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MagicDiligence vs. Magic Formula in 2011

One of the most frequent questions I get is "How do MagicDiligence picks fare against the unfiltered Magic FormulaŽ Investing (MFI) screens?".

It can be a difficult question to answer. While Formula Investing does run a few mutual funds that use the MFI methodology, they include only large cap stocks and do not map very well to the actual screen results from the official site, which is usually as much as 75% small-caps. The best way to answer the question is to take the actual "50 stocks over 50 million market cap" list from the MFI site on the day of each recommendation, average their results over a holding period, and compare it to the result of the MagicDiligence pick on that day.

This is the process used to generate the table at the bottom of this article, which displays the average results of the screen vs. the result of the recommendation on the same day. The 28 picks listed were stocks either newly recommended as Top Buys by MagicDiligence, or renewals of previous picks during 2011. The period measured is from the date of recommendation through market close on 12/28.

I'm happy to say that MagicDiligence outperformed the raw screen in 2011 by an average of about 3.7% per pick. 16 of 28 picks (57%) outperformed from the date of recommendation. Our best pick from the year was pick #8 - Visa (V) - which gained 33% vs. the screen's -18.6% showing for a 51.7% outperformance. The worst was pick #10 - Power-One (PWER) - which fell 52.7% vs. a 22% average drop for the screen.

MagicDiligence members can access an expanded version of this article which provides a little more commentary on the individual picks.

The results:

RecommendationRecMFIRelative
Pick #110.1%-20.9%31.0%
Pick #2-22.4%-21.6%-0.8%
Pick #3-24.6%-18.9%-5.7%
Pick #4-2.5%-24.5%22.0%
Pick #5-57.6%-24.4%-33.2%
Pick #616.5%-1.3%17.8%
Pick #7-2.2%-19.0%16.8%
Pick #833.1%-18.6%51.7%
Pick #915.3%-18.6%33.9%
Pick #10-52.7%-22.0%-30.7%
Pick #11-2.9%-16.9%14.0%
Pick #12-28.0%-17.5%-10.5%
Pick #13-14.8%-9.7%-5.1%
Pick #14-13.2%-14.3%1.1%
Pick #15-44.6%-15.0%-29.6%
Pick #169.3%-13.4%22.7%
Pick #1713.6%1.9%11.7%
Pick #18-3.2%2.7%-5.9%
Pick #1919.2%4.8%14.4%
Pick #2011.8%5.9%5.9%
Pick #2113.8%12.5%1.3%
Pick #22-22.7%2.4%-25.1%
Pick #234.7%2.4%2.3%
Pick #2425.5%1.9%23.6%
Pick #25-20.9%-0.8%-20.1%
Pick #269.0%5.2%3.8%
Pick #274.8%5.2%-0.4%
Pick #280.2%3.0%-2.8%
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Disclosure: Steve owns V

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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Comments

Posted by ego_stanley on 2012-01-24 08:32:27


http://www.magicformulainvesting.com/joel_column.html

Posted by Steve on 2012-01-24 11:36:00

Sure, saw that article. It's not very surprising. What he's saying is that people that don't stick to the strategy don't get the strategy's results. He made this clear even in the first edition of his book. MFI has had a rough go of it in the past 3 years, and a lot of people have abandoned it. That is a mistake in my opinion.

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