In a recent Forbes article, Validea CEO John Reese shared a list of core investing concepts outlined in an essay for the CFA institute by Vanguard founder Jack Bogle, and offered parallels with tenets of market gurus such as Warren Buffett, Peter Lynch, and Joel Greenblatt:
- Invest you must. Failure to earn an adequate return is riskier than short term market volatility. According to Joel Greenblatt: “The strategy of putting all your eggs in one basket and watching that basket is less risky than you might think.”
- Time is your friend. Benjamin Graham referred to compounding as the “eighth wonder of the world.”
- Impulse is your enemy. “The investor’s chief problem, and even his worst enemy,” argued Graham, “is likely to be himself.”
- Basic arithmetic works. According to Warren Buffett, “Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.”
- Never forget reversion to the mean. According to Howard Marks, “Nothing goes in one direction forever.”
- Stay the course. Joel Greenblatt puts it this way: “Over the short term, Mr. Market acts like a wildly emotional guy who can buy or sell stocks at depressed or inflated prices. Over the long run, it’s a completely different story: Mr. Market gets it right.”
Using the stock screening models Reese created based on the core principles of these market greats, he identifies the following fundamentally sound stocks:
- ManpowerGroup Inc. (MAN), a provider of workforce solutions and services, earns high marks for persistent growth in earnings-per-share and a favorable price-sales ratio.
- Nissan Motor Co Ltd (NSANY), the automotive products company, is favored for its size and cash flow-per-share.
- Athene Holding Ltd. (ATH) is an insurance holding company that scores highly based on its favorable price-earnings ratio and sales growth.
- Vale SA (VALE) is a global producer of iron ore and iron ore pellets as well as nickel. The company earns high marks based on its book-market ratio and operating cash flow.
- GameStop Corp. (GME) is a video game retailer favored for its earnings yield and return-on-total capital.