Does the Magic Formula Work?

Alex at Contrarian Value Investing has posted his thought on the Magic Formula:

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.

See's Candy: A Magic Formula Stock from 1972?

Shai explores what might have been a Magic Formula stock in 1972:

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.

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.

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Hat Tip: Investing Matters