ASX spin-offs

[ReXXar]

Anyone here play on spin-offs? I went through the last 15 or so spin-offs on the ASX and mostly they all popped few hundred per cent in the next few years, I've picked up a book "what works on wall street", and through a century of stock market research buying spin-offs outperforms the market hands down, so this phenomenon is not just ASX.

I bought into NZD yesterday and on the eye for more spin-offs, anyone know if there's any websites dedicated to ASX spin-offs or upcoming ones? I know Origin is spinning off its oil and gas division, I think its highly risky though, it will be highly dependent on oil prices and the last cyclical resource stock spin-off is Attrium which is now basically bankrupt due to the steel glut.

 

[Klogg]

There's a potential spin-off coming out of HIL, but they've delayed it.

There are no pro-forma financials just yet, so not much is known

 

[ReXXar]

There's a potential spin-off coming out of HIL, but they've delayed it.

There are no pro-forma financials just yet, so not much is known

Thanks for that, I'll keep an eye on it, is there no central website that has all the upcoming spin-offs? Another potential spin-off is Crown's Macau operations but that's put on hold too..

 

[OmegaTrader]

Anyone here play on spin-offs? I went through the last 15 or so spin-offs on the ASX and mostly they all popped few hundred per cent in the next few years, I've picked up a book "what works on wall street", and through a century of stock market research buying spin-offs outperforms the market hands down, so this phenomenon is not just ASX.

hmm that sounds too good to be true.

Can I see the data that proves this??

But the strategy makes some sense, profit from either people are excited or the spin off generally does better idea.

Looking at south32 listed aug 2015 it fell from around $2.2 to around $1 now it is almost $3

very interesting...

 

[ReXXar]

hmm that sounds too good to be true.

Can I see the data that proves this??

But the strategy makes some sense, profit from either people are excited or the spin off generally does better idea.

Looking at south32 listed aug 2015 it fell from around $2.2 to around $1 now it is almost $3

very interesting...

Here's six recent ones for you to have a look, they all popped a few hundred per cent:

http://www.afr.com/personal-finance/shares/six-spinoffs-worth-a-look-20160320-gnmvsj

There's actually bargain situations like this everywhere amongst small caps, for example there's a whole list of companies trading at NEGATIVE EV, i.e. you get PAID for buying them out (net cash per share > share price). Brokers don't cover them so they're often undervalued.

 

[skyQuake]

I think there's a pretty big difference between spinning off from a listed co with a record/ex date, and IPO'ing a part of the business.

Here's a list of the former.

WRT AU Equity
SGR AU Equity
CNU AU Equity
0192729D AU Equity
SCP AU Equity
MFF AU Equity
REC AU Equity
SYD AU Equity
ORA AU Equity
SCG AU Equity
ICU AU Equity
JAC AU Equity
S32 AU Equity
CYB AU Equity
1383187D AU Equity
WGX AU Equity

 

[OmegaTrader]

Here's six recent ones for you to have a look, they all popped a few hundred per cent:

http://www.afr.com/personal-finance/shares/six-spinoffs-worth-a-look-20160320-gnmvsj

There's actually bargain situations like this everywhere amongst small caps, for example there's a whole list of companies trading at NEGATIVE EV, i.e. you get PAID for buying them out (net cash per share > share price). Brokers don't cover them so they're often undervalued.

So if you have the money you can buy the company you can just wind them up and make money.

ahaha

nice

Of course a lot of shares might be off the market in private hands... management

And the act of buying could push up prices.


Generally a lot of these small caps die....

Management cannabises the shareholder money left in wages unless greater fools are found...

The list you gave me all performed quite well.

I don't know much about spinoffs myself ...

I like the idea though. But there still needs to be more nuanced than spinoffs are good to buy.


Risk management??

Position sizing, hedging, when to cut losers?

How to choose a good from a bad spinoffs.

Where is is the edge coming from?

Risk adjusted returns.

Alpha, Beta,volatility


Larger sample size, more back-testing.


What have your results been in investing in spinoffs???

 

[ReXXar]

So if you have the money you can buy the company you can just wind them up and make money.

ahaha

nice

Of course a lot of shares might be off the market in private hands... management

And the act of buying could push up prices.


Generally a lot of these small caps die....

Management cannabises the shareholder money left in wages unless greater fools are found...

The list you gave me all performed quite well.

I don't know much about spinoffs myself ...

I like the idea though. But there still needs to be more nuanced than spinoffs are good to buy.


Risk management??

Position sizing, hedging, when to cut losers?

How to choose a good from a bad spinoffs.

Where is is the edge coming from?

Risk adjusted returns.

Alpha, Beta,volatility


Larger sample size, more back-testing.


What have your results been in investing in spinoffs???

Larger sample size? I'm reading a book now called "you can be a stockmarket genius" (really terrible name for a book but actually an excellent book), on page 57 quote: "one study completed in Penn State covering 25 years ending in 1988, found that stocks of spinoff companies outperformed their industry peers and S&P500 by about 10% per year in their first 3 years of independence" Long-run ASX return is around 10% per year, thus you can just buy a basket of spin offs and achieve 20% return on average, no talent required.

Where edge comes from? Well, the spinoff process itself is a fundamentally inefficient method of distributing stock to the wrong people. Because they're given to parent shareholders who usually sell them immediately in the first year, so it creates an immediate oversupply pressure pushing down the stock price. You can increase easily over 20% by being more selective.

When to cut losers? Look at the last price support, that's where I put the stop loss. For NZM, that's around 47 cents.

Risk adjusted returns? You're measuring risk by beta, I view the opposite, the greater the volatility the greater the margin of safety so I don't know how to answer your question on this one. If volatility is not your cup of tea, I would recommend stay clear of spin-offs, especially in the first year. For NZM, before the commission rejected the merger it was hovering around 90 cents, after the rejection it fell to 47 cents, I bought at 53 cents, so if the new submission gets rejected it will drop 11% from my entry price, if it goes through in March 17, it will catapult beyond 90 cents, a 69% rise. Even if the merger doesn't go through, its still trading at ridiculous low multiples and has a monopoly over its core market. If the price is trending down before March 17 I may sell (I believe that's an indication the merger won't go through), or if it doesn't hit the stop loss or double within 2 years, I'm selling also.

How to choose good from bad? Well, that would depend on each situation, I just outlined my case. I could be wrong, but I'm just playing on the odds and I see a margin of safety.

Position sizing? That's up to you I guess, how much are you willing to put down to sleep well at night? I tend to put in a rather large order upfront for small caps rather than stagger buying due to illiquidity, it was absorbed quite quickly within 2 days so I thought I entered too early, but today the price popped for no seemingly no reason..

 

[skc]

Where edge comes from? Well, the spinoff process itself is a fundamentally inefficient method of distributing stock to the wrong people. Because they're given to parent shareholders who usually sell them immediately in the first year, so it creates an immediate oversupply pressure pushing down the stock price. You can increase easily over 20% by being more selective.

I have read similar research but it further explained that
- for the reason you've stated, the share price performance of spin off usually underperform the parent for the first year.
- the cited reason for outperformance usually includes things like more management focus, more scope to expand / optimise operations and less hindrance from the group's other operations or capital constraints.

Remember though that it's relative outperformance. So to capture the difference you actually need to hedge your long in the spin out with corresponding shorts in the parent/index to take the beta out.

 

[ReXXar]

I have read similar research but it further explained that
- for the reason you've stated, the share price performance of spin off usually underperform the parent for the first year.
- the cited reason for outperformance usually includes things like more management focus, more scope to expand / optimise operations and less hindrance from the group's other operations or capital constraints.

Remember though that it's relative outperformance. So to capture the difference you actually need to hedge your long in the spin out with corresponding shorts in the parent/index to take the beta out.

In that study I quoted, the largest stock gains "took place not in the first year from the spinoff but in the second." Also interestingly the parent companies "outperform companies in their industries by more than 6% annual during the same three year period"

I'm not sure I follow your logic with shorting the index, most of these strategies are using the index as benchmark, why short the index? Most of these studies on based on decades of data, and the market tends to rise over the long-term..

 

[OmegaTrader]

Larger sample size? I'm reading a book now called "you can be a stockmarket genius" (really terrible name for a book but actually an excellent book), on page 57 quote: "one study completed in Penn State covering 25 years ending in 1988, found that stocks of spinoff companies outperformed their industry peers and S&P500 by about 10% per year in their first 3 years of independence" Long-run ASX return is around 10% per year, thus you can just buy a basket of spin offs and achieve 20% return on average, no talent required.

So If I buy a basket of spinoffs I will make 20% with the same risk as the market......

That is quite a large gain.

Once again sounds too good to be true.

Where edge comes from? Well, the spinoff process itself is a fundamentally inefficient method of distributing stock to the wrong people. Because they're given to parent shareholders who usually sell them immediately in the first year, so it creates an immediate oversupply pressure pushing down the stock price. You can increase easily over 20% by being more selective.

So people sell the shares they have which creates an oversupply in the early years and explains why the stock falls.

So you can make more than 20% a year with the same risk as the market by only buying spinoffs and being selective.

Sounds good.

But I am still sceptical.

When to cut losers? Look at the last price support, that's where I put the stop loss. For NZM, that's around 47 cents.

You use Technical analysis to cut losses in your strategy.

Why would you do this when you can make 20% eventually by just sitting there and waiting for the stock to turn around?

Risk adjusted returns? You're measuring risk by beta, I view the opposite, the greater the volatility the greater the margin of safety so I don't know how to answer your question on this one. If volatility is not your cup of tea, I would recommend stay clear of spin-offs, especially in the first year.

The greater the volatility the greater the margin of safety????

Do you mean that you have more option to get a bargain?

The whole point of beta and alpha is to compare a strategy to passive investing or other strategy, eg index of industry stocks.

The basic principle behind alpha is can I with a combination of cash and passive investing achieve better returns than strategy x.

For a rudimentary basic hypothetical example just to prove the point

if your spinoff strategy has a

20% return and 50% standard deviation,

and the

market is 10% return with a 15% standard deviation.

Then I can borrow to invest in the market, say @ 4%

then why not borrow to triple my market investment

10% return

6% (10%-4%)

6% (10%-4%)

This means that my return after interest is


22% with 45% standard deviation

Which beats the spinoff strategy, more return less risk and less stress.

Conversely I could cut my position size to 33% spinoff and 77% cash

This means my return would be



6.6%(.33*20%)

2.66%(4%*~.66%)


9.33% return with 16.66% standard deviation


Which is also less return for more risk.


This is a simple calculation but it shows why more volatility is not always a good outcome.

Of course standard deviation is not everything in terms of risk but it is a useful indicator to have.


Alpha will take into account correlation and beta which is derived from this calculation to say

In a hypothetical portfolio based on the strategy at the same risk as the market/comparisoninvestment what would the return be and is this better than the market return?


Also volatility is not good for other reasons:

It has a psychological impact on the human brain

hahaha

There reaches a point where volatility is too great and this means that either position size gets smaller and smaller and so there is less returns and volatility drag occurs because of the fact that losses are more harmful than gains.

Position sizing? That's up to you I guess, how much are you willing to put down to sleep well at night? I tend to put in a rather large order upfront for small caps rather than stagger buying due to illiquidity, it was absorbed quite quickly within 2 days so I thought I entered too early, but today the price popped for no seemingly no reason..

Position sizing is really really important aspect of risk management.



If you over position yourself than you will go bust eventually not matter how smart you are.

If you under position yourself than you might as well stay at home

In that study I quoted, the largest stock gains "took place not in the first year from the spinoff but in the second." Also interestingly the parent companies "outperform companies in their industries by more than 6% annual during the same three year period"

I'm not sure I follow your logic with shorting the index, most of these strategies are using the index as benchmark, why short the index? Most of these studies on based on decades of data, and the market tends to rise over the long-term..

Relative performance means performance relative to industry...

Say for another hypothetical example if mining sector falls 20% and you outperform by 10% with spinoffs then you make

-20-10 = -10% return

If you short then

20%-10% = 10% return

Shorting takes out the industry risk, that the industry is in decline, so you are only betting that this stock will beat the industry.


Finally if you have actual or backtested strategy or data please post it so your claims can be verified.


I could research it myself but if you have already done it then it will be a lot a lot a lot... easier

I think that you are have a good idea, I also have a lot of good ideas but normally most of mine fail in reality.

I think you are getting married to the hand....

Which is a saying from poker when a person thinks they have the best hand no matter what the evidence to the contrary.


Its really interesting what you have mentioned so far but without evidence it is only rule of thumb strategy at best and irrational at worst.

cheers

Omega

 

[ReXXar]

So If I buy a basket of spinoffs I will make 20% with the same risk as the market......

That is quite a large gain.

Once again sounds too good to be true.




So people sell the shares they have which creates an oversupply in the early years and explains why the stock falls.

So you can make more than 20% a year with the same risk as the market by only buying spinoffs and being selective.

Sounds good.

But I am still sceptical.






You use Technical analysis to cut losses in your strategy.

Why would you do this when you can make 20% eventually by just sitting there and waiting for the stock to turn around?





The greater the volatility the greater the margin of safety????

Do you mean that you have more option to get a bargain?

The whole point of beta and alpha is to compare a strategy to passive investing or other strategy, eg index of industry stocks.

The basic principle behind alpha is can I with a combination of cash and passive investing achieve better returns than strategy x.

For a rudimentary basic hypothetical example just to prove the point

if your spinoff strategy has a

20% return and 50% standard deviation,

and the

market is 10% return with a 15% standard deviation.

Then I can borrow to invest in the market, say @ 4%

then why not borrow to triple my market investment

10% return

6% (10%-4%)

6% (10%-4%)

This means that my return after interest is


22% with 45% standard deviation

Which beats the spinoff strategy, more return less risk and less stress.

Conversely I could cut my position size to 33% spinoff and 77% cash

This means my return would be



6.6%(.33*20%)

2.66%(4%*~.66%)


9.33% return with 16.66% standard deviation


Which is also less return for more risk.


This is a simple calculation but it shows why more volatility is not always a good outcome.

Of course standard deviation is not everything in terms of risk but it is a useful indicator to have.


Alpha will take into account correlation and beta which is derived from this calculation to say

In a hypothetical portfolio based on the strategy at the same risk as the market/comparisoninvestment what would the return be and is this better than the market return?


Also volatility is not good for other reasons:

It has a psychological impact on the human brain

hahaha

There reaches a point where volatility is too great and this means that either position size gets smaller and smaller and so there is less returns and volatility drag occurs because of the fact that losses are more harmful than gains.



Position sizing is really really important aspect of risk management.



If you over position yourself than you will go bust eventually not matter how smart you are.

If you under position yourself than you might as well stay at home





Relative performance means performance relative to industry...

Say for another hypothetical example if mining sector falls 20% and you outperform by 10% with spinoffs then you make

-20-10 = -10% return

If you short then

20%-10% = 10% return

Shorting takes out the industry risk, that the industry is in decline, so you are only betting that this stock will beat the industry.


Finally if you have actual or backtested strategy or data please post it so your claims can be verified.


I could research it myself but if you have already done it then it will be a lot a lot a lot... easier

I think that you are have a good idea, I also have a lot of good ideas but normally most of mine fail in reality.

I think you are getting married to the hand....

Which is a saying from poker when a person thinks they have the best hand no matter what the evidence to the contrary.


Its really interesting what you have mentioned so far but without evidence it is only rule of thumb strategy at best and irrational at worst.

cheers

Omega

Hi Omega, firstly the market index is just another invest strategy of buying the largest 200 companies by market cap and sell those fall below the the largest 200 by market cap. Nothing more nothing less.

I have no idea why so many people use this index as some kind of magical benchmark, perhaps because it is just the most lazy form of investing?? You're almost guaranteed to outperform this "buy the largest 200 companies by market cap" strategy by utilisng just about anything else. Why is it so many people "find this hard to believe"??

If you refine this strategy by, for example instead of buying based on the largest MC on the S&P500, you buy the lowest decile EV/MC, you will OUTPERFORM the index by over 16-17% per year. This is based on over a century of market research (read What Works on Wall Street), in fact if the "index" was defined as buying the lowest decile by EV/MC instead of just largest MC, the index will be triple right now!! ASX200 would be now more like 16,000. If you refine the strategy further and mix some other value metrics you can OUTPERFORM by over 18-19% per year AND lower volatility as well. So in the very long-run, if the market rises on average 10% per year, you'll looking at 38% per year with lower downside volatility (hence I think all fund managers should use 38% benchmark).

The above is passive investing. You ask me why I put in a stop loss, because I'm not utilising a passive strategy of buying and holding a basket of spin-offs, I'm an active investor, I play on a catalyst, if it doesn't play out the way I expect it to I quit my position and move on to something else. For NZM, if it goes below 46/45 cents my catalyst is beginning to show cracks and that's my exit sign. Thus I can minimse my loss through buying at a bargain price, and that can only be achieved through high volatility when the market presents a temporary buying opportunity. I use research on passive strategies as a basis. If you just want to utilise a passive strategy of buying stocks and achieving lower volatility, just buy the lowest decile in the ASX300 ranked by EV/EBITDA or EV/FCF, I guarantee you will outperform the market significantly if you consistently follow this strategy and never deviate. In this case, you wouldn't need a stop loss, just exit when it reaches a higher decile.

My research? The greatest thing I love about the market is that we can leverage off other people's studies. I'm skeptical of any studies on the ASX including my own, I have the complete dataset and it only goes back until 1987, this is not enough time to form any accurate conclusion. I review studies on the S&P500 with at least few decades of data or even a century of data, and I view any predictive pattern found to be reflective of ASX, because stockmarket is driven by human nature, and human nature never change.

I'm not sure I quite understand what you mean by position sizing, could you please explain?

 

[ReXXar]

Oh and a word of caution on using standard deviation, the whole concept of standard deviation is based on a normal distribution, and the market is anything but!! There's a good book called "Black Swan" which delves deep into this topic. (I used to work for a company and we used PAR based on standard deviation, and during the GFC the model completely broke down) The author is an interesting guy, he's a hedge fund manager who enters numerous butterfly options (profit from high volatility) on stocks that has shown high stability, so he's losing small amount of premium on all the options but overall he makes gain because some stock will randomly pop that flies against conventional models.

 

[OmegaTrader]

Hi Omega, firstly the market index is just another invest strategy of buying the largest 200 companies by market cap and sell those fall below the the largest 200 by market cap. Nothing more nothing less.

I have no idea why so many people use this index as some kind of magical benchmark, perhaps because it is just the most lazy form of investing?? You're almost guaranteed to outperform this "buy the largest 200 companies by market cap" strategy by utilisng just about anything else. Why is it so many people "find this hard to believe"??

The whole point of using the index is It is an easy comparison measure, but never perfect.


Simplicity and Passivity: It allows you to get a return without doing anything apart from taking on risk and volatility.

Taxation benefits: Capital gains are discounted at 50% and dividends are imputed at 30% refundable.
If you don't sell, you never pay capital gains and just will the shares.

Low transaction costs: Once to buy and once to sell, maybe in 20 years time...


Survivorship bias: Good companies rise, bad companies leave the index.

If you refine this strategy by, for example instead of buying based on the largest MC on the S&P500, you buy the lowest decile EV/MC, you will OUTPERFORM the index by over 16-17% per year. This is based on over a century of market research (read What Works on Wall Street), in fact if the "index" was defined as buying the lowest decile by EV/MC instead of just largest MC, the index will be triple right now!! ASX200 would be now more like 16,000. If you refine the strategy further and mix some other value metrics you can OUTPERFORM by over 18-19% per year AND lower volatility as well. So in the very long-run, if the market rises on average 10% per year, you'll looking at 38% per year with lower downside volatility (hence I think all fund managers should use 38% benchmark).

But you are forgetting risk and volatility again....

The above is passive investing. You ask me why I put in a stop loss, because I'm not utilising a passive strategy of buying and holding a basket of spin-offs, I'm an active investor, I play on a catalyst, if it doesn't play out the way I expect it to I quit my position and move on to something else. For NZM, if it goes below 46/45 cents my catalyst is beginning to show cracks and that's my exit sign. Thus I can minimse my loss through buying at a bargain price, and that can only be achieved through high volatility when the market presents a temporary buying opportunity. I use research on passive strategies as a basis. If you just want to utilise a passive strategy of buying stocks and achieving lower volatility, just buy the lowest decile in the ASX300 ranked by EV/EBITDA or EV/FCF, I guarantee you will outperform the market significantly if you consistently follow this strategy and never deviate. In this case, you wouldn't need a stop loss, just exit when it reaches a higher decile.

So you are actively investing when you can make 20% already by passively investing in spin-offs...

Thus I can minimse my loss through buying at a bargain price, and that can only be achieved through high volatility when the market presents a temporary buying opportunity. I use research on passive strategies as a basis.

This still does not mean you are not taking on extra risk

If you just want to utilise a passive strategy of buying stocks and achieving lower volatility, just buy the lowest decile in the ASX300 ranked by EV/EBITDA or EV/FCF, I guarantee you will outperform the market significantly if you consistently follow this strategy and never deviate. In this case, you wouldn't need a stop loss, just exit when it reaches a higher decile.

That is a strong guarantee...

Would you be prepared to put up some assets on a caveat, say your house...
I am sure alot of people would invest with 10%+ guaranteed over performance.

I know that looks good to me, but only if you are willing to put up assets to back it up.

Otherwise it is jut empty promises

My research? The greatest thing I love about the market is that we can leverage off other people's studies. I'm skeptical of any studies on the ASX including my own, I have the complete dataset and it only goes back until 1987, this is not enough time to form any accurate conclusion. I review studies on the S&P500 with at least few decades of data or even a century of data, and I view any predictive pattern found to be reflective of ASX, because stockmarket is driven by human nature, and human nature never change.

What 1987, how long do you need????

If human nature is the same why would you need more data, if the data is the same?????

What

I'm not sure I quite understand what you mean by position sizing, could you please explain?

Please explain pauline hanson ahahah

$100 in the bank, $0 bet , 0% position size

$99 in the bank, $1 bet 1,% position size

etc etc

Oh and a word of caution on using standard deviation, the whole concept of standard deviation is based on a normal distribution, and the market is anything but!! There's a good book called "Black Swan" which delves deep into this topic. (I used to work for a company and we used PAR based on standard deviation, and during the GFC the model completely broke down) The author is an interesting guy, he's a hedge fund manager who enters numerous butterfly options (profit from high volatility) on stocks that has shown high stability, so he's losing small amount of premium on all the options but overall he makes gain because some stock will randomly pop that flies against conventional models.

Yes I agree std is not perfect. But it is a indicator like everything else.
There is always going to be risks that can't be quantified exactly.

For example say I had an investment were all the numbers were fantastic, even low std but I then told you it was in Syria....

No matter the numbers I don't think many people would invest.

However volatility does have an impact on your strategy, no matter how you look at it

A rose is a Rose by any other name.


Volatility forces you to reduce your position size, increases noise and be more conservative,


and if you don't then it will kill you because you are over-betting.


P.S I am still waiting for the evidence of your strategy

 

[ReXXar]

The whole point of using the index is It is an easy comparison measure, but never perfect.


Simplicity and Passivity: It allows you to get a return without doing anything apart from taking on risk and volatility.

Taxation benefits: Capital gains are discounted at 50% and dividends are imputed at 30% refundable.
If you don't sell, you never pay capital gains and just will the shares.

Low transaction costs: Once to buy and once to sell, maybe in 20 years time...


Survivorship bias: Good companies rise, bad companies leave the index.



But you are forgetting risk and volatility again....



So you are actively investing when you can make 20% already by passively investing in spin-offs...




This still does not mean you are not taking on extra risk




That is a strong guarantee...

Would you be prepared to put up some assets on a caveat, say your house...
I am sure alot of people would invest with 10%+ guaranteed over performance.

I know that looks good to me, but only if you are willing to put up assets to back it up.

Otherwise it is jut empty promises



What 1987, how long do you need????

If human nature is the same why would you need more data, if the data is the same?????

What



Please explain pauline hanson ahahah

$100 in the bank, $0 bet , 0% position size

$99 in the bank, $1 bet 1,% position size

etc etc




Yes I agree std is not perfect. But it is a indicator like everything else.
There is always going to be risks that can't be quantified exactly.

For example say I had an investment were all the numbers were fantastic, even low std but I then told you it was in Syria....

No matter the numbers I don't think many people would invest.

However volatility does have an impact on your strategy, no matter how you look at it

A rose is a Rose by any other name.


Volatility forces you to reduce your position size, increases noise and be more conservative,


and if you don't then it will kill you because you are over-betting.


P.S I am still waiting for the evidence of your strategy

Hi Omega, you asked whether I'm willing to bet my house, that's actually why I ended up joining this forum, I sold my property mid this year (was gonna build a hostel in Tonga, but didn't work out due to construction cost lol) and now 95% invested, so I guess my position sizing is also 95%. I'm 100% confident that on AVERAGE if you break the ASX300 into 10 deciles by EV/FCF and buy the lowest decile you will outperform the market at least in the mid double digits per year. I spend most of my time reading and finding gaps in other people's research and whether their findings conflict, very quickly you can get a picture of what works and what doesn't.

Relying on 5 to 10 years of data is lunacy, 20 years of data is dangerous. One of the strongest rules in the market is that every 10 to 20 years where that has been a drastic rise in the market, it will retreat in the next 10 or 20 years, likewise the opposite also holds true. If you just rely on the last 20 years of data, your data will be skewed by the underlying force in the bull/bear market. (On interesting note, I believe the market is heading for a bull market, especially getting to around year 2020, it has risen substantially since the GFC but still 1000 points off the high, once it does it will catapult easily beyond 6500, and by mid 2020s, the GFC will be so out of people's minds and you can gauage their level of memory loss by the flourish of IPOs).

Once again, I'm not utilising a passive strategy, I use prior research on passive strategies only as my screener. For example, low EV stocks significantly outperform the market in the next 12 months so I start with stocks with low EV/MC, companies with low multiples (P/E, P/B..) significantly do better than those with high multiples so I start with stocks with low multiples etc.. Similar thing with spin-offs. So unfortunately I really cannot show my research because I have none, fund managers like O'Shaughnessy has a whole team of quants running through a century of data refining the fine details for the most optimum passive strategy, why would any individual trader think they can do better than him? And I cannot quantify an active investing strategy, because every case is different. Why do I go active, because its fun. When I retire I see no reason why I cannot hire someone to sort the ASX300 by EV/FCF and do an automatic re-balance periodically. I know it might sound risky, however I been doing this for a long-time and started very small, and I haven't been doing too bad, or maybe I'm just lucky, no idea..

 

[skyQuake]

Hey Rexxar,

You have asserted that low EV/FCF outperform on the ASX?, care to provide a link?

Thanks

 

[ReXXar]

Hey Rexxar,

You have asserted that low EV/FCF outperform on the ASX?, care to provide a link?

Thanks

http://seekingalpha.com/article/311576-new-investing-strategy-data-from-james-oshaughnessy

http://jimoshaughnessy.tumblr.com/

 

[skyQuake]

http://seekingalpha.com/article/311576-new-investing-strategy-data-from-james-oshaughnessy

http://jimoshaughnessy.tumblr.com/

Can't seem to replicate for the ASX

Sample decile from 2013


Backtest: (adjusts for index changes and survivorship)

 

[skyQuake]

And for comparison - the bottom non negative decile...

2013 Sample

Backtest

 

[OmegaTrader]

I'm 100% confident that on AVERAGE if you break the ASX300 into 10 deciles by EV/FCF and buy the lowest decile you will outperform the market at least in the mid double digits per year.

Lets cut the crap....

If you are 100% confident

I will invest with you if you give me an exclusive lien over your assets.

Give me the market return plus 10% surplus P.A over a 3 year period,

and you can keep any surpluses over 10%+ market return.

If you don't then I take the difference from your assets.



Otherwise you are talking out of your hat.

Which I expect you are.