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.