Most of you have been with me for some time now and are aware that I spend a lot of time testing ideas and strategies. I get lots of ideas, and as Victor Niederhoffer once said," If it can be tested, it must be tested."
It is not enough to have the idea. The ideas that initially sounded the most brilliant usually failed miserably when math was applied.
For every solid profit-producing strategy like small, sound banks under book value and private equity replication, I test and throw away another 20 that sounded great but tested out as idiotic.
I also steal a lot of ideas. People like Tobias Carlisle of The Acquirers Multiple, Wes Gray at Alpha Architect, and Meb Faber at Cambria Funds are doing some fantastic research work, and I am not the least bit shy about co-opting their ideas.
Meb Faber is big on shareholder yield. He has written a great book with catchy Title Shareholder Yield: A Better Approach to Dividend Investing. His firm also operates an ETF called Shareholder Yield (SYLD) that has performed very well since being released in 2013.
I took Meb's Basic idea and limited purchases to companies with shareholder yields over 5% trading at a PE ratio of less than 12. I also insisted that to pass the screen, each company had to have repurchased at least 1% of its outstanding shares over the past year
Then I added an insider buying element. There has to be at least one insider buying the stock in the last few weeks.
The screen does not produce a whole lot of results, but the strategy does perform very well.
I found a lot of banks on the screen. I am only going to share one with you because we took the results and ...
