We all like to make money, right?
(Bernie Sanders raises his hand) “Um, actually, no. In fact, I have some real problems with that attitude.”
(Everyone in unison) “GO AWAY BERNIE.”
At this point in my life, I’m pretty much consumed by just a few things. I like french fries and Subway subs. I like to watch baseball. My cat is pretty cool too I guess. Oh, and I like to allocate capital. Sometimes even successfully!
Much of my time is spent talking about or analyzing different investments. I’ve spent too many hours to count on the craft, but that’s okay. It’s a pretty sweet way to spend time. It sure beats whatever you do for a living, providing you aren’t a bikini inspector. If some of you are bikini inspectors and you’re holding out on me, THERE WILL BE HELL TO PAY.
But like I talked about a couple of weeks ago, outperforming the market takes a lot of work, and there’s a very legitimate argument to be made that my time would have been put to better use acquiring other skills. The nice thing about learning to invest is at least the skills easily scale up. It’s much harder to scale being a plumber. There are only so many toilets one man can unplug, especially after I’m done with them. Seriously, I should really go to a doctor.
What if I told you there was a way you could beat the market without going to all the work I have? Oh, it’s possible. In fact, there are at least a few different ways of doing so. Some are really easy, like buying an equal weighted S&P 500 index fund compared to a cap weighted version. We’re not interested in something that easy though. I have a word count here.
Instead, we’ll look at another easy way to beat the market. Just buy the stocks featured on Value Investors Club.
What’s Value Investors Club?
Value Investors Club is an exclusive online investment club where top investors share their best ideas. Think of it as the lamest country club ever.
It’s limited to a certain amount of members, many of which are hedge fund managers. To get in the club, members must submit an investment idea that meets the criteria of the brass in charge, which includes Joel Greenblatt, a legendary value investor.
Members of the site get access to investment ideas as soon as they’re posted, and they have the ability to vote on the quality of the analysis. The rest of us have to endure a 90 day waiting period (45 days if you sign up for the site) before we get to see the goods. It’s just like dating a church girl.
There really isn’t much to do once you sign up. All you need to do is buy a random sampling of stocks that have been recommended by members and there’s a very good chance you’ll beat the market. You can even sort through the highest overall rated ideas.
Don’t just believe me, a couple of guys went out and did the work. According to their findings, the average long recommendation on the site from January 1st 2000 to December 31st 2008 went up 74.39% after three years. After controlling for all sorts of factors, the two authors found the three-year returns generated alpha of approximately 23.6%.
That is significant outperformance. And the best part? You can follow it for nothing. All you need to do is give Value Investors Club your email address to get access to the ideas that aren’t that old. And for what it’s worth, I gave them my email address approximately two years ago and I don’t think they’ve emailed me since.
And if a stock has already moved up 10 or 20% since the write-up has been posted, you just don’t buy it. And for every stock that has moved up quite a bit, there’s some that have moved down too. There are enough ideas on the site you won’t miss out, that’s for sure.
Now before you go and sign up, remember a couple of things. First, these guys aren’t going to be buying Coca-Cola or Disney or other huge blue chip stocks you’ve heard of. They’re going to be recommending some weird ass stuff, as this screenshot confirms.
It’s likely the only company you’ve heard of is Newell Rubbermaid, a company the author is recommending you short. Others are from Spain and Singapore. If you ignore the truly weird stuff, you’ll easily be able to whittle down the ideas to a manageable number.
Does it work? Let’s see
To try and prove my thesis, let’s do a test.
I did a really simple search on the site. I searched for the top rated investment ideas of 2015. Here are the top 10, the date they were submitted, and the price gain (including dividends if applicable) since they were recommended. I’m only going to sort for long ideas, since I don’t really like the idea of shorting.
|Stock||Date Recommended||Total Return|
|American Capital (NASDAQ:ACAS)||January 22nd, 2015||+9.7%|
|Essex Rental (OTC:ESSX)||March 18th, 2015||-60%|
|Williams Partners LP (NYSE:WPZ)||December 11th, 2015||+7.6%|
|Constellium NV (NYSE:CSTM)||July 1st, 2015||-54.1%|
|Cambium Learning (NASDAQ:ABCD)||January 20th, 2015||+146.7%|
|Liberty Broadband (NASDAQ:LBRDK)||July 21st, 2015||+5.3%|
|Dart Group (LONDON:DTG)||June 22nd, 2015||+61.9%|
|Horizon Global Corp (NYSE:HZN)||Dec 8th, 2015||+47.8%|
|Penntex Midstream Partners (NASDAQ:PTXP)||Aug 14th, 2015||-36.1%|
|Istar Financial (NYSE:STAR)||Apr 6th, 2015||-26.5%|
As you can see, there’s a lot of volatility in this particular strategy. Some of the ideas people though were good turned out to be not so good. But when spread out over a sampling of ten stocks, the strategy did pretty well.
Over the last year, the S&P 500 is down a little over 1% while our little back test portfolio increased 10.2%. It’s not a perfect comparison — partially because many of these picks aren’t quite a year old — but I still say the spirit of the exercise holds true. The stocks on Value Investors Club outperformed, just as we expected them to.