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We are somewhat heavily concentrated in Berkshire...about 30% of net worth and 45% of investable assests. It's the only individual equity we own (to any significant degree, that is). Other stuff includes VTI and VXUS that I'm happy to keep our 403b which is invested in a target date fund.

Partly to make life a little more interesting and partly to diversify a bit, I would like to start building a position in one other equity (or maybe two). I would like for it to be Berkshire-esque. From reading this board and its predecessor, the names I keep coming back to are Brookfield (BN and BAM) and Markel. Would these be as good as any for what I want to do?

Of the two, I would prefer Markel and feel that it is much more 'Berkshire-esque' - to use your term. It may not be particularly diversifying but it is a much smaller company and has a lot of room to continue growing. I don't own Brookfield but I do own Markel and have added recently.

I am about 65pct in brk and about 9pct in mkl. Started buying KMX, FND, BABA, GOOGL, AMZN and a few others. Plan is to get the others to about 5pct each give or take

'Partly to make life a little more interesting and partly to diversify a bit, I would like to start building a position in one other equity (or maybe two). I would like for it to be Berkshire-esque. From reading this board and its predecessor, the names I keep coming back to are Brookfield (BN and BAM) and Markel. Would these be as good as any for what I want to do?'

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sherwoodsri, for me, the philosophy of BRK is as important as its component parts, which of course change over time. It is hard to find companies run with the same combination of skill, discipline, ethics, transparency, and long-term orientation as BRK. Consistent profitability and smart allocation of capital the way BRK does it is pretty rare. And BRK itself is already quite diversified.

Diversity is basically just a method for reducing risk. So think about the risk(s) you are trying to mitigate or avoid. Is it WEB's age? New management? The size of BRK? The composition of the equity portfolio? Too much cash/energy/tech/real estate or not enough? You want faster growth? Are you planning to use the money or leave it to your kids? All of these should affect your decision and what is a good alternative.

If you like the insurance business, take a look at Arch Capital ACGL. It isn't a diversified conglomerate, but it is very disciplined and Buffet/Jain-like in its approach. I am long ACGL and have been for awhile, but I don't have any other connection to the company. They are currently near their 52-week high, so maybe not the best time to buy, but with rate increases they should do well the next few years - just like BRK. Same sector - different management. I also just bought some DIS which is struggling now but IMHO has a bright future. That's a different sector from BRK and I have a different expectation of how it will perform, when and why.

These companies are not BRK, but I don't need them to be and I don't want them to be, because I own the original. I own different stocks for different reasons, but they all share some basic characteristics that I have established, and I know what I expect from each one. That way I can decide when to buy more or (sometimes) when to get out.

abromber

From reading this board and its predecessor, the names I keep coming back to are Brookfield (BN and BAM) and Markel.
The names that repeatedly kept coming up years ago when Berkshire percentage wise was heavily insurance were WR Berkley and White Mountains. 2-3 years ago I recommended them when it comes to selecting 1/2 dozen 'fortress-like' companies. The others were Johnson&Johnson and Nestl'. I still would buy those 4 if I would sell my Berkshire for other 'forever' companies. None of them is ever cheap (In hindsight White Mountains was cheap in 2020). Have a look at their longterm charts. They are in that respect comparable to Berkshire as they are also as safe as safe gets - and profitable. I have no idea why nobody here mentions them anymore.

Thanks for the recommendations. Another thought I've had....while I'm happy to be 'all in' in Berkshire, I do worry about the time when, for a season, Berkshire will be out of sync with other fortress-like companies, e.g. example when Buffett dies. Berkshire could be artificially depressed for a time because of succession issues at the very time when I need to sell some equities. But who knows?

' for me, the philosophy of BRK is as important as its component parts, which of course change over time. It is hard to find companies run with the same combination of skill, discipline, ethics, transparency, and long-term orientation as BRK. Consistent profitability and smart allocation of capital the way BRK does it is pretty rare. And BRK itself is already quite diversified.'

These are nearly my exact thoughts. I am 70% of investible assets in BRK and 2.5% in MKL. I invested some inheritance money in each 7 years ago and since then, MKL has appreciated 60% from my basis and BRK has appreciated 140%. I really do like Tom Gayner and the Markel philosophy and structure but honestly have more faith in BRK wrt returns, diversity and culture. Sticking to Rule #1, Culture and Trust are essential to me at this stage of life (mid 50s). I own no BAM.

Re companies that are seen as being safe fortresses, I wonder/worry about companies that are perceived to be such but ultimately proved not to be. One of the experiences that is burned into my memory was my late father's position in the old GM, at one time valued at about $100,000, getting wiped out. I don't doubt that there are good arguments that the fortresses of today are safe in ways that the fortresses of yesteryear were not (GE also comes to mind). Just something I find myself thinking about as I consider companies beyond Berkshire.

I did much the same thing as you are describing last summer and fall. My portfolio is still primarily BRK.B, but I added the stocks of a few companies that are highly profitable and, I believe, predictable. My second largest position after BRK.B is now GOOGL. I like GOOGL's motto, 'Do no evil.' I started buying GOOGL in May at $112.89 and averaged down to $83.65 in November. I have a full position now in GOOGL, but if the stock price drops below my lowest purchase price, I'll probably buy more. Today's price of $89 looks like a reasonable entry point to me. For other stock ideas you might look at the Motley Fool Berkshire Hathaway discussion board's 'group portfolio,' which consists of 25 recommendations from members from August 8. The criteria for the picks were high predictability and high probable return over the next 10 years.

https://discussion.fool.com/t/group-portfolio-upda...

The names that repeatedly kept coming up years ago when Berkshire percentage wise was heavily insurance were WR Berkley and White Mountains

I'm a *huge* fan of WRB and it was my second biggest position for a long time but today it's pretty expensive and I certainly wouldn't buy at this price! The last time it was this expensive was 2006.

I would second the nomination for GOOGL. It is hard to imagine a more 'moaty' company. And it is sufficiently orthogonal to Berkshire that it shouldn't see the systemic problems that another insurance company might see in parallel with Berkshire.

My other big holding is Costco. It never looks cheap but seems to do really well over longer periods. Has pulled back from its high so less expensive than recently.
Rgds,
HH/Sean

I would second the nomination for GOOGL. It is hard to imagine a more 'moaty' company.

I'm not entirely sure. Have you been reading about ChatGPT? => https://en.wikipedia.org/wiki/ChatGPT

What I'm reading is that this COULD be quite a challenger to google. I'd suggest that GOOG investors keep an eye on what's happening with this technology.

Hope you find this helpful.
'38Packard

Have you been reading about ChatGPT?

Funny you should mention it. Over on the GOOG board, we have been discussing it:

http://www.digitalscores.com/MB?bid=9

Rgds,
HH/Sean

Thanks to this thread I am thinking about diversifying away from Berkshire too. As hard as it might be for some to believe BRK is 62% of my total assets/worth and that lets me sleep very well. I am nevertheless thinking about diversifying as while Berkshire currently isn't exactly cheap there are some others which are and from whom I expect FAR more over a 5 year stretch. Since the best time to sell in Mar/Apr Berkshire is 12% or so down but most stocks I have in mind did fall far more since, up to 40%. Which ones? As Manlobbi likes to see more than just naked ticker symbols posted I give it a try and post my assumptions for yearly revenue growth and operating margin for the next 5 years, the numbers which decide over the profit then. That in turn says what multiple of that profit in 5 years you have to pay now (IV5: as lower as better).

The ones I 'trust' longterm (though Alibaba is a very special case*)
Alibaba: Growth 20%, operating margin 30% => IV5 = 2.5
Meta: Market cap $313B, Revenue $118B, Growth 20%, op.margin 35% => IV5 = 3.0x
Carmax: Market cap $9.5B, Revenue $33B, Growth 10%, op.margin 6% => IV5 = 3.0x
Verizon: Market cap $161B, Revenue $135B, Growth 4%, op.margin 15 => IV5 = 6.5x
Google: Market cap $1160B, Revenue $282B, Growth 20%, op.margin 25 => IV5 = 6.6x
Markel: Market cap $16B, Revenue $12B, Growth 10%, op.margin 10 => IV5 = 8.3x
BRK: Market cap $675B, Revenue $276B, Growth 11%, op.margin 15 => IV5 = 9.7x

More speculative (wildly varying growth & margin numbers over the last 10+ years, so that assumptions for both are highly speculative), more in hope of a rebound, I might add a little of those:
American Airlines: Market cap $8.3B, Revenue $42B, Growth 5%, op.margin 7 => IV5 = 2.2x
VW: Market cap $70B, Revenue $281B, Growth 5%, op.margin 7 => IV5 = 2.8x

(*To buy that one is difficult for me, for several non-financial reasons: remains to be seen)

I second '38Packard's comment on ChatGPT. That's not from any personal knowledge but based on an email a 'tech savvy' friend shared last week. He linked the following youtube on the subject:

https://www.youtube.com/watch?v=V2RoqUr0qDU

And included the following comment'

Google has issued a 'code red' over the rise of the AI bot ChatGPT, The New York Times reported.

I'm certainly no expert, but I can see how this could be a threat to Google.

The thread is good, but this 'thread within the thread' about Google and Chat GPT has a few posts already on the Google board.
http://www.digitalscores.com/MB?bid=9

- Manlobbi

We are somewhat heavily concentrated in Berkshire...about 30% of net worth and 45% of investable assests. It's the only individual equity we own (to any significant degree, that is). Other stuff includes VTI and VXUS that I'm happy to keep our 403b which is invested in a target date fund.

Very similar here. Not interested in more insurance, though. Recently finished getting out of Markel.

Equal weight funds like RSP and QQQE have been recommended as being less risky and possibly better performing than the cap weighted funds like VTI and VXUS.

I liked the idea promoted by Greenblatt in his seldom read book 'The Big Secret for the Small Investor' - that of value-weighted 'index' ETFs. Greenblatt took his sweet time coming out with one, GSPY:

https://www.gothametfs.com/gspy

The 0.5% expense ratio is a bit much, though it is starting to build meaningful assets.

I like the recently introduced Avantis ETFs AVLV, AVIV, AVUV and AVDV.

https://www.avantisinvestors.com/avantis-investmen...

They are all value-weighted ETFs. Avantis use profitability measures as well as the usual low price to book measures.
Apple is the 6th largest holding in the Large Cap Value ETF AVLV.

One random thought:

It is *extraordinarily* difficult to pick a stock that will be a long run outperformer with high reliability.
Including reliability of the future outperformance, reliability of the firm (Rule #1), and reliability of the conclusion.
I no longer think I can do it.

For that reason, there are no easy substitutes for Berkshire as large capilal allocation choices.

Sure, I think there is a good case to be made for a few firms. But doesn't every firm have a case for it?

Perhaps the best way to have another leg on the stool is to add a shotgun approach rather than another 'rifle' pick or few picks.

I mean the sort of thing I suggest from time to time: Pick a random slate of 20-30 companies with good statistical properties.
One of my favourite combinations is high ROE and decent sales growth.
Replace each position every 1-3 years if it no longer meets the cutoff criteria you used at the beginning.
(periodically reconstituting the portfolio is critically important for 'shotgun' investing, for long boring reasons)

A typical strategy might go like this:
* Start with the list of Value Line stocks. They are mostly decently big and plausible picks.
* Of those, find the 40 with the highest reported [recent annual] return on shareholders' equity
* Of those, buy equal dollar amounts of the 20 stocks with the highest reported 5 year rate of growth of revenue per share
* Hold for a while, maybe 1-12 months. 6 is good.
* Repeat. Replace any stocks that no longer meet the same criteria.

Though it will never work as well as it did in a test, reconstituting every 6 months, this would have beat the S&P by 7-8% a year 1986 to date.
If you managed a 2%/year advantage in real life over a long period, it would be well worth the effort.

Not that this is the magic solution. The idea is merely that achieving the level of
(a) very low risk of large permanent capital loss with
(b) quite high chance of outperforming a cap weight index and extremely low chance of material underperformance
...is perhaps (perhaps) best accomplished with a slate of firms, not a few hand picked ones.

I try to remind myself: if you look in the mirror and don't see Warren Buffett, don't invest as if you did.

Jim

>> a shotgun approach rather than another 'rifle' pick or few picks. <<
What's next, Jim? Buy the index, sleep well, get rich slowly? :-)

(Don't reply: I just couldn't resist: Manlobbi tries to get us to post real content, a very noble goal indeed, and I tried to do my best --- but sometimes having just a little fun is ok too I think.)

'Pick a random slate of 20-30 companies with good statistical properties.'

As you and others have shown, this is a very good investment approach. The top stocks as ranked by the given criteria have high returns, and the returns of the deciles as ranked by the given criteria fall smoothly in line. I uploaded a graph of the returns by decile for the Magic Formula to the Motley Fool Berkshire board to illustrate this point. As I understand it, criteria that work well include profitability (e.g., one-year or five year average ROA and ROE), growth (revenue per share or earnings per share) and valuation (earnings yield or free cash flow yield). The graph illustrates the importance of selecting the top few percent of stocks as ranked by the chosen criteria.

Could you please give us an estimate of the turnover in the example you chose, top one-year ROE and 5-year sales growth, reconstituted semi-annually? I have a bias for low turnover. Thank you, mungofitch.

I still can't resist cherry picking from the top stocks as ranked by the given criteria, even though you and James Montier (Painting by numbers- an ode to quant) have told me that doing so reduces performance. If I have a list of the top, say, 30 stocks as ranked by the given criteria, how much can I hurt my return by leaving out five based on some personal bias? Probably performance is reduced by a significant amount if I leave out, say, tobacco stocks, but I do so anyway.

Nice post Jim, and I could not agree more.

Jim,

Could you please post the current list of 20 highest ROE + Sales Growth?

I won't attempt to buy all and reconstitute every 6 months.

But it would be a good starting point to research further and select 2-3 for purchase and hold longer term.

Thanks.
rnam

From reading this board and its predecessor, the names I keep coming back to are Brookfield (BN and BAM) and Markel. Would these be as good as any for what I want to do?

The reason these names keep coming up in relation to Berkshire is a degrees-of-separation thing. Markel's co-CEO and longtime chief investment officer, Tom Gayner, is explicitly a Warren Buffett disciple. For years, they've held an annual brunch for investors in Omaha on the heels of Berkshire's annual meeting.

A number of companies used to be identified as mini-Berkshires. Leucadia was one, before it got taken out by Jefferies, an investment bank. Fairfax was another, but Prem Watsa's high-concentration bets seemed to diverge from Rule No. 1. Markel is maybe the lone survivor in the category because Gayner continues to emulate Berkshire on a much smaller scale.

The one thing that distinguishes them is the number of names in the equity portfolio. Markel holds more than 100 names consistently. Berkshire is the only holding that exceeds 10%. It is more like a mutual fund than Berkshire's equity portfolio, particularly before Ted and Todd extended the list with (relatively) minor investments. It is difficult to imagine any single Markel holding providing the enormous gains Berkshire has earned from Coke or American Express or Apple.

BAM is two degrees away with Gayner as the connector. It is Markel's second-largest holding and Gayner has often said he likes that they apply a value sensibility to a global investment operation. Once or twice a year someone will call it the Berkshire of Canada.

Brookfield is only just beginning to emulate Berkshire in one important way: It is launching an insurance operation. Unlike traditional property and casualty insurance, or Markel's specialty insurance, Brookfield envisions basically a conservative arbitrage play in which it takes on annuity and annuity-like obligations, covers them with predictable income streams from its utility-like infrastructure, renewable energy, credit and real estate portfolios, and pockets the difference.

Unlike Berkshire, it has a rapidly-growing business investing other people's money in exchange for fees, a business that has thrived during a decade of record-low interest rates. How the future treats such private equity businesses generally is apparently in some doubt, as Mr. Market's treatment of alternative asset managers generally currently suggests.

I own them both and have confidence in both management teams. They resemble Berkshire in terms of the value sensibility at the top, but they are distinct in important ways. Berkshire, as readers of this board know well, is unique.

Unlike Berkshire, it (BAM) has a rapidly-growing business investing other people's money in exchange for fees, a business that has thrived during a decade of record-low interest rates. How the future treats such private equity businesses generally is apparently in some doubt, as Mr. Market's treatment of alternative asset managers generally currently suggests.

There are several things I like about Brookfield compared with BAM.

o It is truly international having operating organizations in several countries outside of the USA. That broadens the opportunities.

o I has the demonstrated capabilities to buy a distressed business/property, turn it around, and sell it for a profit. And it's willing to do so as opposed to BRK's 'buy forever' approach. Some of the BRK subs do have some of this capability, but nothing on the scale of Brookfield.

o It is also widely diversified if you buy the package. And it's also big and strong, having demonstrated this over decades. Not an advantage vs BRK, but not a disadvantage.

o It taps a huge source of funds - pensions and institutions. While not as low cost as BRK's earnings and low/no low cost float, it is probably larger and more controllable. They can choose how much they bite off to chew. And rinse and repeat. Plus they add leverage by being partially public in the subs.

o The 'fee management' recent reorganization provides a low capital intensity, good margin, fee flow not unlike, say, Google. Expanding, you can pick and choose which segments most interest you. With BRK you buy the package.

o Both managements have a big chunk of their net worth in the company.

********

Now I'm not talking about which is the better buy right now. And BAM & subs are certainly more complex to value than BRK. Also harder to understand, with a seemingly long term suspicion that the management manipulates the numbers to their benefit. Yet they've delivered very good returns to their investors for decades.

I'm just suggesting to look at what differentiates them in looking for alternate investments to BRK.

Not a well crafted post I fear - more a stream of consciousness of things I've thought about BAM over the years. I missed a damn good opportunity a few years ago to switch funds from BRK to BAM. But I was more concerned about some health issues than investing - and the fleeting opportunity passed and hasn't repeated.

Is that on our list of screens? It looks like a decent strategy. Much better than the screens that buy 3 stocks.

Brookfield Corporation (BN) indeed has a few higher level attributes in common with Berkshire, which makes it relevant for this thread:
1. Very capital-compounding-oriented with long-term planning. Brookfield did exceptionally well through 2009 and 2020 regarding the business itself which has no relation to the temporary changes to the public quotes (there are good reasons for this economic robustness, but it would make this post really long and I'm making a different point, last paragraph).
2. Analogous to Berkshire having a compounding book which is boosted (risk-free leveraged) by Berkshire's off-balance-sheet float. In the case of Brookfield Corporation, the 'float analogy' is its fee earnings which have also traditionally been not marked on the books, but providing a *lot* of extra income in addition to the per-share increases in the book value from annually rising rents, asset quality improvements, and sales of mature assets (on average as a hindsight-observation, these sales have been ~10% above the marked book value).
3. Very scalable (relates to 1). Deals improve as they become larger, because of an increasing lack of competition for (a very long run-way of) gigantic public property sales.

Despite this being interesting enough to Berkshire investors to be only semi-OT on the Berkshire Board, definitely don't let that cause you to miss out on the really insightful posts on the Brookfield Corporation board:
http://www.digitalscores.com/MB?bid=8

- Manlobbi

As a Berkshire owner for 23 years, I've developed a pretty good sense for assessing price vs. value. I've had good success buying on the cheap and selling when high. I have very little confidence in my ability to do this with anything other than Berkshire. So even if I conclude that a company is likely to be solid over the long haul, I'm a bit blind as to entry point. The longer I hold, the less entry point matters. But still....this makes me wonder whether, in my case, I should just stick with Berkshire.

As a Berkshire owner for 23 years, I've developed a pretty good sense for assessing price vs. value. I've had good success buying on the cheap and selling when high. I have very little confidence in my ability to do this with anything other than Berkshire. So even if I conclude that a company is likely to be solid over the long haul, I'm a bit blind as to entry point. The longer I hold, the less entry point matters. But still....this makes me wonder whether, in my case, I should just stick with Berkshire.

Same here! Except for the selling part. Haven't done much of that yet.

I first bought Berkshire 1/5/99. No idea what I was doing, but it worked out:

https://stockcharts.com/freecharts/perf.php?SPY,BR...

I've bought many times along the way, so it's hard to say how I did against SPY.
Probably done a bit better and haven't had to pay any taxes, yet.

I'm sticking with Berkshire in taxable. Intend to diversify in tax-deferred.

If I have a list of the top, say, 30 stocks as ranked by the given criteria, how much can I hurt my return by leaving out five based on some personal bias?

you'd be surprised : )

If you eliminate several from the slate at random, it is extremely unlikely to make a meaningful difference.
But if you pick them judiciously, it can hurt an amazing amount. Maybe.
Murphy's law for quant investing: the ones you eliminate are the ones that will do best.
Apparent junk has a habit of popping when you least expect it.

Certainly a quant slate can be useful simply to generate ideas for further research, if your intent is to research a firm deeply and make a 'rifle' type investment.
A biggish position you know and trust well, on the punch ticket theory.
There is nothing wrong with using ANY method to generate lists of firms to read about. Stealing ideas is probably the best method.
But this is the situation where you really study and understand the firm before investing.

At the other extreme, investing in a quant slate can make good sense, as Mr Graham noted on many occasions.
Think of an entire slate of stocks as you would any single 'punch ticket' stock.
Spend the same amount of time studying the quant technique that you would spend studying a single 'punch ticket' stock.
And think of it correspondingly as a comparable portfolio allocation.

But...the middle ground can be tricky.
A little stock analysis, like a little knowledge, can be a dangerous thing : )
The only thing I do in this regard is eliminating a few categories of stocks entirely.
For example, Chinese domiciled ones.

FWIW, I believe these would be the current picks, in descending order of reported rate of growth of sales per share.
LNG CQP KLAC LPX IT MA ABBV AAPL BX IDXX
CDW SHW SMG CAH MCO WAT DVA SPGI TPX AMGN

Note, the method I tested uses data fields that are updated only annually. That's one of the reasons the turnover is so low.
Thus it's likely that some of these stocks do not have good ROE or good sales growth at the moment.
This is on purpose...the key thing is that it reproduces the same 'warts and all' data source that I tested (with hindsight!) over the last 37 years.

It's interesting to see several Berkshire holdings in there.
Apple of course, but also Mastercard, Moody's, and Davita.

Regarding the turnover, if you reconstitute the portfolio every six months, you'd trade about 6.5 of your 20 stocks each time on average.
I suspect many would stay on the list for years at a time.


There is one minor flaw with this screen: I think it would be useful to include those firm with positive earnings but negative reported ROE because of negative shareholders' equity.
These typically get reported as firms with a negative ROE, but from an investment point of view it's more like an infinite ROE.
They need no net assets at all to produce their earnings: the perfect company, in that one way.
Some really fine firms fall into this category, and they perform well on average, but they get eliminated from the screen as described above.
Ideally I would do it like this:
First, for firms with regular positive earnings and negative equity I'd assign a notional high ROE of something like 100%.
Then sort all firms on high ROE, a mix of real ones and notional ones.
Some recent 'positive earnings, negative equity' picks might be:
SNBR SBGI DPZ SIRI NSP ORLY MSCI COMM MCK HLF LOW VMW SBUX TDG AZO

Jim

London stock exchange listed Rightmove RMV.L is another exceptionally good looking business if you look at ROE, profit margins and market share. Absolutely does not require capital to grow.

92% share of U.K. property listing. Big network effects. Estate agents hate it and see it as price gouging but have to use it, as it's the portal used by consumers. If selling a property at hundreds of thousands you don't pick the second best portal.

They are buying back shares and paying dividends and may be a bit of a cash cow rather than a fast grower. But they have pricing power and new products* that can drive growth.

*landlord tools functionality (leases, deposits etc)

I have a small opening position.

Perhaps fairly valued currently but could get cheaper if housing in the U.K. has a hard landing. Which could happen given U.K. post Brexit headwinds and the fact a big percentage of mortgages are variable rate or short term fixes about to reprice from e.g. 1.5% to 6%.

At 20 times earnings this can get cheaper. Could be one to pick up if that happens and hold for 20 years. Munger sit on your ass type investing.

Fx an important factor of you don't live in the U.K. as I do. Hard to say which currencies are worse in the long term.

Sustainability. Has been around for 20 years. Maybe not as safe as a Berkshire Hathaway or Apple. I suppose one of the big tech firm could develop a better system and push them out. Not sure. Hasn't happened yet.

### if you have any thoughts on Rightmove please share. ###

I'm 90% Berkshire and only have other investments for sport really. On balance I would have done better has I been 100% Berkshire. I do enjoy watching and following other good businesses. If I don't have some skin in the game I have no interest. Whether that is financially wise I don't know.

I've actually built a screen for this in Fidelity's screener. Takes about 30 minutes to vet up a good list of candidates as a 'screen of screens'.

Like most things in the stock market this year, it did not have a good year outside of energy stocks, like TPL. Most trades were negative, I stopped out of several at @8% down.

One year doesn't make or break a screen/strategy. User errors:
* buying any individual stocks in a bear market (defined by tracked indicators). My FOMO on a bottom got in the way of my eyes.
* Trading monthly (HTD20). I missed the 6 month hold guideline in a early 2021 post by Mungo. Although, there wasn't much turnover in the top stocks month to month.

I also modified it a bit because Fidelity does (now) have TTM rev growth and most recent QoQ revenue growth in addition to the fiscal year #.

It's identified some really profitable and growing companies, like BLDR, ROAD, TPL &c. It also comes across some somewhat sketchy small caps and several MLPs that just shouldn't be held in a taxable account.

Welcome (back) here, Mungo.
FC

FWIW, I believe these would be the current picks, in descending order of reported rate of growth of sales per share.
LNG CQP KLAC LPX IT MA ABBV AAPL BX IDXX
CDW SHW SMG CAH MCO WAT DVA SPGI TPX AMGN

I tried duplicating this using the library edition of the Value Line screener available to me.
4/20 stocks in common. One problem is, if there's no data for the current year it doesn't show in the results.
Apple had no number for '% Return on Shareholder's Equity' for 2022, so does not make the list.

Someone trying to do a screen like this has to be sure of their data.

Flying Circus,

If you get a free moment, could you just list a brief list of steps,1.2.3.4.5, etc, that helped you arrive at your final screen? I use Fidelity a lot, and am playing around a bit with their screens...I just want to make sure I'm inputting the correct filters. ROE, sales growth, etc. Many thx in advance....

Actually, I'd like to hear from AdrianC again. He alluded to Avantis, which has an expense ratio of .15...performs similar screens without all the work. Can you elaborate a bit more on this AdrianC if you're up on this board? Probably more disciplined that I might be, and avoids the temptation to dump apparent losers prematurely without adhering to the random nature of the sort, which Jim rightly pointed out.

I encountered the same issue.
For filters, I selected Stocks with Timeliness value (1-5)
and % RETURN ON SHAREHOLDER'S EQUITY between 57.3 and 3,037 in order to get the top 40.

The results only include MA, SHW, CAH, MCO from the above list.

Actually, I'd like to hear from AdrianC again. He alluded to Avantis, which has an expense ratio of .15...performs similar screens without all the work. Can you elaborate a bit more on this AdrianC if you're up on this board? Probably more disciplined that I might be, and avoids the temptation to dump apparent losers prematurely without adhering to the random nature of the sort, which Jim rightly pointed out.

That was my comment on the other board re Magic Formula:

https://www.magicformulainvesting.com/Home/Faqs

'I believe it [Magic Formula] is not well regarded in the mechanical investing community - they could not duplicate Greenblatt's published results.

Still, the theory is sound - buy a slate of stocks with quality (high ROA) and value (Low PE) characteristics. It ought to give reasonable results, if you can stick with the inevitable tracking error versus the index.

Too much work for me. Avantis will do it for me for 15 bps.'

That was a reference to this:

Avantis U.S. Large Cap Value ETF
https://www.avantisinvestors.com/avantis-investmen...

Avantis: Invests in a broad set of U.S. large-cap companies and is designed to increase expected returns by focusing on firms trading at what we believe are low valuations with higher profitability ratios.

Note, it is not a classic low price to book large cap value fund. They got their secret sauce...maybe.
Interestingly, Berkshire does not appear, whereas in the Vanguard large cap value index, more of a low price to book fund, Berkshire is the top holding.

Perhaps more comparable to Magic Formula would be this (0.25bps):

Avantis U.S. Small Cap Value ETF
https://www.avantisinvestors.com/avantis-investmen...

These are probably too Boglehead/Ben Felix to gain much interest here.

'FWIW, I believe these would be the current picks, in descending order of reported rate of growth of sales per share.
LNG CQP KLAC LPX IT MA ABBV AAPL BX IDXX
CDW SHW SMG CAH MCO WAT DVA SPGI TPX AMGN'

Here's what I get from a similar screen, using Morningstar data:

criretia, total number of companies passing screen

US stocks, 9162
plus Market cap > $12B, 505
plus ROE in years 1,2,3 &4 > 30, 49
plus 3-year revenue growth > 8%, 23

Companies passing screen, in descending order of market cap:

Apple, Microsoft, Visa, Eli Lilly, Mastercard, UPS, Qualcomm, SP Global, Applied Materials, Zoetis Inc, Lam Research, KLA Corp, O'Reilly Automotive, Moody's, Mettler-Toledo (not US), Cheniere Energy, Tractor Supply Corp, T.Rowe Price, CDW Corp, Texas Pacific Land Corp, LPL Financial Holdings, FactSet Research Systems, Aspen Technology

Would you mind sharing how you did this on Fidelity?

Jim's original recommendation on TMF was starting with the ValueLine 1700,
but i wasn't sure of the Fidelity equivalent.
I see where now there is a longer holding period, as before I thought it was quarterly
rebalance.

Thanks

A typical strategy might go like this:
* Start with the list of Value Line stocks. They are mostly decently big and plausible picks.
* Of those, find the 40 with the highest reported [recent annual] return on shareholders' equity
* Of those, buy equal dollar amounts of the 20 stocks with the highest reported 5 year rate of growth of revenue per share
* Hold for a while, maybe 1-12 months. 6 is good.
* Repeat. Replace any stocks that no longer meet the same criteria.

My only issue with these is that the whole world can see the the high sales growth and high roe. Wouldn't you end up with a lot of high pe stocks?

Maybe another step, screening for low p/e would be helpful.

Thank you AdrianC for taking the time to post. Good stuff and many thx. Happy New Year!

'I believe it [Magic Formula] is not well regarded in the mechanical investing community - they could not duplicate Greenblatt's published results.

Still, the theory is sound - buy a slate of stocks with quality (high ROA) and value (Low PE) characteristics. It ought to give reasonable results, if you can stick with the inevitable tracking error versus the index.

Too much work for me. Avantis will do it for me for 15 bps.'

That was a reference to this:

Avantis U.S. Large Cap Value ETF
https://www.avantisinvestors.com/avantis-investmen...

I've experimented a little with adding a momentum component to a universe of value stocks. Using your favorite value or low volatility ETF of choice (like the Advantis one referenced above, or my personal favorite Franklin Low Volatility High Dividend (symbol LVHD), go to the home page of the fund, scroll down to the link to download the portfolio holdings into a spreadsheet. Add a column to pull a one year return for each holding and then buy the top 15. Rinse and repeat every month. I haven't formally backtested this, but I do like the stocks that it pulls. Current picks using the LVHD ETF are:

LMT
CPB
GIS
ABBV
GILD
SJM
DTM
ED
PCAR
OMC
CMI
K
UBSI
PNW
GLPI

Cathy

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