MagicDiligence Frequently Asked Questions
Welcome! This page will get you started using the service, and is a good reference to come back to later for questions. Before getting into the details, let's first go over what you need before buying stocks:
MagicDiligence uses the Magic Formula® Investing (MFI) strategy and its teachings as the basis for finding attractive investment opportunities. To understand the theory behind the strategy, do yourself a favor and spend $15 and 2 hours reading Joel Greenblatt's excellent book. Since most have probably already read the book, let's move on...
Get a low or no-cost brokerage account.
The Magic Formula® is a farily high turnover strategy, and brokerage commission costs can significantly affect overall returns. MagicDiligence recommends finding a good, low-cost brokerage to implement MFI.
What are Top Buys?
The basic premise of MagicDiligence is to use the official Magic Formula® screen and other similar screens to find a "universe" of potentially attractive stocks. Then, we apply equity analysis to find the ones that are truly great companies with growth potential, competitive advantages, and strong financial health. By finding these, weeding out the not-so-great companies in the screens, and using an optimized selling strategy, we aim to limit the losers while maximizing the winners, beating the market in the process.
Which Screens are Used?
MagicDiligence uses two stock screens to build its universe of potential picks. The first consists of the official Magic Formula® Investing (MFI) website's screens. Any combination of minimum market cap and number of stocks is fair game. The second consists of stocks in MagicDiligence's Screener, which is designed very similar to MFI but can generate additional options. Here, any combination of minimum market cap and a number of stocks up to 50 are considered part of our "universe" of potential picks.
When Should I Buy and Sell?
Each Top Buy pick contains a "Buy Under" price. The "Buy Under" price represents a price at which there appears to be a significant margin-of-safety at which investors can consider buying the stock.
MagicDiligence utilizes a proprietary selling strategy that has been shown to greatly improve the returns from MFI picks, allowing you to benefit from multi-year, multi-hundred percent gains. At the end of each year of holding, we will review each Top Buy pick and recommend either a hold for another year or a sell. Additionally, updates will be provided when company happenings or market conditions warrant a sell outside of the annual update cycle.
What are the Conservative and Aggressive Lists?
The Top Buy picks are broken into two lists: Conservative and Aggressive.
Conservative picks are usually larger companies with more stable cash flows, a large and diverse customer base, strong competitive advantages, and often pay dividends. These picks are less likely to suffer large drops in stock prices, but also have less potential for big gains.
Aggressive picks are smaller companies with the potential for big stock price gains, but are also riskier and less predictable than Conservative picks.
How Do I Use the Other Stock Reviews?
Not all members will buy just the stocks recommended by MagicDiligence. The service from time-to-time provides research notes and recommendations on other Magic Formula®-like stocks. This is purely for informational purposes. These stocks will not be actively followed, and are not listed on the Picks page.
What if a Top Buy Remains after One Year?
MagicDiligence will review each Top Buy pick after 1 year of holding. At this point the stock may be renewed for another year, or sold to raise capital for more attractive opportunities. You will be notified when an update is provided.
If a previous recommendation is renewed for another year, there will be no new recommendation for that bi-weekly period, as the goal is to keep the MD portfolio to 26-30 stocks. However, MagicDiligence will never renew previous picks in 2 consecutive bi-weekly periods without also providing a new stock recommendation.
What is the Billing Policy? How do I Cancel?
Billing is performed on a monthly basis. The cycle begins on the date of sign-up and is renewed automatically in every subsequent month if not cancelled.
Joel Greenblatt and MagicFormulaInvesting.com are not associated in any way with this website. Neither Mr. Greenblatt or MagicFormulaInvesting.com endorse this website's investment opinions, strategy, or products. Investment recommendations on this website are not chosen by Mr. Greenblatt, nor are they based on Mr. Greenblatt's proprietary investment model, and are not chosen by MagicFormulaInvesting.com. Magic Formula® is a registered trademark of MagicFormulaInvesting.com, which has no connection to this website. The information on this website is for informational purposes only and solely represents the views and opinions of the author. No warranty is provided or implied as to the accuracy, completeness, or timeliness of this information. This information may not be construed as investment advice of any kind, nor can it be relied upon as the basis for stock trades. Alexander Online Properties LLC, the proprietor of this website, is not responsible in any way for losses or damages resulting from the use of this information. Alexander Online Properties LLC is not a registered investment advisor. All logos are trademarked properties of their respective companies.
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