Thanks for the write up. I completely agree with you. This was in no way a recommendation to solely use this method to invest in stocks, rather I was intrigued with the simplicity of the method and wanted to share with the group the results I got with back-testing.
Over the past years, I learnt and again that with my experience in the market, that there is no simple way or a defined way to make profits. I now normally use the best of the both worlds – technical and fundamental to invest. Technical analysis such as 52 weeks high, ATH, stage analysis, MM trend etc. gives me the ideas about the stocks which are in momentum and looking good technically which means that all the expectations are already built in the price. This is kind of stock screener for me. Once I have few ideas, then I evaluate all those stocks independently on my own valuation template which I have built over the years to find out if the stock is over-valued or under-valued along with many other parameters such as EVA, ROIC, reinvestment rate, ROIIC etc. Acquirer’s multiple is one of those parameters. This further refines the universe for me. After that I do some bit of qualitative research to understand the business and management quality and outlook. If the business is simple enough to understand, management is capable and it has good clientele and good competitive advantage, I then invest in that stock and then forget about it until technical charts give me major red warnings or sales / OPM starts falling down.
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