A quick note to inform readers of this blog that ownership has now changed hands from Nick to MagicDiligence.com, a site dedicated to finding the best Magic Formula stocks. I don't want to speak too much for Nick, but he actually contacted me about the deal. The blog had been virtually dormant this year as professional limitations were preventing him from updating it. More details to come...
Steve Alexander
Editor, MagicDiligence.com
Thursday, August 21, 2008
Saturday, March 15, 2008
Does the Magic Formula Work?
Alex at Contrarian Value Investing has posted his thought on the Magic Formula:
I happen to agree with his overall assessment that we need a longer time frame in which to judge the validity of Greenblatt's formula. That said I am not under performing the market (unless you use a beta adjusted returns).
Anyway check out his site and enjoy your weekend! For more investing related article click here.
Ever since its release, much has been written whether or not Joel Greenblatt’s “Magic Formula” works. Joel Greenblatt has consistently said that results should be measured over time and every once in a while there would be stretches where the magic formula does not work.
So far the results have been bad. Just about every blog/site testing the magic formula has underperformed the market" Continue Reading
I happen to agree with his overall assessment that we need a longer time frame in which to judge the validity of Greenblatt's formula. That said I am not under performing the market (unless you use a beta adjusted returns).
Anyway check out his site and enjoy your weekend! For more investing related article click here.
Tuesday, March 04, 2008
See's Candy: A Magic Formula Stock from 1972?
Shai explores what might have been a Magic Formula stock in 1972:
Hat Tip: Investing Matters
Let’s look at the prototype of a dream business, our own See’s Candy. The boxed-chocolates industry in which it operates is unexciting: Per-capita consumption in the U.S. is extremely low and doesn’t grow. Many once-important brands have disappeared, and only three companies have earned more than token profits over the last forty years. Indeed, I believe that See’s, though it obtains the bulk of its revenues from only a few states, accounts for nearly half of the entire industry’s earnings.Continue Reading
At See’s, annual sales were 16 million pounds of candy when Blue Chip Stamps purchased the company in 1972. (Charlie and I controlled Blue Chip at the time and later merged it into Berkshire.) Last year See’s sold 31 million pounds, a growth rate of only 2% annually. Yet its durable competitive advantage, built by the See’s family over a 50-year period, and strengthened subsequently by Chuck Huggins and Brad Kinstler, has produced extraordinary results for Berkshire.
Hat Tip: Investing Matters
Tuesday, February 12, 2008
Comments on the Magic Formula Performance to Date
For some reason I cannot seem to get any text to show up in my post below so I will leave my (limited) thoughts here.
I appologize for not having any real commentary on the markets or on the performance of the Magic Formula. Given the market events of the past year I am proud to report that I have not lost any of my initial investment. In fact, I have performed inline with both benchmarks. Some months found my portfolio crushing the index and other months the index was beating my portfolio to a pulp. Mr. Market is tempormental fellow and many of us had forgotten that fact. I have rather enjoyed some of the gyrations -rather I've enjoyed some market pundits reactions to the gyrations.
In 2007 the general market returned a lumpy 5.5% to investors and my MFI portfolio returned around 4.5%. Accordind to Icarra, this brings my annualized return since inception to 4.9% relative to the S&P 500 annualized return of 3.45%. At the very least "The Little Book that Beats the Market" is beating the market for me. Are you impressed? I'm not. MFI has been a drag on my portfolio for two years. My personal investment selections have been superior every way; however, 2 years is hardly a long time horizon and Mr. Greenblatt deserves more time (I will report back for at least another 2 years). Quite a bit of my success in 2007 (outside of MFI) can be attributed to this site.
Please keep in mind two things: First, when I calculate the MFI performance versus the benchmark I pretend to invest that same dollar amount in the index the same day as the MFI purchase. This means that the timing of the purchas(s) will give different results for the 2006 or 2007 index returns you'll find elsewhere. Second, I have eliminated "averaging down" from the results that I am disclosing. In many cases I have averaged down this strategy significantly changes the result of the magic formula. Since this is hard to duplicate I won't report back on that strategy. Last year my performance included this strategy, but this year my results (including annualized results) DO NOT include any modifications (except some early sells and late buys based more on apathy than anything else). To clarify, the annualized performance stated above doesn't consider the averaging down of 2006 or 2007. I've also eliminated LEAPs from my reported portfolio and I reported equity positions instead.
As I stated last year, in 2007 I hoped to purchase 20 Magic Formula companies. Since one of my previous companies was bought out, I purchased 21 stocks in 2007. Here is a comprohensive list:
True Religion (TRLG)
Pre Paid Legal (PPD)
Omni Vision(OVTI)
Vaalco Energy (EGY)
Motorola (MOT)
3M (MMM)
Teck Cominco (TCK)
Gevity HR (GVHR)
Freeport Copper & Gold (FCX)
Optimal Group(OPMR)
Korn Ferry (KFY)
Harvest Natural Resources (HNR)
Freightcar America (RAIL)
Pinnacle Airlines (PNCL)
Intevac (IVAC)
Heelys (HLYS)
Frontier Oil (FTO)
LCA-Vision (LCAV)
Prudhoe Bay Royalty Trust (BPT)
Barrett Business (BBSI)
IKON Office (IKN)
As you've noticed I post very infrequenly. I've found that writing about a someone else's formula is rather boring especially when that formula's results have been less than impresssive. As such I started watching my investment daily this is an unhealthy habit and to the detrimeant of this blog I successfully broke my habit last year. If you are interested in more regular updates regarding the Magic Formula I suggest you get your fix at MG's site: MFI Diary.
I am considering maintaining a regular blog that would allow me to explore a wider range of investing related topics; however, I've not written anything interesting yet. My family and studying for the Chartered Financial Analyst exams keeps me busy, but I hope to post there from time to time and would love it if you would join me by subscribing to my new feed. My first post introduces the merits of investing in an index. As many MFI followers and professional fund managers can attest to, the S&P 500 index is a formidable foe. Following posts will relate to topics that in my humble opinion will lead to market beating performance. Ignore the dust (formating) and see my thoughts at _________ matters.
I appologize for not having any real commentary on the markets or on the performance of the Magic Formula. Given the market events of the past year I am proud to report that I have not lost any of my initial investment. In fact, I have performed inline with both benchmarks. Some months found my portfolio crushing the index and other months the index was beating my portfolio to a pulp. Mr. Market is tempormental fellow and many of us had forgotten that fact. I have rather enjoyed some of the gyrations -rather I've enjoyed some market pundits reactions to the gyrations.
In 2007 the general market returned a lumpy 5.5% to investors and my MFI portfolio returned around 4.5%. Accordind to Icarra, this brings my annualized return since inception to 4.9% relative to the S&P 500 annualized return of 3.45%. At the very least "The Little Book that Beats the Market" is beating the market for me. Are you impressed? I'm not. MFI has been a drag on my portfolio for two years. My personal investment selections have been superior every way; however, 2 years is hardly a long time horizon and Mr. Greenblatt deserves more time (I will report back for at least another 2 years). Quite a bit of my success in 2007 (outside of MFI) can be attributed to this site.
Please keep in mind two things: First, when I calculate the MFI performance versus the benchmark I pretend to invest that same dollar amount in the index the same day as the MFI purchase. This means that the timing of the purchas(s) will give different results for the 2006 or 2007 index returns you'll find elsewhere. Second, I have eliminated "averaging down" from the results that I am disclosing. In many cases I have averaged down this strategy significantly changes the result of the magic formula. Since this is hard to duplicate I won't report back on that strategy. Last year my performance included this strategy, but this year my results (including annualized results) DO NOT include any modifications (except some early sells and late buys based more on apathy than anything else). To clarify, the annualized performance stated above doesn't consider the averaging down of 2006 or 2007. I've also eliminated LEAPs from my reported portfolio and I reported equity positions instead.
As I stated last year, in 2007 I hoped to purchase 20 Magic Formula companies. Since one of my previous companies was bought out, I purchased 21 stocks in 2007. Here is a comprohensive list:
True Religion (TRLG)
Pre Paid Legal (PPD)
Omni Vision(OVTI)
Vaalco Energy (EGY)
Motorola (MOT)
3M (MMM)
Teck Cominco (TCK)
Gevity HR (GVHR)
Freeport Copper & Gold (FCX)
Optimal Group(OPMR)
Korn Ferry (KFY)
Harvest Natural Resources (HNR)
Freightcar America (RAIL)
Pinnacle Airlines (PNCL)
Intevac (IVAC)
Heelys (HLYS)
Frontier Oil (FTO)
LCA-Vision (LCAV)
Prudhoe Bay Royalty Trust (BPT)
Barrett Business (BBSI)
IKON Office (IKN)
As you've noticed I post very infrequenly. I've found that writing about a someone else's formula is rather boring especially when that formula's results have been less than impresssive. As such I started watching my investment daily this is an unhealthy habit and to the detrimeant of this blog I successfully broke my habit last year. If you are interested in more regular updates regarding the Magic Formula I suggest you get your fix at MG's site: MFI Diary.
I am considering maintaining a regular blog that would allow me to explore a wider range of investing related topics; however, I've not written anything interesting yet. My family and studying for the Chartered Financial Analyst exams keeps me busy, but I hope to post there from time to time and would love it if you would join me by subscribing to my new feed. My first post introduces the merits of investing in an index. As many MFI followers and professional fund managers can attest to, the S&P 500 index is a formidable foe. Following posts will relate to topics that in my humble opinion will lead to market beating performance. Ignore the dust (formating) and see my thoughts at _________ matters.
Tuesday, January 29, 2008
2007 Magic Formula Results
Tune in this Monday to see my 2007 results using the Magic Formula.
Update: Result Posted, Commentary
Update: Result Posted, Commentary
Monday, September 10, 2007
Greenblatt says this still makes sense.
I'm not sure if anyone still reads this; however, I came across an update from Joel Greenblatt himself that I thought might be of interest. I'd like to thank Value Investing News for pointing me to Andrew Tobias's site where this quote was found.
This is Joel Greenblatt's response to why the Magic Formula results have been poor so far:
"Each investor who picks 5 or 6 stocks every quarter will have varying results over the short term (meaning a couple of years). However, I gave a class on the results from the large cap model that I reported in the book. During that very successful 18-year period (basically doubling the market’s return), there was a point-to-point 4-year period and a totally non-overlapping 3-year period when the model did not outperform the market averages. That means there were long periods that the model did not beat the market. Yet, looking backward, it is very clear that the strategy (double the market’s return) was a good one. So...what can be learned by one person’s picking a few stocks over a year and a half? Nothing. It either makes sense to buy above average companies at below average prices or it doesn’t. If it does, that still means you need a 3 to 5 year horizon to bear that out."
Yes, I am still following the Magic Formula with awesome results through July of this year and awful results since.
This is Joel Greenblatt's response to why the Magic Formula results have been poor so far:
"Each investor who picks 5 or 6 stocks every quarter will have varying results over the short term (meaning a couple of years). However, I gave a class on the results from the large cap model that I reported in the book. During that very successful 18-year period (basically doubling the market’s return), there was a point-to-point 4-year period and a totally non-overlapping 3-year period when the model did not outperform the market averages. That means there were long periods that the model did not beat the market. Yet, looking backward, it is very clear that the strategy (double the market’s return) was a good one. So...what can be learned by one person’s picking a few stocks over a year and a half? Nothing. It either makes sense to buy above average companies at below average prices or it doesn’t. If it does, that still means you need a 3 to 5 year horizon to bear that out."
Yes, I am still following the Magic Formula with awesome results through July of this year and awful results since.
Sunday, February 25, 2007
Geoff Gannon: Is There Really A Magic Formula For Investing?
Recently I have been reacquainted with Geoff Gannon of Gannon On Investing, as he has written some very helpful responses to posts at Value Investing News and posted some articles of significant interest. His blog shouldn't be new to you; I have linked to it in my "blog links" since I started blogging. With any luck he'll start posting more frequently again.
Anyway, I came across this excellent article, by Geoff that contrasts three formulaic investing techniques including Greenblatt's Magic Formula. I hope you enjoy it! Here is an excerpt and a link:
Is There Really A Magic Formula For Investing?
Geoff Gannon
Anyway, I came across this excellent article, by Geoff that contrasts three formulaic investing techniques including Greenblatt's Magic Formula. I hope you enjoy it! Here is an excerpt and a link:
Is There Really A Magic Formula For Investing?
Geoff Gannon
This article looks at investing formulas proposed by three men: Benjamin Graham, David Dreman, and Joel Greenblatt. It then asks whether any of these formulas will lead to above market returns.
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.
Wednesday, February 07, 2007
ASPV and RAIL names as top-value small cap picks
Stockpickr: The Top Small-Cap Value Plays
Excerpt:
Excerpt:
As Warren Buffett has said, the three most important words in investing are "margin of safety." Although small-cap companies offer the highest potential reward -- small-caps that graduate to large-caps offer multiple 1,000% returns -- they also are most likely to fall apart and become worthless.
Thursday, January 25, 2007
Justadrone: Major Insight?
The only other Magic Formula blog that read on a regular basis is MG's justadrone.blogspot.com and I'd like to point to that blog once again. The blog is well written and better proof written than my work and the author has a great sense of humor. However, that is not why I am linking there.
MG has put together about a years worth of MFI data consisting of 276 companies that have appeared on the MFI screen. To my recollection this is the first real analysis of the MFI stock as a whole since Greenblatt published "The Little Book that Beats the Market." MG has shared the database with me and I hope to explore it see if there are any early indicators on ways to improve (or at least not screw-up) the fantastic returns that the back test provided.
Any way here is a link and a quote:
The 276 stocks in aggregate, if you simply bought and held them per the MFI rules, would be up 11.9%. If you implemented the rule to sell when they dropped by 20%, you would only be up 7.3% (and with about the same amount of overall volatility).
I'd also like to take this opportunity to link to Value Investing News so that you can share any great value invsting article that you come across with the rest of the community.
MG has put together about a years worth of MFI data consisting of 276 companies that have appeared on the MFI screen. To my recollection this is the first real analysis of the MFI stock as a whole since Greenblatt published "The Little Book that Beats the Market." MG has shared the database with me and I hope to explore it see if there are any early indicators on ways to improve (or at least not screw-up) the fantastic returns that the back test provided.
Any way here is a link and a quote:
The 276 stocks in aggregate, if you simply bought and held them per the MFI rules, would be up 11.9%. If you implemented the rule to sell when they dropped by 20%, you would only be up 7.3% (and with about the same amount of overall volatility).
I'd also like to take this opportunity to link to Value Investing News so that you can share any great value invsting article that you come across with the rest of the community.
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