Nightly Nate

Two weeks ago I wrote a blog about my quest to create an algorithm, partially human-aided, that tries pick a portfolio of stocks to attempt generating Alpha .  In summary, I try to rank stocks according to the ratio of my calculated "Graham Valuation" and the current stock price, and then through a manual process of eliminating companies with undesirable traits or statistics, I pick a list of potential winners. Probably the most important question, among many that I do not answer in the first post is,  how well has this algorithm performed over time?  The reason this is so important is:  if you cannot consistently beat the S&P 500 index over an extended period of time,  then there is no reason to invest in anything other than an Index Fund.  In other words, stock picking would be a fools game.   Please Note: This is different than "timing" or "trading" the market, which will be the subject of a future blog.  It was also the subject of this...

Overview:  After studying various investment philosophies over the past 20 years with varying degrees of success, I decided to develop an algorithm for generating long-term returns.  I personally believe that beating the market over the long term (i.e. generating returns greater than the return of the S&P 500 a.k.a. alpha ) is hard to do.  Clearly some money managers have generated alpha for their clients over an extended period of time, but theoretically it is harder and harder to do as information is quickly and readily available to all market participants these days. This is an attempt at publishing my thoughts and work on the subject, publicizing my results in a systematic way, and seeing if I can start to generate wealth faster than the average market participant who simply invests in the S&P 500. The Basics: Benjamin Graham has a simple formula for calculating the Intrinsic Value of an investment: V= the value expected from the growth formula...