In a new piece for Barron’s, Mike Hogan details how investors can learn to invest like Warren Buffett, Benjamin Graham, and other investing greats through Validea.com’s guru-based research system.
“If you’d like to get in on some of Berkshire [Hathaway]’s future gains but don’t have the $125,000 price of a ticket, you can, at least, learn to invest like Buffett on Validea (www.validea.com),” writes Hogan. “The seven-year-old Website has simplified Buffett’s strategy and tactics to a formula investors can use to weigh their choices. And not just Buffett’s. … You can get a quick thumbs-up or -down assessment on your own ticker choices or copy 10- or 20-component portfolios recommended in the writings of gurus like Fidelity’s [Peter] Lynch, or David Dreman or Martin Zweig.”
Hogan in particular highlights a couple of Validea’s portfolios, including its Kenneth Fisher-inspired Price/Sales Investor approach, Joel Greenblatt-based Earnings Yield Investor method, and its Buffett-inspired Patient Investor approach. Overall, 13 of Validea’s 14 ten-stock model portfolios are more than tripling the S&P 500 since their inceptions (most of which were in July 2003). Its Graham-based approach is leading the way, averaging annualized returns of more than 16% since July ’03, compared to 2.2% for the S&P.
“These are mostly value-oriented, long-horizon models whose fundamental approach is to buy into cash-generating businesses — so-called ‘predictable’ companies — whose years of consistent growth can, adherents hope, be extrapolated,” Hogan writes. “Guru screens are designed to uncover strong earnings growth, sound balance sheets and free cash flow. And gurus like to buy companies when their shares are trading at a discount to fair-market value. That’s determined using a variety of traditional value measures and regressions such as the discounted cash-flow model.” He adds that Validea’s models “tend to be risk-averse and to include rather difficult-to-achieve metric thresholds.”
Hogan says Validea differs from other guru-based sites because it involves strategies a small number of publicly disclosed strategies of highly successful gurus, rather than tracking recent trades of a larger group of gurus. He also highlights the stress that Validea puts on discipline. “What our portfolios show is that, if you have a good strategy, it doesn’t necessarily have to be the best,” Validea’s Justin Carbonneau tells Hogan. “Success lies in the discipline of selecting a good investing approach and sticking with it.”
To read the full article, click here.
To see the performance of Validea.com’s model portfolios, click here.