The good thing about having a formula is that easy to apply and hence should be pretty easy to follow.

You have an entire book and a great investor to follow.

No need to guess. And figure things out yourself.

Graham Strategy

Created by Benjamin Graham

Book: The Intelligent Investor ( Chapter 14 - stock selection for the defensive investor)

The original formula can sometimes give a very high valuation to companies. There is an edited formula that should value better.

The Orginal formula:

EPS

- Earnings per Share Trailing 12 months

8.5

- The P/E of a no-growth company

g

- Future growth of a company. For the next five years.

4.4

- Average yield of high-grade corporate bonds in 1962

Y

- Current yield on AAA company bonds

Revised formula:

Future growth can be hard to calculate yourself. Yahoo finance has it inbuilt into their website.

So go to the stock you want to check on yahoo finance. And go to the “Analysis” And scroll down or press CTRL+F and type in “Growth Estimates”

Keep in mind that future aspects are always speculative. No one can predict the future.

Net-nets

Created by Benjamin Graham

Book: Security Analysis

According to the book, 1930-1956 has had a return of over 20%.

Net-nets is a deep-value strategy. An extreme value investing strategy.

The goal here is to buy companies for less than their assets. So if the company was to liquidate, you still earn money when the assets get sold.

Only tangible assets get calculated into this. Nothing that we cant touch. Immaterial assets are less trustworthy.

And much guessing goes into immaterial assets.

These are not any high-quality stocks. You get what you pay.

Net Current Asset Value (NCAV) > than their market capitalization.

Pretty simple right? Just an NCAV of under the stocks price.

Dividend Strategy

Created by Lowell Miller

Book: The Single Best Investment: Creating Wealth with Dividend Growth

Own 20-30 stocks for solid diversification. You get 1 point for every criterion. 11 is the greatest.

11 Criteria:

Dividend History

Dividend Growth

Payout Ratio

Increase in the number of shares

Market Value

Free cash flow margin

Operating cash flow margin

Profit Margin

Return of assets

Yield

P/E

Magic Formula

Created by Joel Greenblatt’s

Book: The Little Book that Beats the Market

According to the book 1988-2004, the magic formula had an average return of 33%.

The magic formula is an active quant strategy that is supposed to find value investments.

Joel Greenblatt is a great investor that has been in two funds. Both have had over 30% returns for decades.

The magic formula:

At least 50 million dollars in market capitalization.

No Financial Companies. Such as banks, investment companies, real estate, etc. Since the key-ratios used aren't as good for these kinds of companies.

Have two lists with a few companies, one with the best RoC and another one with the best Earning Yield (EBIT/EV)

Choose the best companies. And build a portfolio with 20-30 stocks for some diversification.

Buy every second month 5-7 of the best companies. And sell after you have owned them for one year or so.

Some argue to remove the 25% of the most undervalued companies. They are most likely undervalued because of a valid reason.

One problem I see with this approach is the high volumes of selling and buying is going to brokerage fees.

Still, quant investing with a value mindset can perform great. And at least taking these key ratios to mind can be a good idea.

F-Score

Created by Joseph Piotroski

Book: Value Investing: The Use of Historical Financial Statement Information to Separate Winners

From 1976 to 1996 has beaten the market by over 13.4%. By buying the companies with 8-9 in the score.

This formula mixed fundamental key-ratios with technical aspects. Many of the key-ratios compare to the performance of the year before.

Nine total points you can score.

Return on Asset +1 point if positive

operating cash flow OCF +1 Point if positive

Profitability

Net Income +1 Point if positive

operating cash flow OCF +1 Point if positive

Return on Assets +1 point if higher than the year before.

Quality of Earnings if cashflow more than net income

Leverage/Liquidity

Decreased leverage - Debt lower than the prior 12 months

Increased Liquidity - Liquidity higher than the prior 12 months

Zero Dilution. No new share offerings.

Operating Efficiency

Gross margin > than the year before.

Asset Turnover greater than the year before.

You want an f-score of above 5. But 7-9 are the best.

Value Composite

Created by James O’Shaughnessy

Book: What Works on Wall Street

In the book, he shows how he tries different key-ratios. Backtests them to see what has performed the best in the past.

And he has edited his formula along the way. And there are different other ones.

Value Composite 1:

Price-to-Book

Price-to-Earnings

Price-to-Sales

EBITDA/EV

Price-to-Cash flow (P/CF) or EV/OP

Buy the 10-20 companies that perform the best.

CANSLIM

Creator: William O'Neil

Created by William O'Neil

Book: how to make money in stocks

Fundamental mixed with technical aspects. It works best in bull markets.

The idea here is to invest in growth stocks. Before too many institutional funds invest in them.

EPS growth of over 20%, but the higher is better.

Annual EPS over the past five years over 20%

New products, management, or other positive new events will result in a stock price going up.

With scarce supply, the companies do re-purchases to reduce the supply. And an increase in demand with insider confidence in the firm. So people buying in their company is a good sign.

Stocks that underperform investment returns. Relative to their peers or a benchmark. Use the Relative Strength Index (RSI) to see if it's oversold.

Pick stocks that are invested by a few investment companies. Not too many and too much since we want in before the big money is invested.

Follow the Market direction, The uptrend is the best time to buy, and corrections mean go cash.

Conclusion

All these formulas rely on some fundamental strengths of the companies. And it seems crucial to pick the right stocks before doing any technical.

These formulas do not always work, and need a lot of time to see if they work.

All formulas but the net-nets need more key ratios to work the best. So learning at least some key ratios is a practice even if you don't want to follow these formulas.

These can be high risk because some may overperform at periods but underperforms in some. But if you understand the formula and believe in it, you shouldn't have a problem.