Top 5 financial insights for the week 7

Including the latest articles, videos, charts, quotes, books, tools, and more...

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Here are your top 5 financial insights for the week—including the latest articles, videos, charts, quotes, books, tools, and more—to help you become smarter about finance and investing. Enjoy!

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Market Summary

1. Article We’re Reading


What is the probability of profit of your next trade? You would think every trader can answer this simple question. Say you look at your historical trades (live or backtest) and count the winners and losers, and come up with a percentage of winning trades, say 60%. Is the probability of profit of your next trade 0.6? This might be a good initial estimate, but it is also a completely useless number. Let me explain. (predictnow.ai)

2. Video We’re Watching

JOEL GREENBLATT - THE LITTLE BOOK THAT BEATS THE MARKET - Magic Formula Investing.

Time Interval: 00:00 - 10:39

📌 Summary

  • 📈 30%+ Annual Returns – Joel Greenblatt achieved over 30% annual returns for 16 years, turning £10,000 into £1 million using a simple but effective investing strategy.

  • 💰 Power of Compounding – Reinvesting profits over time significantly multiplies wealth. If profits were withdrawn instead of reinvested, the end value would have been only £55,000 instead of £1 million.

  • 📉 SP500 vs. Greenblatt’s Strategy – While the S&P 500 returned ~700%, Greenblatt’s Magic Formula Investing returned nearly 10,000% over the same 16-year period.

  • 🏆 The Magic Formula – The strategy selects quality and value stocks using two key metrics:

    • Return on Capital (ROC): Measures business quality.

    • Earnings Yield: Measures how cheap the stock is.

  • 🔢 Ranking System for Stocks – Stocks are ranked separately for ROC and Earnings Yield, and then combined. The top 30 stocks with the best scores are selected for investment.

  • 📊 Performance vs. Market – The strategy consistently outperformed the S&P 500 and avoided significant drawdowns, making it more psychologically tolerable for investors.

  • 🔍 Why Hedge Funds Don’t Use It? – Large funds must show quarterly performance, while Magic Formula works best over a 5-year+ period. Short-term underperformance discourages institutional investors.

  • 🏦 Tax Optimization Strategy – Selling losing stocks before 12 months and winning stocks after 12 months can help reduce capital gains tax (varies by country).

  • Final Verdict – A simple, effective, and time-tested strategy that requires discipline but offers excellent long-term returns. Recommended software: "Stockopedia" for filtering stocks efficiently.

🔢 Insights Based on Numbers

  • £10,000 to £1,000,000 – Demonstrates the power of compounding.

  • 30.8% average return per year – Far exceeds typical market returns.

  • 79.9% best year vs. -4% worst year – High volatility but strong long-term performance.

  • Top 10 ranked stocks returned 256% (2011-2018) – Beating the FTSE All Share Index’s 68% return.

3. Chart We’re Analyzing

4. Term We’re Defining

Indexed universal life (IUL) insurance is a type of universal life insurance that provides a cash value component along with a death benefit. The money in a policyholder's cash value account can earn interest by tracking a stock market index selected by the insurer, such as the Nasdaq-100 or the Standard & Poor's 500. If your policy also has a fixed-rate account, you can choose how much you want to go into each account.

5. Quote We’re Reflecting On

"The intelligent investor is a realist who sells to optimists and buys from pessimists."Benjamin Graham

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See you next week for more valuable updates—until then, happy investing!