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.
More reading (in Dutch)
If your language is Dutch have a look at my 2 books on investing here, where you can also find a free download of most of the contents of my first book.
I recently found this substack and I am thoroughly enjoying as I have a slightly similar investment strategy. Keep up the great content!
Mr. Heeg, thank you very much for the Turning Rough Stones substack. I understand that each of the stocks profiled here are risky but, that, on a statistical basis, as a collective, they should do well in the long run.
From your experience with your newsletter on Seeking Alpha, as well as your experience from your personal portfolio and taking into account factors such as bid/ask spreads, slippage, etc.., what type of yearly return do you think is likely with the types of stocks that are profiled in this substack?
Also, for the types of stocks profiled in this substack, for your own trading, do you typically use a market order, a limit order, a combination or something else? For example, Mason Group Holdings is now trading at 0.026 HKD. If you wanted to purchase it, would you enter a market order, an order to purchase it only below, say, 0.027 HKD over the next week, etc,....
Thanks,
IF