued ones?

If you don't expect them to know when their stock price is low or high, how could they ever know when to issue stock in a transaction, or as compensation, or more importantly, know what price to sell the company at? Are you seriously okay with them doing whatever the advisory firm tells them?? If you aren't hiring them for their capital allocation skills, how can you trust them when they launch a new product (e.g. a crappy phone)?

http://www.amazon.com/Shareholder-Yield-Approach-Dividend-Investing-ebook/dp/B00CRLSL4W I think the evidence is pretty clear that most managers are not good at timing buybacks. But then again, their other capital allocation skills are pretty awful too.

Schloss was a full-time professional investor. If the OP was just buying a basket of cheap stuff, that might be okay. But based on his portfolio, I am assuming he has put substantial effort into the selection each stock. My recommendation is based on the time/benefit tradeoff, especially for a relatively small portfolio.

I think you are fine, especially with your large cap bias. 6-8 is probably ideal. If BRK drops 50%, you temporarily lose 15K. I don't know your financial situation but that doesn't seem worth losing much sleep over. In other words, the extra effort in carefully monitoring 4 more stocks would outweigh the reduced volatility. You need to embrace the volatility. I'd be more worried about your short time horizon than your portfolio concentration.

According to FastGraphs, the total returns (dividends NOT reinvested) since Jan 1, 1997 is: CSCO - 7.3% KO - 3.4%

I think the notion of statistical screens acting as a ceiling rather than a floor makes perfect sense. I personally can't invest that way, it just doesn't fit my personality. But if there was a low cost ETF that just bought the lowest decile on EV/EBIT, I would have no problem holding that as a significant portion of my holdings. I do wonder whether all the quants and value investors won't arbitrage away the advantage of simple statistical screens though. It seems like someone like Klarman who can find hidden value would have an even larger advantage in the current environment. Of course both Buffett and Graham probably made more money on Geico than any of their cigar butts.

The research I've seen that ROIC detracts from performance but reduces drawdown risk.