Luke Wiley

Luke Wiley

Luke Wiley graduated from the University of Cincinnati College of Business with a BBA, triple major in finance, accounting and real estate. He is a Certified Financial Planner (CFP) and Chartered Retirement Planning Counsellor (CRPC). Luke worked at Merrill Lynch for 12 years as a senior financial advisor before becoming senior vice president of investments with the Wiley Wealth Management Group at UBS in Cincinnati, a position that he still holds today.

                            

He is the author of The 52-Week Low Formula: A Contrarian Strategy That Lowers Risk, Beats the Market, and Overcomes Human Emotion (Wiley, 2014). Wiley combines the success formulas of investment giants such as Warren Buffett, Howard Marks, Michael Porter, Seth Klarman, and Pat Dorsey. His formula helps investors identify solid companies that are poised for growth, but which have fallen out of the spotlight.

Summary

The 52-week low formula looks at companies and judges them on the basis of five questions:

  1. Competitive advantage:
    Does it have a durable competitive advantage? Is it the kind of company with which it is hard to compete either because it has cornered a difficult market or because competition with it would require an unreasonably high investment?
  2. Free Cash Flow yield:
    What is the purchase value of the company? If someone were to come in and buy everything, would they inherit greater debt than revenue? And if you were to buy the company, would it be worth it? Would you make more money than if you simply invested in 10-year Treasury bonds?
  3. Return on invested capital:
    What’s the return on invested capital of the company? Is it using its money well to create returns for investors or is it taking on bad investments that will not pay off?
  4. Long-term debt to free Cash Flow ratio:
    Can it pay its debt off quickly? A lot of companies out there are making a lot of money, but would they remain in the black should all revenue activities cease and all debt come due?

52-week low in price:
Finally, is it trading lower than it has in a year? The 52-week low formula is based on the idea that even the best companies go through a skid, a downturn in stock value. If a company answers the above four questions positively, the key question needs to be: is it going through a rough patch? This is the filter that requires discipline because investors often overlook good companies if they are on the skids. But good companies always find a way to come back. That’s what makes them good companies, what makes them the right companies in which to invest, and what makes investment in them worthwhile.

Success Formula 52-week low formula

  1. MktCapM is >= US$ 300 million (basis year 2000) adjusted yearly
  2. Long term Debt to free Cash Flow < 3
  3. Take the top 30% with highest Latest Filing Operating Margin
  4. Take the top 30% with highest Current Free Cash Flow Yield
  5. Take the top 30% with highest Latest Filing Return on Invested Capital
  6. Take the top 75 stocks which trade closest to its 52 week low

 

Note: As this strategy looks for high quality stocks that temporarily fell out of favor due to negative news, there is a limited benefit of timing the entry while waiting for positive Momentum (green traffic light). Hence this strategy can be executed ignoring the red traffic lights.

Hypothetical performance back-tested

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical monthly relative performance

How to read this graph:
A green bar shows how much the guru strategy outperformed the benchmark index in a particular month. A red bar shows how much the guru strategy underperformed the benchmark index in a particular month.

Data source: Bloomberg, Calculations: meetinvest

Disclaimer

Hypothetical performance is not necessarily indicative of future results. No representation is being made that any action will achieve profits or losses similar to those displayed. The result may be overstated as neither transaction costs nor bid/ask spreads nor slippage have been considered. Output equally weighted with maximum 5% allocation per position and rebalanced monthly. Holdings are systematically replaced when the screening criteria are not met anymore. No additional buying or selling rules (technical analysis) have been employed.

Historical portfolio turnover

Data source: Bloomberg, Calculations: meetinvest

Books

  • The 52-Week Low Formula: A Contrarian Strategy That Lowers Risk, Beats the Market, and Overcomes Human Emotion
    Luke L Wiley
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