There's a lot more to investing than numbers, but the underlying investment principles can be translated into formulas.
Giverny carried out this excercise and translated 4 core investing principles into mathematical formulas.
- CONVERGENCE BETWEEN INTRINSIC VALUE (Vi) AND MARKET VALUE (Vm)
As "n" years go buy, the market value of the companies you own should approach their intrinsic value, without exception:
"n" is unknown, though.
- EQUATION OF WEALTH INCREASE
The increase in stock market wealth (W) is the sum of the aggregate Patience (P) over a time variable (y):
Wealth is built by patient investors. Trying to make money fast can end up making you lose it faster.
- RISK DECREMENT MEASUREMENT EQUATION
Risk decrement (D) is proportional to:
a. The level of profit margins
b. The level of debt
c. Competitive advantages
Higher "a", lower "b" and stronger "c" should do the trick.
- EQUATION FOR THE NORMALIZATION OF PARAMETERS INFLUENCING RETURNS
Stock market returns (Rs) eventually follow a normalized curve proportional to the rationality of an investor and inversely proportional to their crowd following instinct:
You must be rational & think differently.