Magic Formula Portfolio May Update

May 31, 2007

Well, it’s been a month since I last updated the Magic Formula Portfolio (a hypothetical portfolio I have been following since January). On May 1st, I purchased the third set of five stocks for the portfolio. For more on the selection process, read A Look at Magic Formula Investing. Here’s a look at the last 5 purchases (highlighted in grey) made using the closing prices on May 1, 2007:

Magic Formula 3rd Purchase

Now, here’s how the portfolio has performed so far this year:

Magic Formula Performance Through May 2007

Click here for an expanded table. Not too shabby! Up 17% since January. A total investment of $7,500 (3 purchases of $2,500 each) is now worth $8,776. Even after deducting $199 for FOLIOfn fees for the year, the portfolio is still up 14.36%. Keep in mind that the $199 fee is fixed so the larger the portfolio the smaller the fee will be as a percentage of the portfolio. In other words, the $199 fee seems excessive but that’s because we are dealing with a small portfolio.

I’ll make the fourth and final purchase in early July.

To read more about this portfolio, see these posts:

Magic Fomula Portfolio April Update

A Look at Magic Formula Investing

Magic Formula – Portfolio Update

Magic Formula Investing Update – 2nd “Purchase”

DISCLAIMER: This is a hypothetical portfolio and is in no way a recommendation. Invest at your own risk.

8 responses to Magic Formula Portfolio May Update

  1. I don’t remember much about the Magic Formula book because it really didn’t say anything new, but the website is very nice to search for new stocks to analyze.

    Two suggestions:
    1) Include in your blog a benchmark like S&P 500 or Russell 3000 – Russell 3000 made about 9.2% in the same period.

    2) You could make the trades cheaper by using with $7 trades (not affiliated).

  2. Esmo,

    Thanks for the suggestions. I have wanted to add a benchmark but haven’t due to laziness.

    I considered Scottrade but didn’t like the fact that you have to buy whole shares.

  3. How about Zecco with free trades?

  4. I allocated 10K for MFI under my IRA account at Wells Fargo. Free trades work wonderful in allowing more stocks to increase diversification. I first read this book back when I was still at E-Trade paying $13/trade and my initial impulse was I had to free up 30K in order to keep the “expense ratio” low enough. 30K would have wreaked havoc with my asset allocation plans as I have several tax-inefficient ETFs that would suck under a taxable brokerage account. The switch to WF let me pick more stocks at lower amounts (5 every 2 months at $350 each).

    Now it’s only been 2 months so I’m not going to draw much of a conclusion from them but it does seem to be beating my closest appropriate benchmarks at the moment. My 1st batch of MFI stocks is up 9% in 2 months — in the same period Vanguard Small Cap Index up 6.6%, Small Cap Value up 4.9%.

  5. Ted Valentine June 1, 2007 at 1:43 pm

    Congrats on your success and good luck. One word of advice: Never confuse “magic formula” for bull market.

  6. JLP, congrats on the great start with the Magic Formula. Do you have any opinions or experiences to share about other stock picking approaches? For example, Gorilla Trades, Trade Guru and NorthStar StockCompass. I can’t find any performance numbers from Gorilla Trades, but Trade Guru reports reports 8.5% and 28.9% for its two portfolios and NorthStar StockCompass reports 21.2%. Your Magic Formula results are definitely in the race.

  7. Anyone know the performance of the magic formula in 2005 and 2006?

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