hackers guide to investing

Hackers Guide To Investing

Mark Carter

April 2013

Contents

1 Booting up 7

1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2 Greenblatt’s “Genius” book 9

2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

3 Greenblatt’s “Magic” book 13

3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

3.2 Notes on Data Sources . . . . . . . . . . . . . . . . . . . . . . 13

3.3 Specimen Accounts . . . . . . . . . . . . . . . . . . . . . . . . 14

3.4 Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

3.4.1 EBIT: Earnings before Interest and Tax . . . . . . . . 15

3.4.2 TACE: Tangible Capital Employed . . . . . . . . . . . 17

3.4.3 NCASH: Net Cash . . . . . . . . . . . . . . . . . . . . 18

3.4.4 EV: Enterprise Value . . . . . . . . . . . . . . . . . . . 19

3.4.5 ROC: Return On Capital . . . . . . . . . . . . . . . . . 19

3.4.6 UEY: Unleveraged Earnings Yield . . . . . . . . . . . . 19

3.5 SharelockHolmes calculations . . . . . . . . . . . . . . . . . . 20

3.6 Critiques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

4 Return on Capital 23

3

4 CONTENTS

4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

4.2 ROITA - Return On Invested Tangible Assets . . . . . . . . . 23

4.3 Expected Performance . . . . . . . . . . . . . . . . . . . . . . 24

5 Metrics 27

5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

5.2 FCFY - Free Cash Flow Yield . . . . . . . . . . . . . . . . . . 27

6 Shutdown 29

6.1 Colophon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

List of Tables

3.1 Profit and Loss Account for BSY (BSkyB) for 12 m/e 30 June2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

3.2 P&L presented by Digital Look - reconciliation . . . . . . . . . 15

3.3 Balance Sheet - source: Digital Look . . . . . . . . . . . . . . 16

3.4 TACE calculation for BSY . . . . . . . . . . . . . . . . . . . . 17

5

6 LIST OF TABLES

Chapter 1

Booting up

1.1 Introduction

My email address is [email protected]. Please contact me if youhave suggestions or corrections to make.

This book is called “Hackers Guide To Investing” for the following reasons:

• I am a geek, and I wanted a way to write out and clarify my ownthought processes, as much for the benefit of myself as to others.

• The title of the book was inspired by John Walker’s “Hacker’s Diet”[10], inventor of the hugely successful AutoCad.

• This book is very much an ongoing and evolving work, in true hackerstyle. “Release early. Release often”, as Eric S. Raymond would say.

7

8 CHAPTER 1. BOOTING UP

Chapter 2

Greenblatt’s “Genius” book

2.1 Introduction

This chapter is an exploration of Greenblatt’s book “You Can be a StockMarket Genius”, also known as “The Great Book with a Terrible Title”.Hereinafter, I shall refer to it as the “Genius” book.

Eventdriven sums up the general strategy of the book in the following poston Motley Fool [1]:

Terrible name, but an amazing playbook on event-driven invest-ing. He actually said in a later book that he regrets writing it as”it was a little advanced for the complete novice investor, it justmade a some hedge fund managers a lot of money”. I couldn’tagree more.

The concept of investing in spin-offs is actually a use of his ”magicformula investing” strategy. That’s essentially a formula thatassesses a company on 2 basic things: the company’s historicreturn on capital; and the trailing p/e (strictly the EV/EBIT butP/E works). Assuming you pick companies with an above-averageRoA and a below average p/e you’ll find that the portfolio ofstocks will significantly beat the market portfolio (for the specificsread the book The Little Book that Beats the Market).

There’s ususally forced selling by large funds that can’t or won’thold the new spin-off company (as they are just given shares in thenew company), often because it’s too small so breaks size limitson their fund. Other times, investors don’t even look at it (e.g.

9

10 CHAPTER 2. GREENBLATT’S “GENIUS” BOOK

CWC having too much debt) so sell off the new shares withouteven bothering to do any research. This is all selling pressureforcing the price down that is not related to fundamental investingreasons. This indiscrimate selling is know as a ”technical”, causedby excess supply of shares in the market.

This indiscrimate selling technical is what creates the low P/E sit-uation. As the company doesn’t yet have published data on datasystems (like Bloomberg or Reuters), most people don’t knowwhat the true P/E or P/book is as most people don’t systemat-ically run through the filing documents of spin-offs to check outproforma accounts, if the data’s not on a screen somewhere, itgets ignored as it doesn’t show up in any screens. This is whyit’s so great - if you do a little bit of work (get the accounts fromthe listing document, usually on the spin-off or parent company’swebsite), and work out the return on capital for the last year anddiscover it’s high, it’s potentially a high quality company (withthe high RoC indicating that it has some sort of barriers to entry,or ”moat” in buffet terminology, like a brand or particular prod-uct edge). So if you find a high RoA and low P/E spin-off, you’rein a fortunate position as a) you’re one of the few people that’sdone the work; and b) there’s selling pressure for non-investingreasons that might be forcing the price down low enough to createa bargain opportunity; c) the data eventually feeds into the datasystems like Reuters and institutional investors suddenly startliking the stock. This often creates decent short term gains (over6-12 months).

The idea is to hold them sell dodgier spin-offs after the misvalu-ation corrects itself (anything from a few weeks to a a [sic] year).For the better businesses with a true ’moat’, these become nicelong term positions you bought at a bargain price once-upon-a-time. Also look for situation where mgmt are being awardedsignificant stock options in the new business. This is great, asit’s one of those times where the animal spirits of free enter-prise work great. Mgmt no longer shares in the equity of someslow-moving lumbering corporate parent but are now directly in-centivised in stock of the spin-off - their actions are now creatingvalue for both themselves and other shareholders like you. This isa great motivator to get management to deliver on a turnaroundplan or deleveraging from high debt burdens or any other storythat involves maximising the share price. This is whey they usu-

2.1. INTRODUCTION 11

ally outperform in years 2 and 3, as management’s plan of attackstarts driving the fundamentals / profitability of the spin-off. I’veprobably averaged around 40% pa on average for of these posi-tions I’ve held. They’re unlikely to be all your positions, but theyput a great kicker in there for any portfolio.

12 CHAPTER 2. GREENBLATT’S “GENIUS” BOOK

Chapter 3

Greenblatt’s “Magic” book

3.1 Introduction

This chapter focuses on Joel Greenblatt’s book, “The Little Book That BeatsThe Market” [5], hereinafter referred to as the “Magic” book, because itexpounds Greenblatt’s “Magic Formula Investing” strategy.

The basis for the book is to buy companies that are “good and cheap”.“Good” is measured by a high ROC (Return on Capital), and “cheap” ismeasured buy a high UEY (Unleveraged Earnings Yield). Greenblatt hasstated that the Magic Formula is not suitable for use on utility or financialstocks.

Joel Greenblatt’s book, “The Little Book That Beats The Market” [5],containsinformation about his “Magic Formula”. Unfortunately, some of the nitty-gritty details were omitted, and this guide is an attempt to spellthem out.I provide MY INTERPRETATION of his calculations. I cannot vouch thatthey are, indeed, the ones he actually uses.

3.2 Notes on Data Sources

In this section, I present some things to watch out for from various datasources on the web. The watchword appears to be that nearly all sourceshave some problems somewhere along the lines, so you may find it safest tolook at the accounts yourself.

13

14 CHAPTER 3. GREENBLATT’S “MAGIC” BOOK

MSN Moneycentral:

• EBIT can be wrong. For example, in BSY for y/e Jun 2011, EBIT wasreported as being ‘Profit Before Tax, having aggregated such items asfinance costs. This is wrong.

3.3 Specimen Accounts

Table 3.1: Profit and Loss Account for BSY (BSkyB) for 12 m/e 30 June2011

Description Amount CodeRevenue 6597 REVOperating Expenses -5524EBITDA 1405Depreciation and Amortisation -332Operating profit 1073 OPNShare of joint ventures 34 JVInvestment Income 9Finance costs - 111Profit on Investment Disposal 9Profit before Tax 1014Tax -256Profit from continuing Operations 758Profit from discontinued operations 52Profit for year 810

We present extracts for BSY.L (BSkyB) accounts for 12 m/e 30 June 2011:

• Profit and Loss Account, as given in the financial statements (table3.1)

• Profit and Loss Account, as reported on the Digital Look website (table3.2)

• Balance Sheet, as reported on Digital Look (table 3.3)

3.4. CALCULATIONS 15

Table 3.2: P&L presented by Digital Look - reconciliationDescription Amount NotesRevenue 6597 SameOperating Profit 1073 SameNet Interest -102 = 9 (Inv Inc) -111Profit Before Tax 1014 SameDiscontinued Operating Profits After Tax 52 SameProfit for period 810 Same

3.4 Calculations

Our goal is to calculate ROC and UEY. In this section, I will show you howthis is done.

3.4.1 EBIT: Earnings before Interest and Tax

EBIT is operating earnings before interest and taxes. Greenblatt [5, p 139]justifies his use of EBIT as follows:

EBIT (or earnings before interest and taxes) was used in place ofreported earnings becasue companies operate with different levelsof debt and differing tax rates. Using operating earnings beforeinterest and taxes, or EBIT, allowed us to view and compare theoperating earnings of different companies without the distortionsarising from differences in tax rates and debt levels.

Greenblatt does not specify what to include and exclude from the calculationof EBIT, so I present a list of items to specifically include and exclude.

Include:

• Income from joint ventures

Exclude:

• Extraordinary items

• Investment Income

In our example from table 3.1, we obtain an EBIT of 1107 (1073 OPN + 34JV)


Table 3.3: Balance Sheet - source: Digital LookAssetsNon-Current AssetsProperty, Plant & Equipment 896.00Intangible Assets 1406.00Investment Properties n/aInvestments 366.00Other Financial Assets 275.00Other Non-Current Assets 82.00

3025.00

Current AssetsInventories 375.00Trade & Other Receivables 592.00Cash at Bank & in Hand 921.00Current Asset Investments n/aOther Current Assets 441.00

2329.00

Other Assets n/aTotal Assets 5354.00

LiabilitiesCurrent LiabilitiesBorrowings 8.00Other Current Liabilities 1904.00

1912.00

Non-Current LiabilitiesBorrowings 2325.00Provisions 9.00Other Non-Current Liabilities 73.00

2407.00

Other Liabilities n/aTotal Liabilities 4319.00

Net Assets 1035.00


3.4.2 TACE: Tangible Capital Employed

Greenblatt [5] defines TACE (Tangible Capital Employed) as Net WorkingCapital + Net Fixed Assets. He states that excess cash not needed to con-duct the business was excluded from the calculation of Net Working Capital.He was not specific about how to calculate “excess cash”. A search that Iconducted over the internet suggests that the cash required to run a businessmay vary from 3% to 10% of revenue, depending on the type of industry forthe company. For simplicity sake, I have therefore stripped out all cash, andadded back an assumed cash requirement of 5% of revenue. This seems themost logical approach. If you do that for BSY, you obtain a TACE of 1445(see table 3.4 for a breakdown of the values).

Table 3.4: TACE calculation for BSYTangible non-current assets 1619.00 (= 896 + 366 + 275 +82)Current Assets 2329.00Strip out Cash -921.00Working cash 330.00 5% * 6597 REVCurrent Liabilities -1912.00TACE 1445.00

Using the calculations from MFI Diary [7], the following line items that youmight see on Digital Look would seem to be included or excluded:


Line item Include?Components of Net Fixed AssetsNon-current assets:Property, plant, equip incIntangible assets excInvestment properties unkInvestments unkOther financial assets unkOther non-financial assets unk

Components of Net Working CapitalCurrent assets:Inventories incTrade and other receivables excCash and bank and in hand exc - use 5% of revenues insteadCurrent asset investments unkOther current assets incCurrent Liabilities:Borrowings excOther Current Liabilities inc

Notes:

1. ’inc’ means include in the calculation, ’exc’ means exclude, and ’unk’means that it is unknown what the correct treatment should be

2. All non-current liabilites are excluded.

3. Stockopedia [8] says that working cash should be considered as partof the capital employed. A ratio of 3% - 10% is normal. A blendedaverage of 5% might therefore be a suitable figure.

4. If Net Working Capital is negative, just use the value 0.

3.4.3 NCASH: Net Cash

The Digital Look website seems like a fairly reliable source for a company’sbalance sheet. NCASH is “net interest-bearing debt”, and is used to calculateEV (Enterprise Value). In our BSY example, the figure to use is -1412(calculation is done in table below.


Cash at bank/in hand 921.00Current borrowings -8.00Non-current borrowings -2325.00NCASH -1412.00

3.4.4 EV: Enterprise Value

EV is the market value of equity including preferred equity + net interest-bearing debt. i.e.

EV = MKT −NCASH (3.1)

where MKT is the market value of the equity. “Net interest-bearing debt”is the negative of NCASH.

On 6 August 2011, MKT was £11762m, based on a share price of 671p andthe number of shares in issue of 1752.84m. We there obtain EV = 13174(11762 - -1412)

3.4.5 ROC: Return On Capital

ROC is calculated as follows:

ROC = EBIT/TACE (3.2)

In our example, ROC = 76.6% (1107 / 1445).

3.4.6 UEY: Unleveraged Earnings Yield

UEY is calculated as follows:

UEY = EBIT/EV (3.3)

In our example, UEY = 8.4% (1107 / 13174).


3.5 SharelockHolmes calculations

In this section, we look at how SharelockHolmes performs its calculationsof ROC and UEY. We use Morrisons (MRW.L) for year-ended 31 January2011. Some general information it provides:

share price 284pmarket capitalisation 7365.5mnet debt -817.0interest -30.0profit before tax 874

Although preferred stock and minorites are not specified by SH (Sharelock-Holmes), they appear to be 0, according to the Digital Look website.

Here are extracts from the balance sheet, as supplied by SharelockHolmes:

Intangible Assets 184.0Tangible Assets 7,786.0Other Non-Current 41.0Non-Curr Assets 8,011.0

Inventory 638.0Receivables 268.0Cash 228.0Other Current 4.0Current Assets 1,138.0Current Liabilities -2,086.0Net Current Assets -948.0Non-Curr Liabilities -1,643.0

Retained Earnings 2,463.0Equity Funds 5,420.0

SH makes the definitions for Unleveraged Earnings Yield:

UEY = EBIT/EV (3.4)

where they specifically cite UEY as being applicable to the Greenblatt cal-culation. They define

EBIT = (PBT + Interest) (3.5)

where, of course, PBT is Profit Befor Tax. They define

EV = MKT + NDEBT + Preferred + Minorities (3.6)

3.6. CRITIQUES 21

where MKT is Total Market Capitalisation, and NDEBT is Net Debt. Theythen give the calculation for ROC as follows:

ROC = EBIT/TACE (3.7)

where Tangible Capital Employed is defined as:

TACE = NWC + TA (3.8)

where TA denotes Tangible Assets, and NWC is Net Working Capital, definedas:

NWC = Inventory + Receivables + WCASH − CL (3.9)

where WCASH denotes Working Cash, and CL denotes Current Liabilities.

Working with the above data, we obtain:

EBIT = 874 + 30 = 904 (3.10)

EV = 7364.5 + 817 = 8181.5 (3.11)

TACE = 7786 + 638 + 268 + 228 − 2086 = 6834 (3.12)

which leads to the final results:

UEY = 904/8181.5 = 11.05% (3.13)

ROC = 904/6834 = 13.2% (3.14)

These computed values for UEY and ROC agree exactly with Sharelock-Holmes.

3.6 Critiques

MFI is not without its critics and observations. In this section, we exploresome of those criticims.

In the thread “Stock Contest Ends” on magicformulainvesting Yahoo Group[9], Gray and Vogel, “Analyzing Valuation Measures: A Performance Horse-Race Over the Past 40 Years” [4] has the abstract:

We compare the investment performance of portfolios sorted ondifferent valuation measures. EBITDA/TEV has historically beenthe best performing metric and outperforms many investor fa-vorites such as price-to-earnings, free-cash-flow to total enterprise


value, and book-to-market. We also explore the investment po-tential of long-term valuation ratios, which replace one-year earn-ings with an average of long-term earnings. In contrast to priorempirical work, we find that long-term ratios add little investmentvalue over standard one-year valuation metrics.

An author [9] observed that (sales) growth is a stronger factor than prof-itability (ROA or ROE). Price (P/E) was the strongest factors in price, prof-itability and growth. Combining price and growth outperformed price andprofitability. Combining all three factors produced the best results. Anothersuggests:

The sales growth or the earnings growth must give better result,you can also check if earnings growth is greater than sales growth,so you can detect if you sale more but with less profits

You can also add a momentum signal: price greater than a quarterago.

So with the growth ratio you compare 2 years in the past. Youcan also check if the average eps expect for this year and nextyearare greater than last eps.

In another thread on Magic Formula Yahoo Group in 2012, a poster reported:

I think the ”problem” with the magic formula is that too manyof the stocks in the top 50 have a lot of ”hair” on them or areon the list when the past 12 months is a poor predictor of futurereturns.

Stocks that have fallen in these categories have included:

1. For profit eductation [sic] stocks (like STRA, COCO, CECO,APOL)

2. home health care (AMED, AFAM, )

3. Chinese RTOs (NEP, UTA etc)

4. Solar companies (PWER and GTAT) and

5. Bio-tech Pharmas ()

I suspect that is why JG has moved away from the individualstocks (even 25 to 30 gives a tremendous amount of volatilityand is now pushing his ”big secret”, which is much broader.

Chapter 4

Return on Capital

4.1 Introduction

In this section we explore ways of measuring returns on capital.

4.2 ROITA - Return On Invested Tangible

Assets

This section discusses ROITA. In “Free Cash Flow Isn’t Everything”, Gan-non [2] said that Warren Buffett is interested in a company’s return on nettangible assets, although it was unknown exactly how he calculates “unlever-aged return on tangible equity”. He reckons that

ROITA = EBIT/NTA (4.1)

where NTA is Net Tangible Assets calculated as:

NTA = (Receviables + Inventory + PPE) − (AP + AE) (4.2)

where PPE is net Property, Plant and Equipment (i.e. after depraciation),AP is Accounts Payable, and AE is Accrued Expenses.

Exclude: cash and equivalents, prepayments, goodwill, ‘other’ long termassets

Basically, you exclude non-interest bearing current assets/liabilities on thebasis that it does not cost the shareholders anything. Gannon used an average

23

24 CHAPTER 4. RETURN ON CAPITAL

of current and previous year’s balance sheet figures in the denominator of theequation.

Based on figures for 2012 for WMT (Walmart), and using figures from thebalance sheet for 2011 in order to create averages for NTA, we use ant EBITof $26.56bn and and NTA of $100.62bn you obtain a ROITA of 26.40%, whichis a pre-tax return. Assuming a tax rate of 35%, that would leave WMT witha normal return on unleveraged tangible equity of about 17%.

Gannon says that value investors overfocus on free cashflow. If a company canearn high ROITA, then it is better that it retain its earnings than distributethem as dividends. He offer the following thought experiment: let’s say thatan investor can earn a 10% return on his money, ignoring taxes. He thinksthat’s a stretch in 2012, though - the number is probably closer to 7%. Let’stake it as 10%, though. If a dollar in WMT’s pocket cannot compound morethan 15% a year, then it’s likely to be a poor investment. There is a lack ofa margin of safety. You know youself better than WMT, its past is probablybetter than its future, and net income probably overstates owner earnings.

Generally, if you are investing in a business for its profitable future growth,you want that future growth to be at least 150% of the annual growth youthink you could provide using the same money.

4.3 Expected Performance

This is not a formula used in finance, but a concoction devised by me. Socaveat emptor. Assuming that a share is fairly valued, then we might expectthe total return over a year, t, to be given by

t = y + e (4.3)

where y is the current yield on a share, and e is the growth in earnings.Technically we should be using forward yield, which is a multiplicative factoron the earnings growth, but I consider the assumption on additivity to beacceptable. The current yield is a known quantity. We assume that theearnings growth is a function of a capital return, r (for example the ROE ofa company), and the dividend cover, c. C is the ratio of earnings to dividends,and is a measure of the amount of earnings retained by the company, andpresumably ploughed back into expanding earnings. The earnings growthwould be:

e = r(1 − 1/c) (4.4)

4.3. EXPECTED PERFORMANCE 25

Putting this together:t = y + r(1 − 1/c) (4.5)

So, if a company had a yield of 5%, a ROE of 20%, and a dividend cover of2, then the expected return one year out would be:

t = 5 + 20(1 − 1/c) = 15% (4.6)

Furthermore, we might also expect the share price to exhibit a reversion tothe mean of its PE. Let us call that p. Then the expanded form for totalreturn becomes:

t = y + e + p (4.7)

As with yield and earnings expansion, the total return would be multiplica-tive with p, rather than additive. We keep with the simplifying assumption,which allows us to see the individual components of expected return.

In order to come up with a value for p, we assume that the current PE, p0returns to a normal PR, pn, exponentially over a period n. Thus

p = (pn/p0)1/n − 1 (4.8)

Thus, if a share is on a PE of 13, and a fair value might be 15, which isexpected to revert over a period of 2.5 years, then we would calculate:

p = (15/13)1/2.5 − 1 = 5.9% (4.9)

So we might expect an additional 5.9% uplift in share price performance inthe first year of the share price. The value of p0 is known, and pn shouldbe chosen sensibly. We might use an average of the PE that the stock hastraded for over the last decade, but a more sensible value would be 15 - thelong-term average PE of the market. Greenblatt reckons that stocks revertto fair value over a 2-3 year period, so choosing a value of n = 2.5 seemssensible.

Putting the above together:

t = y + r(1 − 1/c) + ((pn/p0)1/n − 1) (4.10)

Showing the components separately gives us the opportunity to examine thelikely contributions to share price performance. Below, I have tabulated somefigures for companies trading in the UK, using n = 2.5.

EPIC SP r c pn p0 y% e% p% t%BWNG 238 19.9 2.18 9.75 8.3 5.5 10.8 6.6 22.9MCRO 438 55.2 1.51 12.9 10.0 6.6 18.6 10.7 35.9SN. 592 20.8 4.37 15.0 12.3 1.9 16.0 8.2 26.1

26 CHAPTER 4. RETURN ON CAPITAL

The above figures were taken at 23-May-2012. SP is the share price (inpence), and r, c, p0 and y were taken from Sharelock Holmes. The impliedreturns (MCRO at nearly 36%, for example), look too high, and are unlikelyto be attained in practice. In chosing values for pn, I have used the lower of15 (the long-term market average PE) and the mean PE that the companyhas traded for in the past.

Subsequent Performance On 13-Apr-2013, the portfolio was revisited.The one-year performance of the shares listed above were: BWNG +84.0%,MCRO +30.4%, SN. +22.1%. All of these shares performed better than theAll-Share index: ASX +13.1%. The results were excellent.

Chapter 5

Metrics

5.1 Introduction

This chapter contains a list of calculations not elsewhere.

5.2 FCFY - Free Cash Flow Yield

FCFY (Free Cash Flow Yield) is defined [3] as

FCFY = Free Cash Flow per Share/Current Market Price per share (5.1)

27

28 CHAPTER 5. METRICS

Chapter 6

Shutdown

6.1 Colophon

The current version of this document was prepared using LATEX on Debian.Previous versions of this document were prepared using LATEX on the follow-ing systems:

• Slackware 13.37, the leetest Linux distro on the planet.

• Windows 7, using Cygwin’s latex packages

29

30 CHAPTER 6. SHUTDOWN

Glossary

FCFY Free Cash Flow Yield. 27

NCASH Net Cash. 18

ROITA Return on Invested Tangible Assets. 23

31

32 Glossary

Bibliography

[1] Eventdriven. C&W (CW.) Finals [online] Available at:<http://boards.fool.co.uk/hi-there-im-a-professional-investor-and-ive-12304660.aspx> [Accessed 28 August 2011].

[2] Gannon, Geoff. Free Cash Flow Isn’t Everything [online] Avail-able at: <http://www.gurufocus.com/news/175393/free-cash-flow-isnt-everything> [Accessed 20 May 2012].

[3] Garcia, Alejandro. How to Calculate Free Cash Flow Yield. [online]. Avail-able at: <http://www.earningsyield.net/87/how-to-calculate-free-cash-flow-yield/> [Accessed 02 June 2012].

[4] Gray, Wesley and Vogel, Jack. Analyzing Valuation Measures: A Perfor-mance Horse-Race Over the Past 40 Years Journalof Portfolio Manage-ment, Forthcoming.

[5] Greenblatt, Joel. The Little Book That Beats the Market, John Wiley &Sons, Inc., New Jersey, 1st Edition, 2006.

[6] Greenblatt, Joel. You Can be a Stock Market Genius, Simon & SchusterInc., New York, 1st Edition, 1997.

[7] MFI Diary. The Calculation. [online] Available at:<http://justadrone.blogspot.com/2011/03/calculation.html> [Accessed20 August 2011].

[8] Stockopedia. How Does Magic Formula Investing Work?. [online]Available at: <http://www.stockopedia.co.uk/content/how-does-magic-formula-investing-work-55911/> [Accessed 20 August 2011].

[9] Various. Stock Contest Ends <http://finance.groups.yahoo.com/group/magicformulainvesting/message/12684>[Accessed 29 May 2012].

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34 BIBLIOGRAPHY

[10] Walker, John. The Hacker’s Diet. [online] Available at:<http://www.fourmilab.ch/hackdiet/www/hackdiet.html> [Accessed 28August 2011].

Index

Buffett, 23

Free cashflow, 24

Gannon, 23

Unleveraged tangible equity, 24

35

hackers guide to investing

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