The Magic Formula Stock Screen that Beats the Market
OSV Presents – The Magic Formula Stock Screen
By popular request, a new screen has been added to old school value.
I’ve put up a couple of articles discussing the validity and performance of the magic formula.
Catch up with the articles below.
Magic Formula Stock Screen Performance
Here are the annual performances from 2000 to 2012.
There is an interactive chart of the annual performances on the Magic Formula screener page. You can play with it to see how the screen performed over various time frames.
Extra Notes on Performance
When you compare the results with the market side by side from 2000 to 2012 and YTD, the overall performance isn’t staggering at 9.79%.
The reason is that I included into the screen a 2% slippage setting with a carry cost of 1%.
This is so that the magic formula stock screener simulates a real portfolio. On paper, results always look better than they are in practice because you won’t be able to buy the stock at that exact price.
But before I get into the analysis, just click on the image below to download my investment scorecard to help you pick stocks like a pro. You’ll also get exclusive content and resources we don’t publish anywhere else.
Some you’ll pay more for, others you’ll buy cheaper. Also add in commissions which affects the screen performance.
If I change the slippage to 0% and the carry cost to 0%, the annualized return then becomes 12.3% which is very respectable.
This is how fees and over trading eat away at performance and why you should look into low cost options if you haven’t already.
Using the Magic Formula Screener
You can use it as a source of ideas, or simply stick to what Greenblatt says.
Buy it, hold it for one year and then sell it.
Greenblatt holds 25 stocks in his portfolio, but I advocate 20 holdings.
In the first year, this will come out to 40 trades a year which isn’t bad.
Year 1: Buy 20 on the first trading day of Jan, sell 20 on the last trading day of Dec.
Year 2: Buy 20 on the first trading day of Jan, sell 20 on the last trading day of Dec.
Year 3: Repeat
If there are proven strategies you know of that you would like to see in a screen, leave your suggestion in the comment section below.