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Joseph Piotroski's Influence on My Investing Career



May 23, 2009 – Comments (2) | RELATED TICKERS: B , AB , O

I went to google Joseph Piotroski so I could do the same reading I did a while back when I wanted to learn about Piotroski and his method for screening low price-to-book stocks.  One of the first hits I saw was EverydayInvestor's excellent blog post, which you should read if you want to learn about Joseph Piotroski:

Since EverydayInvestor has told you what you need to know about the strategy, I'll continue with why I think it's important.  Before learning of Joseph Piotroski, I was one of those index fund guys.  My entire equity exposure was the S&P 500 index fund.  I thought that the returns, however, were quite lame.

I don't know exactly how it happened, but I stumbled upon a website talking about Joseph Piotroski.  He was an accounting professor at the University of Chicago's Graduate School of Business.  What he did was pretty stellar: using simple financial statement analysis, Piotroski picked a portfolio of stocks that outperformed the S&P 500 handily in the years he studied.  

The most important thing I gathered from this is not that Piotroski had the exact formula for beating the market, but that the market could be beaten simply by screening for stocks that have the favorable characteristics that you like.

Think about it: let's say you take companies that are increasing their margins, increasing their revenues, and are healthier than the average stock (less LT debt, more cash, whatever).  If you include enough favorable criteria, you are in essence guaranteeing that your company is more profitable, more healthy, and cheaper than the average stock.  If you have a group of stocks that is more profitable, more healthy, and cheaper than an average stock, how in the world could it not outperform the market over time?

The rest is history.  I read everything I could get my hands on and I now invest in stocks that I choose myself, without pouring endless hours into my research. (NOTE: endless hours of research will increase your returns and reduce your occurrence of bad stock purchases, but I don't have quite that much time.)

This is old news for many of you fools, who are more experienced than I am.  However, I thought it fitting that I pay homage to my biggest investing influence that helped me take the next step towards becoming a successful investor that can beat the market.

2 Comments – Post Your Own

#1) On May 14, 2012 at 3:39 AM, Diegoman19 (< 20) wrote:

OK, what are the next 10 Books on the MUST read list?

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#2) On May 14, 2012 at 6:32 AM, KennedyAgnes (< 20) wrote:

what Jacob responded I cannot believe that a mom able to get paid $7260 in 4 weeks on the computer. have you read this page(Click on menu Home more information)

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