HRT has survived a close call in Melbourne, after crucial parts of Pedro de la Rosa’s chassis did not arrive in time for scrutineering.
The back-of-the-grid Spanish team had to apply to the FIA for an exemption to Thursday’s scrutineering deadline, because pieces of the suspension for the second car had yet to arrive from Europe.

And even when de la Rosa’s car was ultimately cleared to enter the Albert Park circuit shortly before first practice, the mechanics were still hard at work ‘dressing’ it for action.

Ultimately the late start was of little consequence, when the sporadic rain around the Victorian capital made a wet deposit just before practice, ensuring that early action was scarce.

But de la Rosa did not even appear later in the session.

More showers are possible later in the day and also on Saturday, but Sunday’s season-opening race should be dry.

Formula one engines will still sound good in the wake of the current V8 era, the governing FIA has insisted.
The unique noise produced by powerful high-revving engines has been an issue each time the regulations substantially changed, including when V8 engines became mandatory at the abolition of the V10 era for 2006.

But the proposed switch in 2013 from V8 to 1.6 litre four-cylinder turbo engines caused unprecedented angst, including from Bernie Ecclestone and the majority of his race circuit promoters, who threatened to boycott F1 if the cars sounded like “tin cans rattling”.

A compromise has been reached in the form of a 1.6 litre V6 turbo engine, producing 15,000rpm rather than the 12,000 proposed for the inline-four rules, to debut in 2014.

But in a media document on Thursday, the FIA denied the rev increase for V6s was in deference to the sound debate.

“This parameter has been updated from 12,000 to 15,000rpm to allow engineers more flexibility in power and energy management,” read the statement.

“However, as a consequence of the new architecture and the change in rev-limit, the engine will sound different, but will remain representative of formula one,” claims the FIA.

The governing body also insists that the V6 engines will not use more fuel than under the defunct four-cylinder plan.

“The fuel flow limit will stay the same,” read the document. “The challenge will be even bigger than originally planned and will therefore enhance the technological lead of formula one.”

The author of a newspaper column erroneously attributed to Mika Hakkinen has been dismissed.

This week, the Finn was quoted by Munich newspaper TZ as describing Michael Schumacher as a “tragic ex-hero” who made “a ridiculous mistake” at the start of the recent Abu Dhabi grand prix.

“In my view, he is dismantling his own legacy bit by bit,” Hakkinen – who also called the German “too arrogant” – reportedly wrote.

But TZ has now issued an apology and correction, admitting that the column had not been authorised by double world champion Hakkinen.

“The statements attributed to Mr Hakkinen, particularly in relation to Michael Schumacher, were not true and were not authorised.

“We regret this and apologise to our readers, to Mika Hakkinen and Michael Schumacher, and as a consequence we are no longer working with the staff member concerned,” added TZ.

Force India is already missing the input of its departed technical director James Key.

The team is locked in a close battle with Williams for sixth and seventh places in the constructors’ championships, which some analysts believe is worth $5 million.

Force India has had some difficult races recently, including in Singapore, where Adrian Sutil and Vitantonio Liuzzi qualified on the 8th and 9th rows of the grid.

The Silverstone based team and Williams then had a bitter post-race argument in the stewards’ office, with Sutil initially penalised for cutting a corner and then Force India lodging a protest about Nico Hulkenberg doing the same.

Sutil confided to Auto Motor und Sport that the loss of Briton Key to Sauber has not been without consequence.

“I actually thought there would be no problem,” said the German, who is thought to be close to deciding whether or not to stay at Force India beyond 2010.

“I have confidence in the people who have taken over,” Sutil continued.  “His successor Mark Smith is doing a good job, but I’m sorry to say that we have lost ground.

“It’s no longer easy for us to get into the top ten in qualifying.

“You only see how good a person really is when he is no longer there,” said the 27-year-old driver.

The annual formula one calendar should be shifted in order to give team staff a more suitable period of holidays at year’s end.

That is the opinion of Otmar Szafnauer, chief operating officer at the independent Silverstone based team, Force India.

Traditionally, the F1 calendar kicks off in March, ending some time in November.

Szafnauer said that, as a consequence, team staff take an initial end-of-season break before the pressure ramps up around Christmas to prepare the following season’s car.

“If we started a month later and the season then finished a bit later, we (the season) would be finished for Christmas.

“We could then shut the factories so that everyone comes back in the new year at full speed,” Szafnauer explained to the Dutch language formule1.nl.

He said his proposal has been discussed within the FOTA group, but admitted he is not confident the shape of the calendar will change dramatically any time soon.

“It’s not going to happen from one day to the next, because of the contracts with many of the circuits,” added Szafnauer.

Andy Soucek has dissolved its contract with Virgin actually test driver. The reigning Formula 2 champion was joined in the hope of the new British team that he would deny some bets on Fridays. But this never materialized. In contrast to the replacement drivers at teams like Lotus, Force India or HRT was the Austro-Spaniard no opportunity to gather as part of racing weekends of experience in Formula 1 car.

“Added Andy and the team by mutual consent agreed to resolve the contractual relationship, so that Andy can concentrate on his racing activities in other series,” says a statement by Soucek management. However, the career of the 25-year-old formula by the formula 1 test commitment has been thwarted. Last we saw him again in the Super League.
“Andy was in the season attended by ten races as a substitute driver in case of injury or illness of a master pilot. He has always taken part in technical meetings with engineers,” says the opinion, which sounds in this passage as a reference. Soucek had allegedly stopped the payments due to Virgin, as you originally promised him two test missions obviously could not call into view.

“The current test regulations in Formula 1 has the consequence that for test pilots are no bets in your car. Andy is very ambitious and requires kilometers of racing,” says Soucek of-management. “Therefore, he decided to focus on its opportunities in other categories. Andy has enjoyed his time at Virgin, the two sides separate for good, and wish each other the best for the future.”
The termination of contracts is not just for Soucek a setback on his way to the longed-for Formula 1 cockpit. The formula has had to take two so indirectly, a bitter defeat. Jonathan Palmer had wanted to establish the series as a unique climbing towards the summit motorsports. This does not seem to be succeeding. Not even a test Soucek fastest time in the Young Driver Days in December, Williams paid off eventually.

With Virgin now remains the only Luiz Razia replacement pilot. The young GP2 driver has seen come and go now, and two colleagues. At the beginning of the season, the UK team Álvaro Parente, as a first test and reserve driver in front. But the contract with the Portuguese ended just days later, so that the space for Soucek was free. Soucek manager Julien Jacob, among others already discussed Ayrton Senna, should now find new opportunities for the Austro-Spaniard.

The press round of Stefano Domenicali after the race began in Valencia because of the late decision of the stewards was later than usual, but very rewarding. For Ferrari had just made the website a controversial review online, in which the Grand Prix of Europe as a “scandal” was called.

Earlier, Fernando Alonso has indicated that he thought the race had been manipulated. But Ferrari back row: On the website you have not published the opinion of Ferrari, but the Ferrari fans around the world, Alonso had made his statement “in the heat of battle.” Team boss Domenicali attempted to clarify this point in discussion with media representatives from around the world.
Question: “Stefano, on the Ferrari website, the race today called scandal, Fernando said that it has been manipulated …”
Luca Colajanni (Ferrari spokesman): “The speech by the voice of the fans – you should have read the message carefully!”
Stefano Domenicali: “I am the official voice of Ferrari. Ask me, I then answer that.”
Technical progress made

Q: Can you explain why you are so angry today? ”
Domenicali: “Naturally we are very angry because we did not get the points we have in this race because of our performance really need to do. If I analyze this weekend even from the technical side, we have but one step forward, even if he is still not large enough to catch Red Bull. In the first round we saw that things were in the right direction. ”

“The frustration is so great because we made the right move, but still less points than in the most difficult race of the year. This is very frustrating. Do I have to say from the sporting angle that we had bad luck today. The only four cars on the home straight were when the safety car was on, were Vettel, Hamilton, Fernando and Felipe. Vettel stopped before the safety car, Hamilton had ignored the yellow flags and the yellow light, but we had a full lap behind the Safety- Car driving. In the meantime, took the field that was in the pits, back on us, so we fell behind when we came into the pits. The plan you can not. ”

“Before some decisions are made, you should be sure they are right and wrong. If we now know, however, that the date of a decision affects the race, then they must be taken quickly, otherwise the consequences of unfair have. Today, the Ferrari has affected quite badly, so we must make sure that something like this happen again. More I would say not really. also ran against a lot of cars still an investigation. That I think is not good. ”

Question is: “When the FIA driver got into the race management – today it was Heinz-Harald Frentzen – first of all were happy, but in the last race there were many contentious decisions. How do you comment that?”
Domenicali: “had the present situation to do with the driver Commissioner nothing, I think. They had indeed nothing to do with the fact that a driver knows that there is slowed down or this and that is in the cockpit. I think that was the day a normal thing for the Commissioners.
“But I want to say something else. First of all, I am very pleased that Mark Webber doing well, because that is the most important thing. In life, have possible priorities. Today he had a very tragic accident, so I am happy that He’s healthy. But the accident has clearly shown that the large performance difference between the cars can be very dangerous. We’re talking about for some months, but today we were fortunate that we have not seen play. As braked different and there are different lines driven. Furthermore, we need to think about. ”

Q: If the safety car not normally catch the leaders and all others to pass through? ”
Domenicali: “I know that the race management, the safety car rausschickt regardless of what happens on the track, if it is necessary. I think correctly. The cars should also be waved through to the leader as quickly as possible behind the safety car is. This as I understand it, they wanted to now the medical car to protect the safety car to prevent the cars rushing around the track. ”

Q: You just said something about the big speed difference and that is dangerous. If the by the adjustable rear wing does not get worse? ”
SD: I think we need to examine carefully. When the leader must not press the button and Hintermann already created a difference in speed. Today we have seen, this can lead to.

Q: Just to clarify again: On your website is a scandal of the speech. If you say that this is not the Ferrari’s opinion? ”
SD: You were here all the time. Did I say scandalous? ”
Only the opinion of the fans

Q: No. But it is on the Ferrari website. ”
Domenicali: “The text there is the opinion of all Tifosi against the world. But I am the official voice of Ferrari and I have never said that.”

Q: Fernando, says the race was manipulated. ”
Domenicali: “We need him to admit that he has said in the heat of the moment, but I can understand him, because the race was broke by factors that were beyond our control. That is why he said that.”

Q: Will you bring this matter to the FIA or discuss with the teams? ”
Domenicali: “We have submitted the topic already in the FIA. That is completely incorrect.”

Q: What does this mean? Could it even be a different race result?
SD: No. The outcome is certain, but we are concerned about the future. We want to talk about it, so something in the future can not happen. ”
Q: You had prior to this Grand Prix a PR day of shooting, on some team bosses have complained. Must be made clear what a day of shooting and what is a test? ”
Domenicali: “It is not my style, something the public unsubscribe, but if there is something to discuss, then I pick up the phone. That’s my style. The shooting day was clear. If people want to change the wording of the rule We have no problem with that. ”

Q: one hand, you walk the day of shooting on a very fine line when it comes to the limits of the rules to explore the other hand, the rules today against you … ”
Domenicali: “One can not even compare it. To day of shooting, we have the allowed 100 kilometers used to supply our customers, our network and our dealers with material. Under such conditions it is difficult to learn about the car . But as I said: If someone has a problem, he can talk to us, then we explain it. ”

Q: Let’s auspicious on a topic. Pat Fry moves from McLaren to you. Can you describe his area of responsibility?
Domenicali: “When we found out that he has been on the market, we immediately realized that he was a great technician with much experience. I know that he also had offers from other teams, but we saw this as a good opportunity to join our team. He works as vice-head of technology. This is a very important task, not only for this year, but especially for the future. ”

Q: Do you find it okay that the drivers who have violated the safety car rule were punished only with five seconds? ”
Domenicali: “The danger of today’s decision is, I think that one might be tempted in future to violate the rules against better knowledge, to have an advantage. This is dangerous.”

The race director said after yesterday’s Grand Prix of Canada from Montreal in no penalty against Michael Schumacher, even though his friend Felipe Massa had just pushed very hard. But the duel of the two ex-teammates remained interpersonal consequences.

On the part Ferrari, there was certainly no allegation in the direction of seven times world champion: ‘I think Michael was perhaps a bit slow earlier because his tires not so great were. He braked much earlier than Felipe had expected it, and therefore, Felipe went back purely in it, “said race engineer Rob Smedley, Massa, the only angry about the potentially lost championship points.
Massa was in the final stages of the race to Schumacher minded and wanted to overtake the Mercedes chicane before the finish but Schumacher blocked until the inside line and then moved back to his racing line. He urged from Massa, who was at that time still on the road at full speed. The race stewards at Emerson Fittipaldi said, but made no speech.

Rightly, as Schumacher’s team boss Ross Brawn thinks: “Felipe was there perhaps a bit too ambitious, because Michael had no grip anyway,” said the Briton. “I see no sin upon him. It may be true that he has slowed down earlier, but that was just at the time and the place with his tires, brakes where he had to. I do not think there malicious intent behind it.”

(totalmotorsports)

Jun.8 (GMM)  An engineer was wrong to tell Lewis Hamilton that his teammate Jenson Button would not overtake during the recent Turkish grand prix.

A video edit of the Istanbul Park race released by F1′s official website revealed that Phil Prew, the British team’s principal engineer, answered ‘No Lewis, no” when Hamilton asked if Button would overtake him.

Conspiracy theorists interpreted the news as 2009 world champion Button having ignored a veiled team order.

But team boss Martin Whitmarsh explained on Tuesday: “Phil gave an opinion to Lewis, and as it turned out his opinion was wrong.  It’s as simple as that.

“They were being told to look after fuel, (and) as a consequence of that Phil Prew had the opinion that Jenson wouldn’t overtake,” he told reporters during a teleconference.

May 3 (GMM)  Virgin on Monday confirmed reports that the Icelandic volcano spoiled the new team’s preparations for the Spanish grand prix.

We reported two weeks ago that because team personnel were stranded in Shanghai, the teams plans to debut two heavily modified cars in Barcelona this weekend might be affected.

With FIA clearance, Virgin has been busily designing a new chassis to accommodate a fuel tank big enough to take its cars to the end of races.

Because the sport’s freight was held up for several days in China, the new British team only had a single VR-01 monocoque to work on at its UK factory.

In a statement on Monday, Virgin said it would have needed the “three full weeks of manufacture, homologation and race preparation” to get two modified cars up and running for both Timo Glock and Lucas di Grassi in Spain.

“As a consequence, Virgin Racing will debut only one revised chassis in the Spanish grand prix this weekend, which Timo Glock will put through its paces,” read the statement.

Glock commented: “I have done some work in the simulator in preparation for this race and we have a good idea of what to expect from the modified chassis, so I’m looking forward to seeing how we shape up when we hit the track in Barcelona this week.”

Technical director Nick Wirth admitted that running the two fundamentally different specifications of cars in Spain “will certainly challenge the team”.

After both his and Felipe Massa’s engines had to be replaced before the race in Bahrain, Fernando Alonso then retired at Sepang last weekend with a smoky blown V8. Ferrari has downplayed suggestions that last weekend’s Malaysian grand prix highlighted a major engine reliability problem for the Italian marque.

Pedro de la Rosa and Kamui Kobayashi’s Ferrari-powered Saubers also failed in the Malaysian heat, even though their problems were not related to Alonso’s.

Ferrari has now confirmed that the Sauber-spec engines failed due to “a malfunction of the electronic engine management”. All electronic control units fitted to F1 cars are supplied by McLaren Electronic Systems (MES).

The Maranello based team also said Alonso’s Sepang failure was sudden and isolated, and therefore not linked to the problems in Bahrain that were caused “by a momentary overheating”.

Ferrari said Alonso’s separate gearbox problem in Malaysia, where the Spaniard drove almost the entire race without a clutch, “could have caused some consequences for the engine”.

“A more precise analysis can only be made when the engine is back at the works (factory) on Wednesday afternoon,” added the team.

Cosworth engine supplier since 2006, has enjoyed his first action in the Formula One racetrack.  This week two of his clients have tested its engines.

The AT & T Williams team carried out the three day test in the Valencia Circuit in Spain, placing the Cosworth V8 CA to seriously give its first steps for the first time in a racetrack.

The new Virgin Racing team unveiled its digitally designed racing car known as the VR-01, with Cosworth engine on Wednesday before the initial sampler session in Silverstone.

This way, Cosworth F1 executives have expressed their first impressions

In an interview with Mark Gallagher, Director General of Cosworth F1 (Business Unit) he was asked about “what relevance have this week’s activities had regarding the World Championship:”
“We are excited to have begun this week the pre-season tests in Valencia with Williams, because it was our first opportunity to see the CA in the rear end of a racing car with all the consequences that has.  The development and test of an engine in our installations in Northampton is one thing, but to see it in the racetrack takes us to a new phase in our program, “ explained Mark Gallagher.

It’s evident that they are thrilled with the debut in the F1, giving credit to their work with Williams, the Director stated;  “Our work with Williams has been very important to collect data, driver’s response and to measure the initial results of the combination of the CA engine to the FW32 chassis.  Our first performance measure will always be the durability, and the fact that Rubens and Nico have completed more than 1.200 kms between both, showed that the engine’s reliability has been up to our expectations. We also paid attention to the global success of the overall installation; see how the engine works together with the Williams gear selection and prove all the associated systems, pressures, cooling system, temperatures.. [...]  Now, we’re waiting for next week’s test in Jerez where we can take our technical program with the team to the next level. “

However, the Director looked particularly excited with the Cosworth VR-01 combination.  “It was very gratifying to see the Virgin-Cosworth VR-01 this week and to welcome the first of our new teams in the Formula One.  We have developed a solid work relationship with Virgin Racing during the last months, and I would like to congratulate Nick Wirth and his design team for the results of their efforts. We’re doing all that is possible to support them since the beginning of their activities in  F1 and when they join with Williams in Jerez, next week we’ll have two teams in the racetrack which will increase our pre-season activities very much.“

What are you specifically involved with? “We were at Silverstone with Virgin Racing for a shakedown session, as a base before the test in Jerez.  Even though the weather conditions were good today, the car worked as expected and it has been a good opportunity to start to understand the new chassis-engine.  This will help to insure that we’re capable of doing most of next week’s important test in Spain.“

The afternoon session has been calmer than the morning.  At the beginning of the session, Alonso and Schumacher lapped 1:15 high, with a lot of fuel in the tank.

The fuel weights and single-seaters’ performance marked the start of this session.  In his initial laps, Jaime Alguersuari had a slip that caused him to leave the track, but after returning to the boxes he reintegrated without great consequences.

With the single-seaters in the racetrack, De la Rosa, Petrov, Button and Alguersuari, the Spanish pilot of the BMW Sauber began to get good times, without decreasing his record.

With a 1:12 rhythm, De la Rosa began the afternoon as the fastest at the Ricardo Tormo, while Petrov improved the R30 performance notably with 1:13:666.  Nonetheless, the one who didn’t seem to be comfortable in the racetrack was the current champion, Jeson Button who was running over 1:13, far away from the “Kaiser’s” times.

Alonso with 180 liters of fuel, has to modify his style and form of driving the F10.  The pilot from Asturias, today could not stop lapping, therefore taking the most advantage of these official tests.

As time went by and the bi-champion’s single-seater used its fuel, he started to reduce his times, again.  After his stop at the boxes at 16:01, he began to run in 1:13, possibly with medium fuel charge.

When the session ended, , the  Ferrari finished rolling in 1:12 lows, after 127 laps to the Valencian circuit.  In this moment, Vitaly Petrov marked his best time, 1:13.097.

1º. Fernando Alonso 1:11.470 in 127 laps
2º. Pedro de la Rosa 1:12.094 in 79 laps
3º. Michael Schumacher 1:12.438 in 82 laps
4º. Jaime Alguersuari 1:12.576 in 96 laps
5º. Jinson Button 1:12.951 in 82 laps
6º. Nico Hulkinberg 1:13.669 in 126 laps
7º. Vitaly Petrov 1:13.097 in 76 laps

One question almost every investor asks at some point is whether it is possible to achieve above market returns by selecting a diversified group of stocks according to some formula, rather than having to evaluate each stock from every angle.

There are obvious advantages to such a formulaic approach. For the individual, the amount of time and effort spent caring for his investments would be reduced, leaving more time for him to spend on more enjoyable and fulfilling tasks. For the institution, large sums of money could be deployed without having to rely upon the investing acumen of a single talented stock picker. Many of the proposed systems also offer the advantage of matching the inflow of investable funds with investment opportunities. An investor who follows no formula, and evaluates each stock from every angle, may often find himself holding cash. Historically, this has been a problem for some excellent stock pickers. So, there are real advantages to favoring a formulaic approach to investing if such an approach would yield returns similar to the returns a complete stock by stock analysis would yield.

Many investment writers have proposed at least one such formulaic approach during their lifetime. The most promising formulaic approaches have been articulated by three men: Benjamin Graham, David Dreman, and Joel Greenblatt. As each of these approaches appeals to logic and common sense, they are not unique to these three men. But, these are the three names with which these approaches are usually most closely associated; so, there is little need to draw upon sources beyond theirs.

Benjamin Graham wrote three books of consequence: “Security Analysis”, “The Intelligent Investor”, and “The Interpretation of Financial Statements”. Within each book, he hints at various workable approaches both in stocks and bonds; however, he is most explicit in his best known work, “The Intelligent Investor”. There, Graham discusses the purchase of shares for less than two – thirds of their net current asset value. The belief that this method would yield above market returns is supported on both empirical and logical grounds.

In fact, it currently enjoys far too much support to be practicable. Public companies rarely trade below their net current asset values. This is unlikely to change in the future. Buyout firms, unconventional money managers, and vulture investors now check such excessive bouts of public pessimism by taking large or controlling stakes in troubled companies. As a result, the investing public is less likely to indulge its pessimism as feverishly as it once did; for, many cheap stocks now have the silver lining of being takeover targets. As Graham’s net current asset value method is neither workable at present, nor is likely to prove workable in the future, we must set it aside.

David Dreman is known as a contrarian investor. In his case, it is an appropriate label, because of his keen interest in behavioral finance. However, in most cases the line separating the value investor from the contrarian investor is fuzzy at best. Dreman’s contrarian investing strategies are derived from three measures: price to earnings, price to cash flow, and price to book value. Of these measures, the price to earnings ratio is by far the most conspicuous. It is quoted nearly everywhere the share price is quoted. When inverted, the price to earnings ratio becomes the earnings yield. To put this another way, a stock’s earnings yield is “e” over “p”. Dreman describes the strategy of buying stocks trading at low prices relative to their earnings as the low P/E approach; but, he could have just as easily called it the high earnings yield approach.

Whatever you call it, this approach has proved effective in the past. A diversified group of low P/E stocks has usually outperformed both a diversified group of high P/E stocks and the market as a whole.

This fact suggests that investors have a very hard time quantifying the future prospects of most public companies. While they may be able to make correct qualitative comparisons between businesses, they have trouble assigning a price to these qualitative differences. This does not come as a surprise to anyone with much knowledge of human judgment (and misjudgment). I am sure there is some technical term for this deficiency, but I know it only as “checklist syndrome”. Within any mental model, one must both describe the variables and assign weights to these variables. Humans tend to have little difficulty describing the variables – that is, creating the checklist. However, they rarely have any clue as to the weight that ought to be given to each variable.

This is why you will sometimes hear analysts say something like: the factor that tipped the balance in favor of online sales this holiday season was high gas prices (yes, this is an actual paraphrase; but, I won’t attribute it, because publicly attaching such an inane argument to anyone’s name is just cruel). It is true that avoiding paying high prices at the pump is a possible motivating factor in a shopper’s decision to make online Christmas purchases. However, it is an immaterial factor. It is a mere pebble on the scales. This is the same kind of thinking that places far too much value on a stock’s future earnings growth and far too little value on a stock’s current earnings.

The other two contrarian methods: the low price to cash flow approach and the low price to book value approach work for the same reasons. They exploit the natural human tendency to see a false equality in the factors, and to run down a checklist. For instance, a stock that has a triple digit price to cash flow ratio, but is in all other respects an extraordinary business, will be judged favorably by a checklist approach. However, if great weight is assigned to present cash flows relative to the stock price, the stock will be judged unfavorably. This also illustrates the second strength of the three contrarian methods.

They heavily weight the known factors. Of course, they do not heavily weight all known factors. They only consider three easily quantifiable known factors. An excellent brand, a growing industry, a superb management team, etc. may also be known factors. However, they are not precisely quantifiable. I would argue that while these factors may not be quantifiable they are calculable; that is to say, while no exact value may be assigned to them, they are useful data that ought to be considered when evaluating an investment.

There is the possibility of a middle ground here. These three contrarian methods may be used as a screen. Then, the investor may apply his own active judgment to winnow the qualifying stocks down to a final portfolio. Personally, I do not believe this is an acceptable compromise. These three methods do not adequately model the diversity of great investments. Therefore, they must either exclude some of the best stocks or include too many of the worst stocks. It is wise to place great weight upon each of these measures; however, it is foolish disqualify any stock because of a single criterion (which is exactly what such a screen does).

Finally, there is Joel Greenblatt’s “magic formula”. This is the most interesting formulaic approach to investing, both because it does not subject stocks to any true/false tests and because it is a composite of the two most important readily quantifiable measures a stock has: earnings yield and return on capital. As you will recall, earnings yield is simply the inverse of the P/E ratio; so, a stock with a high earnings yield is simply a low P/E stock. Return on capital may be thought of as the number of pennies earned for each dollar invested in the business. The exact formula that Greenblatt uses is described in “The Little Book That Beats the Market”. However, the formula used is rather unimportant. Over large groups of stocks (which is what Greenblatt suggests the magic formula be used on) any differences between the various return on capital formulae will not have much affect on the performance of the portfolios constructed.

Greenblatt claims his magic formula may be used in two different ways: as an automated portfolio generation tool or as a screen. For an investor like you (that is, one with sufficient curiosity and commitment to frequent a site such as this) the latter use is the more appropriate one. The magic formula will serve you well as a screen. I would argue, however, that you needn’t limit yourself to stocks screened by the magic formula, if you have full confidence in your judgment regarding some other stock.

These four formulaic approaches (the three from Dreman and the one from Greenblatt) will likely yield returns greater than or equal to the returns you would obtain from an index fund. Therefore, you would do better to invest in your own basket of qualifying stocks than in the prefabricated market basket. If you want to be a passive investor, or believe yourself incapable of being an active investor, these formulaic approaches are your best bet.

In fact, if I were approached by an institution making long – term investments and using only a very small percentage of the fund for operating expenses, I would recommend an automated process derived from these four approaches. I would also recommend that 100% of the fund’s investable assets be put into equities, but that is a discussion for another day (in fact, it’s a discussion for Tuesday; my next podcast is devoted to the dangers of diversification). If, however, you believe you have what it takes to be an active investor, and that is truly what you wish to be, then, I would suggest you do not use these approaches for anything more than helping you generate some useful ideas.

If you choose this path, you need to be clear about what being an active investor entails. Read this next part very carefully (it is correct even though it may not appear to be): I have never found a screen that generates more than one buy order per hundred stocks returned. Even after I have narrowed the list of possible stocks down by a cursory review of the industry and the business itself, I have never found a method that can consistently generate more than one buy order per twenty – five annual reports read.

Here, I am citing my best past experiences. In my experience, most screens result in less than one buy order per three hundred stocks returned, and I usually read more like fifty to a hundred annual reports per buy order at a minimum. You may choose to invest in far more stocks than I do. Perhaps instead of limiting yourself to your five to twelve best ideas as I do, you might want to put money into your best twenty – five to thirty ideas. Do the math, and you’ll see that is still quite a bit of homework.

That’s why remaining a passive investor is the best bet for most people. The time and effort demanded of the active investor is simply too taxing. They have more important, more enjoyable things to do. If that’s true for you, the four formulaic approaches outlined above should guide you to above market returns.