There are a number of well documented ways to beat the stock market over time. You can divide these into different categories, but usually it’s about paying less for shares than they are worth. The most well-known and well-documented ways to beat the stock exchange are as follows:
– Net nets (Graham and Buffett)
– Special situations and knockouts (Joel Greenblatt)
– Activist (Carl Icahn)
– Buy and keep good company (Buffett)
All of these categories have been used to beat the stock market and the people in brackets are the best known to have been successful. There is also a lot of empirical evidence that these strategies have worked and many have been rewritten on this blog.
The first two categories are more that using arbitrage available on the market, by purchasing companies that are extremely low priced or not guarded by the market. This has proved to be the most profitable kind of shares to invest in and Buffett has said that if he had only one million dollars, he would be able to earn 50% return per year by investing in this way. Greenblatt succeeded in doing this for 10 years when investing in special situations, and that has still worked well, although there are now several players in this industry.
Being an activist like Icahn, on the other hand, is difficult because you have to take great positions and get in touch with companies. On the other hand, you get roughly similar stocks with the quantitative strategies I’ve written about here, and not uncommonly, Icahn appears in the owner lists. Being an activist is difficult, but you can follow John in this case.
Buying and maintaining good companies is something Buffett is an expert in and is clearly the most popular investment form. Here you can divide it into a few different types of companies, both those who are more conservatively valued and where you can use an approach similar to Graham’s defensive criteria, but also if you are more aggressive and buy growth companies at a good price. Buffett is best known for the latter, buying companies that grow a lot for a long time at a good price. This strategy differs more from the others, as the other is about exploiting arbitrage in the market while it is about identifying companies that are in themselves good.
There are a wealth of blogs that follow all of these strategies mentioned above. I identify my investment philosophy more to the first categories, as I have both the net in my portfolio and buy quantitatively inexpensive shares. More who are more active in this are the blogs Value Agency and Cigarffimpar, but sometimes the Securities and blogs linked to the newspaper. For the latter category, good companies that you buy and maintain for a long time there are a lot of blogs about. One that I have seen recently has been really good is Nemcap, can recommend reading his blog and the latest post.
When it comes to being active in the stock market it takes enormous effort to be read and understand their shares. For example, I understand not the special with the companies that Nemcap has in its portfolio. His recommendation is to spend +15 hours a week for several years to succeed well. To compare, a former colleague dropped so much time on his run and he came as the best European in the New York Marathon. It is, therefore, an extreme discipline and conviction to succeed well, and only a few succeed so much after spending so much time. Many of the aforementioned work full time with investments and they are known for working long weeks. Geoff Gannon, who also succeeds in investing actively, believes that the absolute minimum is to spend an hour a day, and in any case, 5 shares that you have for 5 years. It means more than two hundred hours per share. So it takes a lot of time to succeed in the stock market and the odds are against one. For this reason, I am looking forward to investing quantitatively, as it takes a minimum of time and many times performs as well as if you were active.