Comments on: Magic Formula Portfolio123 Screener

By: chris

chris — Sun, 26 Jul 2009 03:55:05 +0000

I’ve used ROA in place of ROC in the past and that is a mistake. Assets on the balance sheet comprise the objective and the subjective (and can be greatly overvalued). You can find a nice formula on the web allowing you to calculate ROC by knowing a company’s ROE and it’s debt to equity ratio. Since ROC is not commonly presented on most financial pages (again, ROA is useless), try the conversion number and see where your rankings move. The formula is ROC = ROE / (1 + DTE), where DTE is debt to equity.

By: KJ

KJ — Tue, 14 Apr 2009 15:18:20 +0000

What is the status now on the Magic Formula? Is 123 still off by such a large margin? How has the portfolio fared? I know the little book says there is NO 3 year period when it has lost compared to Mr. Market and the blog post was almost 3 years ago :D

By: gideon

gideon — Sun, 08 Oct 2006 22:59:34 +0000

Here is a site http://www.greensignalstocks.com using advanced statistical mdoeling (pattern recognition) to forecast stock prices. This model will narrow down the magic list based on the model ability to generte profit based on past foredcast adn evaluating its performance in the last year and last 3 months. If the model failed to generate profit no smart invstors could do it either
Gideon

By: » Carnival of Personal Finance #46 » Consumerism Commentary: A Blog About Personal Finance

Mon, 01 May 2006 03:54:24 +0000

[...] George writes about the Portfolio123 Screener on his blog, Fat Pitch Financials. In a recent entry, he dicusses applying the Magic Formula technique to the software, but is unsure about the results. (645 words.) [...]

By: George

George — Fri, 14 Apr 2006 10:29:56 +0000

Hi Dave – I have spent a good amount of time over at the magicformulainvesting Yahoo Group. I’ve gotten quite a few good ideas from them. I don’t think anyone has gotten quite as high as 70 overlap with the MFI site but I do remember reading some posts that discussed getting an overlap of sixty something percent.

raytoei – I do agree that it doesn’t really matter how close my correlatoin to the MFI screen gets. Actually, I just ran a backtest of my results to 2001 and they are very similar to Greenblatt’s results. I just wanted to get a high correlation so as to develop some confidence with the formula.

I am not concerned about how popular the Magic Formula is getting. I’m not currently investing using the formula, but I am evaluating its effectiveness to determine if it is something I want to add to my personal toolbox. By the time I convince myself that the Magic Formula really works well, it probably won’t even be popular anymore. ;-)

By: raytoei

raytoei — Fri, 14 Apr 2006 01:18:35 +0000

hi,

not to nit-pick. a couple of comments:

does it really matter if your screening method gives you low correlation to the stocks from the MFI websitte ? Since the basic formula is ” low valuation vs high roc “. The stocks will have good prospects for being cheap while exhibiting high management effectiveness (quality).

Assuming the “little book” stays on the best seller list for the whole 2006 and sells one million copies, of which 3 of of 10 readers actually goes out and buy a basket of stocks. That’s 300k investors looking at a “list” of stocks to buy. Assuming the list is constantly evolving and rolling, that’s still alot of investors buying the same stocks. How is this Intelligent Investing ? As a clever person once said, you can’t make money from the obvious.

cheers!

By: Dave

Dave — Thu, 13 Apr 2006 16:52:30 +0000

You might want to check out some of the posts at the Yahoo group on the Magic Forumla. Some folks there have gone through a lot of work to figure out screening parameters for different databases, especially AAII’s Stock Investor Pro. I believe that one group member was able to get about 70% overlap with the MFI site. Unfortunately, the posts with that info may be a bit hard to find!

By: George

George — Tue, 11 Apr 2006 02:54:37 +0000

Jim and David – It is likely that the data might be somewhat different between the two databases. I’m having trouble believing it is that different, but it might be. David, the EBIT numbers from Reuters I don’t believe adjust for “one-time” or “special” items. Does anyone know if the Compustat Point in Time database does?

By: George

George — Tue, 11 Apr 2006 02:52:38 +0000

David – I’m working on going through some of the top stocks on each of the lists to see why they might not be on both lists. I’ll post what I find in the next few days.

By: David Ellis

David Ellis — Mon, 10 Apr 2006 20:30:55 +0000

One other thought: I wouldn’t be surprised if one of the biggest drivers of the discrepancy is the EBIT number itself, which drives both Magic Formula metrics. Even if both you and Greenblatt’s team are using EBIT – TTM, there might be a significant difference in how “one-time” or “special” items are dealt with (either by the two different databases — Compustat and Reuters, right? — or by Greenblatt’s team). Such items are so common these days that they can be a major factor.

By: Jim Chan

Jim Chan — Mon, 10 Apr 2006 19:49:31 +0000

Also, the difference could come from different data sample. Joe’s data may not be the same as yours (some older, some newer)

By: David Ellis

David Ellis — Mon, 10 Apr 2006 19:29:22 +0000

Have you looked at the stocks which appear on Greenblatt’s screen but not on yours? If you picked a sample of 10 of those, you could figure out whether the deviation seems to have more to do with the ROIC calculation or the EY calculation. That would allow you to narrow down the cause of the discrepancy.

By: Anonymous

Anonymous — Sun, 09 Apr 2006 03:30:23 +0000

Magic Formula Portfolio123 Screener…

This is part 2 of my series on recreating the Magic Formula using Portfolio123. I discuss how I set up the screening criteria to limit the universe of stocks that are analyzed. The results of my screen attempts were then compared to the official Magi…