There’s a two part answer to this- they do and they can’t.

Most of the investors mentioned on this site had careers on Wall Street and made their fortunes. After a certain point, they felt that they wanted to give back and teach their investment philosophies. Many hedge funds today still employ value investing principles.

For the firms that can’t, it would be because it would be rare for a large or mega-cap company to pop up on one of these screeners. These opportunities usually occur for smaller companies which is perfect for the individual investor because hedge funds can’t compete with us as easily. If a company is worth $200 million total and a hedge fund makes $25 million investments on average, are they really going to buy 12% of a company for an investment or trade? Doing this would force them to enter the positions at prices higher than what was considered fair market value. Warren Buffett talks about how if he had a small account he could make stupidly high returns like he used to. We have that advantage!

Honestly, we’re not special, the investment gurus who inspired these strategies are. And they’ve been rewarded massively for their prowess.

We’ve spent so much time combing through all the investing styles and strategies out there, that by creating a space that compiles all these hopefully we can help others achieve financial success.

It shouldn’t…but we’re not experts in distinguishing the pros and cons of all the brokerages out there. Usually the big ones stay competitive with each other to keep user experiences somewhat similar. Our backtesting does not incorporate brokerage fees so if your brokerage charges hefty fees, that will eat into your returns. On the flip side, some of the “free” brokerages get their revenue from making your position entries more unfavorable (i.e. buying in at a higher price than true market value) so be careful with those.

Absolutely!

In fact, this may be a great way to diversify. There’s nothing wrong with using all the strategies all at once.

This is a question that only you can truly answer. The more you buy, the more diversified you can be with your portfolio. If you have your whole portfolio made up of only a few companies, all it takes is one scandal outside a company’s control and you could hit a rough patch. On the other hand, too much diversification can turn into “di-worsification” as Buffett’s right-hand-man Charlie Munger claims. The truth lies somewhere in the middle.

The strategies on this site involve holding 10 stocks at a time. This means if you would like to hold 40 stocks, which may be a little on the high end of what someone can manage, you could always combine the different strategies together.

Screeners/scanners and ranking methods use the data that companies file in their mandatory reports that include fundamental metrics of their company. That data is uploaded to databases by companies which then can be used by groups to sort out companies that meet certain criteria.

If you were to go to a common investing website and pull up a stock, you’d see popular metrics for that company such as its P/E ratio, market cap, and more. Those all get pushed to databases and then our scanning can sort the companies that fit certain criteria. For example, a potential screen would be to display all companies with P/E ratios under 25.

Rankings would take the same data but stack the results in sequential order. So instead of display companies with a P/E ratio of 25, you could have a ranking that sorts every company from lowest to highest P/E ratio. You could combine the two and screen companies with a P/E under 25 and then rank them from the lowest up to that 25.

That screen or scan could also then be used for backtesting on Stock Mixology. So we basically prompt the program with a question like, “How did stocks with a P/E under 25 and also in the better half of all remaining ranked companies perform if I bought and hold each one for year at a time starting in 2000?”. That is the methodology behind Stock Mixology.

Rebalancing is resetting your portfolio with the same strategy after a certain period of time, but with new stocks. Let’s say you wanted to always have the ten companies with the lowest P/E ratio. You could buy those ten companies now to achieve that with your portfolio.

But when do you sell?

You may not want to take your money and run but eventually if your stocks go up in price (P), then the ratio will increase. When that ratio changes, you no longer are holding the ten lowest P/E ratio companies.

Deciding when to refresh your portfolio is important because if you rebalanced every day, commissions would eat you up and you would never give those companies enough time to grow. That said, if you hold too long you could end up with overvalued companies that don’t fit the criteria you bought them for.

There’s no correct answer for this dilemma, other than “somewhere in the middle”. Our strategies are tested with different holding periods and we optimize them for rebalancing periods that are also most conducive to a stress-free investment practice. Annual rebalancings offer the most simplicity, but monthly can offer more bang for your buck. Whichever you choose is up to you, but stick to the recommendations made in the Strategies pages to follow the Stock Mixology recommendation(s).

Would you rather buy a lemonade stand that profits $100/month and costs $500 to buy, or one that profits $50/month and costs the same? That’s value.

Let’s expand that to the broad stock market. In the chart below, we take all the stocks out there and rank them by how favorable their P/E, P/S, and P/FCF ratios are. The 5% most undervalued are displayed farthest to the right and the rest fall into fifth percentile buckets all the way down to the most overvalued. To compare, the broad S&P 500 is displayed farthest to the left.

Value investing is a concept that is inherent in all of us, but “the next big thing” causes us to abandon this mindset when it comes to stocks often because of fear-of-missing-out or greed. We hear about that one guy that luckily bought Amazon back in 2001 but we never hear about the 50 other folks who bought unviable companies around that same time too. Our approach to investing is to invest where the data tells us to and with enough companies and time, things will hopefully work out. It’s been good to us so far.

Buying the 5% most undervalued companies since 2000 and recycling each year would’ve outperformed vastly.

We’ve done our best to pick strategies that aren’t just theoretically superior, but also realistic to implement in practice by even the most novice of investors. That said, there are still a couple things you can do to maximize your returns over time.

Taxes: Your own tax situation is unique to you, but many will experience capital gains taxes from your government when you make profits. If your capital gains rate is lower than your income tax rate, for annual rebalancing strategies you can sell off your “losers” just before you hit one year to mark those losses against your income as a short-term investment and sell your winners one day after your one year mark. The winners would then be taxed at the lower capital gains rate as a long term investment. If a strategy prompts you with the same stock from one year to the next, just hold it, don’t sell and buy again.

Buy-limit orders. To best mimic the backtesting results, if you have a large account you may want to look into buy-limit orders. These tell your broker that you are unwilling to enter a position into a stock above a certain price that you select. If you use the default market order then it may match your cash against a bunch of others’ sell orders that could range in asking prices, potentially higher than what you would want to enter at.