
Show HN: Invest systematically in deeply undervalued companies - wsieroci
https://www.gemalpha.com/
======
maxharris
We're in the era of disruptive innovation, where whole industries get gutted
and replaced by the next big thing. For example, the iPhone disrupted a long
tail of physical gadgets, from voice recorders to rulers, calendars and
Rolodexes. Amazon disrupted retail and on-premise enterprise computing. Tesla
is disrupting the automakers, energy companies, ride-sharing networks, etc.,
all while transitioning us to carbon-free energy. Square + Bitcoin is
disrupting the banks, payday lenders, small business accounting, etc.

The returns I've gotten investing in disruptive innovation, just since March,
have yielded many times the returns of the S&P 500.

(See also this argument against value investing:
[https://www.youtube.com/watch?v=2A-TVLyYY9c](https://www.youtube.com/watch?v=2A-TVLyYY9c))

How is "value investing" not going to just lose a lot of opportunity in the
roaring 2020s? It is obvious, and widely known that the Fed Put is going to
continue for years. What is special about the _particular_ companies that
Gemalpha invests in, and why should I trust that?

~~~
jfengel
I've had the same effect: a few breakout companies have repeatedly unbalanced
my portfolio that is otherwise index funds over the past 30 years. It's
unclear whether I'm smart or just lucky; it's probably 10%/90%.

They do claim a significant win over S&P in back-casting, though I find it odd
that their test cuts off in 2018.

------
the__alchemist
How can you be confident these companies are undervalued? I feel like if you
really had a good system, you could capitalize heavily directly by taking
aggressive options positions in them.

Making a claim like "these companies are undervalued" requires strong
evidence, in a field so rife with bogus claims.

~~~
wsieroci
Hello and thanks for asking such questions!

Everyone may have different definition for words: "undervalued company". What
we mean by "undervalued company" was explained on our landing page.

Basically, for us, undervalued company is a company whose "operating
income/ev" is the highest among some set of companies. So, "undervalued" for
us means "undervalued" in relation to their financial statements, because it
shows how much money given company is making from its operational activities
in relation to how much money people would like to pay for it - so we get a
multiplier (call it "gem" multiplier).

You can agree with this definition or not, this is up to you. However, what we
(and this is well explained on our landing page) and lot of other people
showed using historical data (for different time periods and countries) is
that in the long term (many years) companies having higher "gem" multiplier
have higher chance to outperform (for stock returns) companies having lower
"gem" multiplier. That's it.

We are just inferring conclusions from history and we let you use such
conclusions.

Please refer to our backtests included on the landing page and other analysis
we refer to.

Additionally, I encourage you to watch this video from Google Talks explaining
why using such method may work:
[https://www.youtube.com/watch?v=1r1vJZ80Z7I](https://www.youtube.com/watch?v=1r1vJZ80Z7I)

Best regards, Wiktor

------
jfengel
Unfortunately, the same rule that applies to shorting overpriced companies
("The market can remain irrational longer than you can remain solvent") also
applies to going long on underpriced ones. They can remain underpriced
indefinitely.

The formula is reasonably well founded, as far as it goes. Take the cash and
debt into account, figure that as a ratio to past revenue, and you can figure
out what a stock "should" be worth -- if its revenue persists.

But the stock price may not reflect that for a lot of reasons. A value
investor should look into the market, management, and other broader conditions
as well. This is a decent metric to start with -- one that you kinda don't
need to pay them $200 a year for. Especially since a value investor would buy
and hold.

------
npmisdown
I think you have typo at
[https://www.gemalpha.com/#backtest](https://www.gemalpha.com/#backtest)

It should be "Max drawdown" instead of "Max drowdown".

~~~
wsieroci
yes, thank you!

------
russdpale
If this works so well, why are you offering it to other people?

~~~
wsieroci
Simple reason: to make even more money :)

