๐๐ป๐๐ฒ๐๐๐ถ๐ป๐ด ๐๐๐ฟ๐ฎ๐๐ฒ๐ด๐ถ๐ฒ๐ ๐ณ๐ผ๐ฟ ๐ฏ๐ฒ๐ด๐ถ๐ป๐ป๐ฒ๐ฟ๐
The 52-Week Low Formula: A Contrarian Strategy that Lowers Risk, Beats the Market, and Overcomes Human Emotion
Today we will be discussing a strategy called "The 52-Week Low Formula" this strategy is described in book called "The 52-Week Low Formula: A Contrarian Strategy that Lowers Risk, Beats the Market, and Overcomes Human Emotion" by Luke L. Wiley
I like this strategy very much because it leaves a lot of room for personalization but at the same time provides a strong framework that is proven efficient.
Few takeaways from the book:
- If you have a problem to solve, consider all the solutions that wonโt work and, in so doing, the correct answer reveals itself.
- It is about buying the โright businessโ at its 52-Week Low versus buying โany businessโ at its 52-Week Low
- If you want to achieve above average outcomes you must be willing to take an unconventional approach. If your approach is conventional and commonly used then you guarantee average results.
The 52-Week Low Formula - uses five filters, four quality filters and one price filter.
1. ๐ฟ๐ค ๐ฉ๐๐๐ฎ ๐๐๐ซ๐ ๐ ๐๐ช๐ง๐๐๐ก๐ ๐๐ค๐ข๐ฅ๐๐ฉ๐๐ฉ๐๐ซ๐ ๐๐๐ซ๐๐ฃ๐ฉ๐๐๐? Are they the kind of company that is hard to compete with, either because they have cornered a difficult market or because competing with them would require an unreasonably high investment by others?
2. ๐๐๐๐ฉ ๐๐จ ๐ฉ๐๐ ๐ฅ๐ช๐ง๐๐๐๐จ๐ ๐ซ๐๐ก๐ช๐ ๐ค๐ ๐ฉ๐๐ ๐๐ค๐ข๐ฅ๐๐ฃ๐ฎ ๐ง๐๐ก๐๐ฉ๐๐ซ๐ ๐ฉ๐ค ๐๐ฉ๐จ ๐๐ง๐๐ ๐๐๐จ๐ ๐๐ก๐ค๐ฌ? If someone were to come in and buy the entire company, would the free cash flow being generated be well in excess of simply investing in a 10-year Treasury bond? After all, the cash flow on a 10-year Treasury bond is said to be โrisk-freeโ while the free cash flow from a company is not without risk.
3. ๐๐๐๐ฉโ๐จ ๐ฉ๐๐ ๐ง๐๐ฉ๐ช๐ง๐ฃ ๐ค๐ฃ ๐๐ฃ๐ซ๐๐จ๐ฉ๐๐ ๐๐๐ฅ๐๐ฉ๐๐ก ๐ค๐ ๐ฉ๐๐ ๐๐ค๐ข๐ฅ๐๐ฃ๐ฎ? Is the company using its money wisely to create returns greater than its cost of capital, or is it destroying shareholder value due to generating returns below its cost of capital? Is it using its money well to create returns, or is it taking on bad investments that donโt pay off?
4. ๐พ๐๐ฃ ๐๐ฉ ๐ฅ๐๐ฎ ๐ค๐๐ ๐๐ฉ๐จ ๐ก๐ค๐ฃ๐-๐ฉ๐๐ง๐ข ๐๐๐๐ฉ ๐ฆ๐ช๐๐๐ ๐ก๐ฎ ๐ฌ๐๐ฉ๐ ๐๐ง๐๐ ๐๐๐จ๐ ๐๐ก๐ค๐ฌ? There are a lot of companies out there that are making a lot of money, but should revenues stall or decelerate, could their long-term debt be paid off within a short period with free cash flow?
5. ๐๐จ ๐๐ฉ ๐ฉ๐ง๐๐๐๐ฃ๐ ๐๐ก๐ค๐จ๐ ๐ฉ๐ค ๐๐ฉ๐จ ๐ฑ๐ฎ-๐๐๐๐ ๐๐ค๐ฌ?
๐ฆ๐๐ผ๐ฐ๐ธ ๐ฝ๐ถ๐ฐ๐ธ๐ถ๐ป๐ด ๐ฝ๐ฟ๐ผ๐ฐ๐ฒ๐ฑ๐๐ฟ๐ฒ:
1. ๐๐ถ๐ณ๐ข๐ฃ๐ญ๐ฆ ๐ค๐ฐ๐ฎ๐ฑ๐ฆ๐ต๐ช๐ต๐ช๐ท๐ฆ ๐ข๐ฅ๐ท๐ข๐ฏ๐ต๐ข๐จ๐ฆ (๐ฎ๐ฐ๐ข๐ต) - yes/no ?
2. ๐๐๐ ๐ ๐ช๐ฆ๐ญ๐ฅ > 10-๐บ๐ฆ๐ข๐ณ ๐๐ณ๐ฆ๐ข๐ด๐ถ๐ณ๐บ ๐ฃ๐ฐ๐ฏ๐ฅ ๐บ๐ช๐ฆ๐ญ๐ฅ
a. FCF Yield = Free Cash Flow/Enterprise Value
i. FCF - www.investopedia.com/terms/f/freecashflow.asp
ii. EV - www.investopedia.com/terms/e/enterprisevalue.asp
3. ๐๐๐๐ > ๐๐๐ (๐ค๐ฐ๐ด๐ต ๐ฐ๐ง ๐ค๐ข๐ฑ๐ช๐ต๐ข๐ญ)
a. www.investopedia.com/terms/r/returnoninvestmentcapital.asp
b. www.investopedia.com/terms/c/costofcapital.asp
4. ๐๐ฐ๐ฏ๐จ-๐๐ฆ๐ณ๐ฎ ๐๐ฆ๐ฃ๐ต ๐ต๐ฐ ๐๐ณ๐ฆ๐ฆ ๐๐ข๐ด๐ฉ ๐๐ญ๐ฐ๐ธ < 3
5. 10% ๐ง๐ณ๐ฐ๐ฎ 52-๐๐ฆ๐ฆ๐ฌ ๐๐ฐ๐ธ ?
๐ฅ๐ถ๐๐ธ ๐ ๐ฎ๐ป๐ฎ๐ด๐ฒ๐บ๐ฒ๐ป๐:
The risk is managed by picking quality businesses at low price, this usually happens because of negative sentiment and not underlying fundamentals.
It's advised to pick around 25 stocks.
๐ฃ๐ฟ๐ผ๐ณ๐ถ๐๐:
Profits can be taken when a particular stock is not passing some filters, if there are more than 25 stocks passed all the filters, one filter can be turned to a ranking criteria and to pick first 25 stocks and sell if one stock has dropped in the ranking.
๐๐๐ฒ๐ฟ๐ฎ๐๐ถ๐ผ๐ป ๐ฟ๐ฒ๐๐ฟ๐ผ๐๐ฝ๐ฒ๐ฐ๐๐ถ๐๐ฒ:
This is the step where an investor is customizing the strategy to his own needs.
๐๐๐ก๐: ๐ผ๐ ๐กโ๐ ๐๐ข๐๐๐๐๐ก ๐๐ฅ๐๐๐๐๐ก๐๐๐ก ๐๐๐๐๐๐ก ๐๐ก'๐ ๐๐๐ ๐ ๐๐๐๐ ๐กโ๐๐ก ๐๐ ๐๐๐๐๐๐๐๐๐ ๐ค๐๐๐ ๐๐๐ ๐ ๐กโ๐ ๐๐๐๐ก๐๐๐ , ๐๐ข๐ก ๐๐ก'๐ ๐๐๐ฃ๐๐ ๐ก๐๐ ๐๐๐ ๐ก๐ ๐๐๐๐ข๐ ๐ก ๐กโ๐ ๐๐๐๐ก๐๐๐ ๐ก๐ ๐กโ๐ ๐๐ข๐๐๐๐๐ก ๐๐๐ฃ๐๐๐๐๐๐๐๐ก.
Example : $STNE (StoneCo Ltd A), $BABA (Alibaba), $ABEV (Ambev ADR), $DISCA, $ZNGA (Zynga), $ITRI (Itron Inc), $SWBI (Smith & Wesson Brands Inc)
๐โ๐๐ ๐๐ ๐๐๐๐ฆ ๐๐๐ ๐๐๐๐๐๐๐๐ ๐๐ข๐๐๐๐ ๐๐ ๐๐ก'๐ ๐๐๐ก ๐๐ ๐๐๐ฃ๐๐ ๐ก๐๐๐ ๐๐๐ฃ๐๐๐, ๐๐๐โ ๐๐๐ฃ๐๐ ๐ก๐๐ ๐๐ข๐ ๐ก ๐๐๐๐๐ก๐ ๐๐ก'๐ ๐๐ค๐ ๐ ๐ก๐๐๐ก๐๐๐ฆ.... Show More