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Hello investors, welcome and good business! Today I've brought you a very simple, easy, and good way to buy stocks. It's so effective, so simple, and so didactic that it's called the Magic Formula. It may sound magical, but you'll see that it's a complete reality in bringing returns to your investments.
Let's go to the video! First, here are a few announcements: like my video, share it, and subscribe to my channel if you like topics like this, and leave all your questions in the comments. I 'll be sure to answer them all for you. In addition, as a way of giving back, I've left you three free gifts, and these three gifts are even more valuable than money.
These three gifts consist first of a totally exclusive, totally private, free Premium advisory meeting. In this Premium advisory meeting that I'm providing for free, you 'll be able to speak directly with me or someone from my team. From there, we'll also provide you with a tool called Kingo, which is a rather expensive tool, and with it you can compile all your investments from banks, brokerages, and all the...
Only if you want to follow along, so you can see it on the app and the website as well. After that, I'll also provide you with a mega spreadsheet, a magic spreadsheet that I've named the Magic Formula spreadsheet, which is the topic of this video, so you can find the best stocks on the financial market to buy.
The link for free advice is already below the video; just access it, click, and fill in your information, and we 'll contact you. Let's get to the content. You can probably imagine that the steps of choosing which stocks to put in your portfolio and also removing them from your portfolio are the most difficult steps when investing.
And according to Wall Street scholars, not only are they the most difficult steps, but an emotional factor is the one that most complicates all these selections you need to make, these important decisions in your financial life, because after all, you become dependent on these companies. Based on this, Joel Green, using studies and the entire trajectory of the greatest investor of all time, has created a strategy for the average investor to achieve great returns in the financial market.
John Grimmlet, to give you an idea, is a great and renowned American manager. This strategy brought a lot of success to the management of his investments and funds, many of them based on it, and that's why I decided to create and share it with you as well. The best thing I see about it is that it completely eliminates emotional factors; it's based entirely on logical and numerical factors, making it very easy to invest.
To tell you about Joe Green's strategy, the average formula, I'll show you the cover of his book. You may have already seen it in some bookstores; it's in the main bookstores in Brazil. If you go to Amazon or various websites, you can easily buy it. It's one of the best-selling books in the history of investing.
If I could summarize his strategy, it consists of a single phrase: the greatest investor of all time, not only in his entire career but, can be summarized in just one sentence, and that sentence is: it's better to buy a wonderful company at a fair price than to buy a fair company at a wonderful price.
But what is a fair price? What is a wonderful company? That's what I'm going to show you here, and that's what Joe created. He created a totally easy, totally simple, replicable way for you to achieve it. Discover how to apply this to your actions, and what is this wonderful company for Muft? The wonderful company is the one with the highest ROI, which, when applied to the indicators we use here in Brazil, is something that has the highest return on invested capital.
This indicator shows how much return it brings to the company's own investment and also to third parties' investments. It shows how many reais invested yield a return, in percentage terms. So, ROI is an indicator that measures the efficiency of investing in a company. Therefore, the higher the ROI, the greater the potential of a company.
This is very important for finding out which is the wonderful company, which is the high-quality company, and what is the fair price. Which is a company that is at a good price? That's what I'm going to show you in the next indicator. This indicator is EV/BIT, which is very commonly called EV/BIT, and this indicator will show if a company is cheap.
Basically, it's an old indicator, right? It's the value of the firm divided by EBIT, which is earnings before taxes and fees. It's an indicator that measures how much the company produces in relation to how much it costs. So, if this... A company that produces a lot and costs little is a cheap company, so this is the most used indicator here in Brazil to carry out this process.
And how did Joel Grimmlet do this? How did he do this process using these two indicators to determine if the price is fair and if the company is wonderful? Basically, he looked at all the companies on the stock exchange according to these two indicators and assigned scores. The fair price isn't a fixed term; the lower the price, the higher the score.
The other indicator, to see if the company is wonderful, assigned a higher score the higher the indicator. And so, arriving at the companies with the best and best performance, by summing the two columns, he arrived at the final sum, like a student report card at school, showing the best-performing companies from top to bottom.
He presented portfolios, for example, with 30 stocks, 20 stocks, 10 stocks, and 5 stocks. He noticed that the higher the stocks were ranked, for example, the portfolio of 10 stocks performed better than the portfolio of 20, and the portfolio of 5 stocks performed better than the portfolio of 10. So he saw that...
The higher these stocks were ranked, the better they performed, and that's how Joe Greenlight's magic formula came about, which performs much better than the Sniper index (SB) and the Ibovespa. To tell you that it performs much better than the Ibovespa, the historical return of this portfolio was measured from 1988 to 2009, resulting in a compound return of approximately 23.8% per year, which is a very high return.
To give you an idea, the return of the Ibovespa and the Sniper index is close to 10% per year, a reasonable return. Okay, but as Buffett says, there's another phase that's wonderful in this aspect. He said that if you don't know everything about the stocks you invest in, you will certainly lose to the index.
In the United States, he says that 90% of investors there who don't know all the companies they invest in lose to the index itself. In other words, almost everyone loses to the index because almost nobody knows all the companies they invest in in depth. I totally agree with that. Numerous years of experience show that 90% of equity investors underperform the Ibovespa (Brazilian stock market index).
This is a fact, absolutely true; hardly anyone beats the Ibovespa here. So let's suppose that 90% of people underperform the 10% annual return of aggressive investors in Brazil. And so, the Magic Formula delivers, right? From 1988 to 2009, a return of over 23% per year. To give you an idea, starting with 100,000 reais in 1988, by 2009 the investor would have over 7.7 million reais.
So, it's a much stronger return than the vast majority of investors achieve. To give you an idea, Roen Buffett himself... The average return of his portfolio over more than 50 years as an investor is around 19.6% per year. That's a return even higher than that of the person who uttered the phrase, who inspired John Grimmlet to create this strategy.
Several scholars have studied and understood how much this portfolio would yield in Brazil today and have shown that it was still... A return exceeding 23% per year is a very good result, very out of the ordinary in our country. So, investor, if you are going to replicate this strategy, you need to make some observations.
First, when you create your spreadsheet, you will see that most of the companies there will not be on the radar of any brokerage, any bank, any list; nobody will be talking about them. They will all also have some event that made them so cheap. So, in the short term, you will hardly see a good return from them.
This is a long-term strategy, five to ten years. In the short term, maybe in three years you can already see this result, but less than that, it's unlikely because these are companies; they will have reasons for being so low. So you might be surprised when you see news or something about these companies.
But rest assured, the good thing about this strategy is that you will be buying very good, very profitable companies at very cheap prices, often because of news, results, balance sheets, or something that caused them to fall a lot. But rest assured because by following this strategy, you are following another very famous, well- known phrase: "Buy when there's a bang, sell when there's a bang." Regarding the violin, it 's no coincidence that he said this here.
The reality is that if you do this, you're buying very cheap stocks of wonderful quality, and this even relates to another phrase from the old man: " Be fearful when others are courageous and be courageous when others are fearful." And to help you learn how to create this spreadsheet so you can rank them all, I'll show you a small step-by-step process that I also used to make mine.
I went to the Fundamentos website, clicked on the little green part to search for companies, went to the end of the page, on that page that's already appearing. And there I found that little bit of search and no-search option. I got to all the companies on the Stock Exchange, or I simply did a Ctrl+C of all of them and copied and pasted them into Excel.
In Excel, I got this result. I deleted all the columns, all the columns that weren't in the Magic Form, so that weren't ROI, that were n't EVIDEO, I removed everything, leaving only ROI, which I was going to watch in the video. In the end, it looked like this, and then with the result of these notes, remember?
There, the lower the number, the higher the grade. I arrived at the final grade, as if it were a real report card. What is this final grade? I filtered it in my spreadsheet and arrived at the report card result: the highest- ranked stocks. So with that, I would already have a good portfolio. But I recommend that you update it when you use it; some time may have passed, and it's important that you redo and use this process.
I also taught you how to create it. Finally, I want to remind you that at the end of this process, after the free advisory, in addition to what you receive, you also get the formula spreadsheet. So, these are three great gifts that I leave there for you. Just enter the link in the description, have the free advisory meeting, and you will also receive the spreadsheet to use in your investments, as I have already done for mine.
So, the investor... I hope you liked it. Leave your like below, share it with more people, that way you will help me and you will also help them. Leave your like here on the video. Any questions you have, I will answer them all. Count on me, I count on you too. Good investments!
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