KCLarkin

If you are just going to do a simple quant strategy, why not buy an ETF like this one: http://www.valueshares.com/ Or a DFA fund based on P/B?

The long-short strategy is much safer than a long-short Magic Formula. With only 20 names, it is easy for one bad short to blow up the fund.

Are there any similar magic formula style ETFs? Greenblatt's funds look great but they are expensive.

WEB and CM talk a great deal about the institutional imperative. Basically, this is just a principal-agent incentive problem. Management is rewarded (financially and emotionally) for getting bigger. Conglomerates are generally sub-optimal for shareholders. There is one edge case where conglomerates create value -- when they have a skilled capital allocator. A standalone company will generally reinvest capital and cash flow into the existing business, no matter how bad the business is. The Outsiders are able to redeploy this capital to generate higher returns.

IBM

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.