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Part I: Indexing Idiocy MSCI’s value index (MGV, VTV) is seriously lagging behind the USA index (EUSA, PBUS). Its ten-year, five-year, three-year, and one-year CAGRs are all lower. The small-cap index (PBSM) is still ahead if you look at its ten-year CAGR, but way behind on its five-year, three-year, and…

The equity multiplier is a simple formula: assets divided by equity. It’s frequently used as a measure of financial leverage, since assets minus equity equals liabilities. Everyone seems to agree that a lower equity multiplier is better. Investopedia: It is better to have a low equity multiplier, because a company…

I love to read, and when I come across words that strike me as particularly wise, I often write them down. It struck me the other day that some of these words can be applied to investing. So here, in chronological order, are some quotations and their implications. Heraclitus was…

This is the title of an article I wrote, posted this morning on Seeking Alpha here. Normally I post my articles on this page too, but in this case I wanted to keep the comments all there. Check it out and add your comments. My top ten holdings right now:…

The term “free cash flow” has a rather curious history, with a variety of shifting meanings over the last thirty-odd years. It has always carried the meaning of cash flow in excess of that required for operations, but the nuances, implications, and use of the term have undergone quite a…

In this piece I want to drill down deep into a ratio that I find extremely useful in assessing potential investments: the ratio of net operating assets (NOA) to total assets (the lower, the better). It’s my favorite balance-sheet ratio. In a 2004 paper entitled “Do Investors Overvalue Firms with…

The other night I asked my son, a high school student who knows next to nothing about economics or the stock market, “Which is more likely to grow faster, a small company or a large company?” He answered, “A small company.” Then I asked him, “Which will rise in price…

Operating margin is very simply defined: operating income divided by sales. If a company’s operating margin is growing, then either its income is rising, its sales are slowing, or both. If its operating margin is shrinking, then either its income is falling, its sales are rising, or both. This isn’t…

Value investing is probably at least a hundred years old: it was already a long-established practice by the time Benjamin Graham and David Dodd published the first edition of Security Analysis in 1934. And one of its central tenets is patience. One buys a stock that appears cheap and one…

Rule 1. Never lose money (Warren Buffett’s first rule). You’re going to lose money. What makes the difference is how you react. Do you lose your cool and compound your losses? Or do you react in a disciplined, focused manner and learn from your mistakes? If you spend all your…