Introduction
The value investing model pursued consists of the intersection of three analytical areas: superior business performance metrics, bearish stock market sentiment, and near-unassailable competitive advantage (Buffett and Clark, 2011). Since all three components are indispensable for the successful evaluation of the model, it is initially considered that equal weighting will be apportioned to each part. Furthermore, purchases will not be conducted if one area is not satisfactory, regardless of the score obtained in the other two domains.
Consideration will be given to fine-tune the weighting assigned to each component (i.e., 60% weighting to business performance, 20% to market sentiment, and 20% to competitive advantage) to optimize decision-making. However, since all components are essential for the model to outperform the S&P 500 over the long term, the emphasis remains on ensuring all three components are present before authorizing purchases. It is expected that the advantage provided by the presence of all three components will be sufficient to achieve long-term investment success.
Suggested Tools and Techniques
A binary model (i.e., present/not present) will be employed, with a minimum threshold for each component. For example, when analyzing financial performance:
- Return on Equity (ROE): Must be at least 15%.
- Debt Levels: Must not surpass 50%.
- NLP Analysis: Will be set conservatively to minimize false positives and ensure companies identified as having a competitive advantage and stock market periods identified as pessimistic align with value investing principles.
Planned Project Timescales
The timeframe to achieve the integration part of the project will run from June 3, 2025, to June 9, 2025.
References
Buffett, M., & Clark, D. (2011). Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage. New York: Scribner.
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