Value Investing Using Python & Azure — Approach and Methodology

In my <a href="https://medium.com/@devhkimm/value-investing-using-python-azure-introduction-26f3734af142" rel="noopener">previous article</a>, I explained how and why I started identifying myself as a value investor. This time, I’d like to briefly tell you about my approach to spot undervalued stocks. I use a mixture of 2 methodologies. <ol> <li>Joel Greenblatt’s Magic Formula that beats the market</li> <li>A modified version of the Residual Income Model (RIM)</li> </ol> The Magic Formula is used to figure out which stocks are currently undervalued and achieve healthy returns at the same time. Then I validate the output from the Magic Formula with the modified RIM model, which tells me what the fair price of a stock should be. <h1>Joel Greenblatt’s Magic Formula</h1> <blockquote> “The secret to successful investing is relatively simple: Figure out the value of something and then pay a lot less.” - Joel Greenblatt </blockquote> Joel Greenblatt is the founder of Gotham Asset Management LLC. It manages around $4.2 billion as of May 2023. It is known for its value-oriented philosophy that lays foundation for its unique investment strategy. In his book “<a href="https://www.amazon.com/Little-Book-That-Beats-Market/dp/0471733067" rel="noopener ugc nofollow" target="_blank">The Little Book that Beats the Market</a>”, he explains his simple yet powerful method of finding value stocks that are possibly undervalued and thus are worth investing in. In order to effectively recapitulate his words, we need to first go over two financial metrics. <a href="https://medium.com/the-investors-handbook/value-investing-using-python-azure-approach-methodology-f29e6cb5316b">Click Here</a>