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Magic Formula Portfolio Update
By JLP | February 9, 2007
Well, a month has gone by since I started the Magic Formula Portfolio, which is based on Joel Greenblatt’s The Little Book That Beats The Market
1. Hypothetical $10,000 to invest.
2. Hypothetical account at FOLIOfn, which costs $199 per year but there’s no transaction fees.
3. Purchase 5 stocks, four different times during the year, using the Magic Formula Investing Screen. In other words, we are investing $2,500 in January, March, May, and July, which will give us a portfolio of 20 stocks. This follows Greenblatt’s advice.
On January 5th, I “purchased” the following five stocks for the portfolio:
One month later, those five purchases are up over 5.51%. You can click here for more information. One of the stocks is up over 21.3% in a little over a month! When you look at the portfolio totals, keep in mind that only $2,500 of the $10,000 is actually invested. The other $7,500 is still in cash.
I’ll run the numbers again in March and add five more stocks to the portfolio.
Stay tuned…
Topics: Investing | 7 Comments »
February 9th, 2007 at 12:15 pm
After the first month, I would hope these above-average stocks would perform well. However, I’m still very skeptical. An individual investor’s greatest strength is to watch each stock’s movement as well as the market in general and react when thresholds are crossed. I expect that good mutual funds would do better than your method. They may not be able to react as quickly as an individual, but at least they can act upon ever changing trends.
February 9th, 2007 at 12:22 pm
quahaug,
Thanks for the comment. I’m skeptical too. The main reason I want to do this experiment is to test Greenblatt’s methods, not to necessarily recommend them.
If the formula looks like it might work, I wouldn’t be against putting a portion of my portfolio into it.
February 9th, 2007 at 12:59 pm
How long are you going to try it for before you reach a conclusion? If it worked this year it may not work next year. Or if it didn’t work this year, it doesn’t mean it won’t work next year. There’s always going to be hope and doubt. I just wonder when and where you draw the line and say if it’s working or not.
February 9th, 2007 at 1:09 pm
TFB,
Yeah, that’s a good point.
I have a feeling that the strategy will work over the long-run. I just don’t know HOW WELL it will work. I mean, will it get the numbers that Greenblatt says it will get? I don’t know.
Have you read the book?
February 9th, 2007 at 10:54 pm
You should the join and browse the Yahoo group for MFI (http://finance.groups.yahoo.com/group/magicformulainvesting/). I have invested 50% of my portfolio in to this and I will complete my first year in about 7 weeks. I just bought my last batch a week ago (buying five stocks every two months).
At this stage, I am up about 12% since I started, but over 30% annualized. Even if we neglect the annualized number, the portfolio has done well for me. Also, I used BuyandHold.com as the trading costs are cheaper, although you couldn’t buy every stock in Greenblatt’s main screen. You can also try Zecco and their commission free trades. Overall, I am satisfied so far with the MFI strategy.
February 15th, 2007 at 1:16 am
I found the book for free online from my public library(Los Angeles PL). Since it’s printe as an eBook, I didn’t even have to leave my house or worry about late charges. Now I just need to figure out what the heck I’m doing.
May 12th, 2008 at 11:10 am
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