What is Turning Rough Stones?

Turning Rough Stones provides analysis on very cheap stocks. I find these stocks using several quantitative algorithms. In particular, I look for low EV/EBIT stocks, cheap stocks with smooth momentum, cheap nanocaps, net-nets, falling knives and 5-year lows.

My research consists of looking up basic facts about such stocks. I do this for many stocks. I call it ‘turning stones’. Though on average such stocks have great returns many investors do not like them. Often they have issues with corporate governance or issues with their long term business model. Instead of ‘shiny gems’ I call them ‘rough stones’.

What can you do with my research?

My picks are similar to the famous Magic Formula stocks of Joel Greenblatt. They do not work always but in the long run they have great returns. That is just on a statistical basis. However, I do not just provide company names, but also research.

With my research I try to find out whether there are good reasons for avoiding a stock, despite having great multiples and other statistics. Yes, computer programs are much better than humans when it comes to finding cheap stocks or momentum stocks. However, computer programs are not good at identifying stocks with lots of financial distress, fraud or other governance excesses.

Furthermore, computer programs usually get it wrong when there is a big event after the last reporting date. For example, right issues and special dividends. Although I do not find such issues often they can make a big difference for (risk adjusted) returns.

So, you could buy each stock discussed here that I have not advised against and sell it after a year. Use small positions since statistical investing is different from investing in high conviction ideas. That way, your returns will be great, at least in the long run, almost certainly better than those of Magic Formula investors.

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