Giving thanks
Sometimes you just have to give thanks. When you use something, it’s good practice to give credit to those behind the product’s creation.
I’ve been giving a successful seminar locally for about 1 1/2 years. It’s very user-friendly in the sense that the topics we discuss are driven by the participants. We’ve learned about investing in China, hedging strategies, asset allocation — a whole slew of things.
Ask the guru
We’re in the process of dissecting Guru Strategies, where we break down those strategies employed by guru investors of present and yore, investors like Warren Buffett, Peter Lynch, and Ken Fisher.
I’ve been basing a lot of our discussion around a strategy I call Screening 2.o, definitely one of our New Rules of Investing that will enable investors to make better, more profitable trades/investments in the future.
Screening 2.0 is all about the ability to easily screen stocks for criteria that the pros use.
Guru Screening vs. Piggyback Investing
On this blog, we’ve talked a lot about what I call Piggyback Investing. Whereas Piggyback Investing involves cloning existing guru portfolios and creating your own all-star portfolio on the back of institutional investors, Screening 2.0 uses an algorithmic approach to screening for the same criteria other investors use in their investment processes and then picking stocks accordingly, even if these investors are no longer in the came.
It’s Alpha Clone vs. Validea.
Mebane Faber vs. John Reese.
Go to the source
Anyway, by far the best breakdown of these strategies comes in a recently published book, The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies
It works like this:
The book is structured into 4 parts:
- Value investing
- Growth investing
- Pure quants
- Putting theory to practice
In the first three sections, various gurus occupy their own chapters. Drawing from extensive research, Reese introduces each guru investor (think, Dreman, Zweig) with a brief bio, successfully reduces their overarching tenets in investing (”Buy what you know” or “Invest in a company an idiot can understand”), and then provides actual mathematical formulas these successful investors used in their investing (so, PE<30 or PS<.75) as a way to implement these tenets. In some cases, Reese and Co. update certain formulas to reflect more current conditions (as per, Benjamin Graham, per se) and in other cases, have to provide more clarity on certain criteria when the guru investor was more ambiguous in his writings.
Section 4 then provides 6 principles that Reese has culled from a variety of gurus. These are rules that sit above each guru that only someone studying all these portfolios could posit. Things like “Combining strategies to minimize risk and maximize returns”. Think of these as the end-product of research that puts forth applied rules based upon the findings of monitoring these portfolios.
Reese is a successful entrepreneur whose exit from his own startup enabled him time to think about investing a windfall of cash. Like any MIT and Harvard grad, he read everything available on the market related to investing (newsletters, magazines, books). He liked the idea of focusing on those guru investment books that provide actual formulas and creating a computer system to screen for stocks that fit these criteria. He’s been following the performance of many of these Screening 2.0 portfolios for years. His book, The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies
This blog post started out as a process in thanking someone for a valuable resource. In an age of screen scraping, spam blogs (splogs) and pirated music, it’s good to give back sometimes to drivers of content we find valuable.
More resources:
- Validea website
- Validea blog
- Read my interview with John Reese
- Follow Team Validea on Twitter
- Please sign up for a free subscription to our weekly updates at New Rules of Investing
