7/08/2012

Quest for New Value Investing Knowledge through Data Minining

A recent goal given the precarious market conditions is to think about potential new approaches to increase short term expected returns to support a longer term value portfolio based on commonly available under appreciated metrics. One potential area for opportunity may be with short term company specific stock demand driven by a growing outsized shorts as a percentage of float coupled with strong balance sheet, flat to rising sales, improved valuation versus historical measures and a stock price crushed by the market. Since some of the stock candidates have a strong financial position these shorts may soon feel the need to begin realizing some of their profits. If the miscalculated risk opportunity exists it may not exist for long. This situation may have company and industry specific head winds but the overreaction on the downside may present a short term buying opportunity based on the growing odds of attracting new buyers in the short term to balance out the overreaction to perceived risk not supported by fundamentals. Hence as value heretics ( given our short term focus :) )we want protection against the worst case scenario forcing us to have an eye on the balance sheet. So over the next let's say 1 - 12 months there is little chance of a blowup as the process plays out in a hopefully short term win. Part of my thought was the growing probability for short term stock demand that would be far greater than near term selling pressure. Possible specific stock demand increase could come from tired or uncertain shorts covering based on profit taking,  insider buying, less than expected negative news, contrarian/deep value investors being attracted to the large price drop/overreaction and outsized improved current versus historical valuation. For some of these ideas the sound financial position gives us the extra short term downside protection to play out this process. But in some cases we may want further downside protection by including other factors overlooked by sellers of the stock. And in other ideas the main attraction may be more of pure mean reversion with less supporting balance sheet protection.

June 2, 2012 I posted an article on gurufocus.com called "value investing heresy"

Those quickly selected 5 stocks in "Value Investing Heresy, OSTK, KRO,RSH,HTCH,NPK: Click for quotes need further explanation.
Price on Post Date
KRO : $15.79

OSTK:$ 6.91

RSH: $3.84

HTCH: $1.46

NPK:$69.77


Table from "Value Investing Heresy"  posted on Gurufocus.com  on 07/02/12










This post will be finished tomorrow along with other ideas that fall within the thesis  of this post.

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