Magic Formula Tracker

[sengsational]

I agree that longer is better. It's been 608 days. That's all the farther back this particular experiment goes. I do plan to go to 5 years. Probably still not really long enough! Anyway, the first table has those 608 day results, that's as much as I have.

[OldShooter]

Quote:

Originally Posted by sengsational I agree that longer is better. It's been 608 days. That's all the farther back this particular experiment goes. I do plan to go to 5 years. Probably still not really long enough! Anyway, the first table has those 608 day results, that's as much as I have.

Oh, I apologize. I missed that 608 day column. Sorry.

[sengsational]

Here's the current bi-monthly transaction result, and the picks for the next batch.

Well, At nearly 39% XIRR, this batch from last April far outstripped the small stock benchmarks, and the S&P. Still far shy of the benchmarks for the entire time span, however. But it's the best showing so far.

371 Days ending 04/19/2018	XIRR for Apr 2017 batch	XIRR 664 days (all)	gain/loss (all)
Magic Formula Picks	38.7%	7.7%	$9991
US Small Cap Value Index (CRSPSCVT)	11.8%	12.1%	$16840
Vanguard Small-Cap ETF (VBR)	11.7%	12.1%	$16807
Vanguard S&P 500 ETF (VOO)	17.3%	16.1%	$22435

Ticker	Executed price	Execution date	XIRR
CRSPSCVT	2121.61	04/13/2017 13:36	11.8%	Benchmark April 2018 Sale
VBR	132.05	04/13/2017 13:36	11.7%	Benchmark April 2018 Sale
VOO	246.29	04/13/2017 13:36	17.3%	Benchmark April 2018 Sale
BBSI	88.93	04/13/2017 13:36	64.8%	April 2018 Sale
MCFT	24.86	04/13/2017 13:36	56.1%	April 2018 Sale
PDLI	2.88	04/13/2017 13:36	38.6%	April 2018 Sale
TVTY	39.92	04/13/2017 13:36	41.5%	April 2018 Sale
UIS	11.27	04/13/2017 13:36	-0.4%	April 2018 Sale
ALL			38.7%	April 2018 Sale

And today's picks:

Ticker	Executed price	Execution date
CRSPSCVT	2121.61	04/19/2018 12:16	Benchmark
VBR	132.05	04/19/2018 12:16	Benchmark
VOO	246.29	04/19/2018 12:16	Benchmark
ESRX	73.93	04/19/2018 12:50	April 2018 Picks
EVC	5.083	04/19/2018 12:50	April 2018 Picks
MSB	24.091	04/19/2018 12:50	April 2018 Picks
NTRI	29.08	04/19/2018 12:50	April 2018 Picks
PBH	30.592	04/19/2018 12:50	April 2018 Picks

[sengsational]

It's been 2 years since the first picks were posted.

As a reminder, what this thread seeks to test Goldblatt's "Magic Formula" process, as defined in his books "The Little Book that Beats the Market", and "The Little Book that Still Beats the Market".

Starting 2 years ago, stocks from his screen were randomly picked. These random picks continued every 2 months until there were 6 'batches'. Then, as each batch reached the age of one year, it was sold and replaced with other random picks.

So far, I have not proved nor disproved the premise of the books because he claims that it takes at least 3 years and might take 5 years to beat the market with this technique. Also what this thread seeks to test is if, rather than doing it yourself (buying the stocks), could you get the same result by just buying a fund that kind of matches the stocks that his screen picks (I've selected VBR fund and CRSPSCVT index, which have been tracking together very closely).

Below is the current bi-monthly transaction result, and the picks for the next batch.

Results this time show that the small stock benchmarks and the S&P, with around 15% XIRR, beat the picks from a year ago (they got around 10% XIRR). There have sets of picks that were quite disastrous, but this this set has a respectably positive return. The Magic Formula picks still havel a long way to go to catch-up for the entire time span; their return is only about 2/3's of the default S&P 500.

728 Days ending 06/21/2018	XIRR for Jun 2016 batch	XIRR 727 days (all)	gain/loss (all)
Magic Formula Picks	10.4%	11.1%	$16246
US Small Cap Value Index (CRSPSCVT)	16.6%	14.4%	$22838
Vanguard Small-Cap ETF (VBR)	16.6%	14.4%	$22839
Vanguard S&P 500 ETF (VOO)	15.4%	16.3%	$25903

Ticker	Executed price	Execution date	XIRR
CRSPSCVT	2234.46	06/22/2017 13:25	16.6%	Benchmark June 2018 Sale
VBR	139.12	06/22/2017 13:25	16.6%	Benchmark June 2018 Sale
VOO	253.54	06/22/2017 13:25	15.4%	Benchmark June 2018 Sale
AMCX	65.27	06/22/2017 13:25	19.6%	June 2018 Sale
AMN	60.55	06/22/2017 13:25	65.4%	June 2018 Sale
DLX	67.58	06/22/2017 13:25	-0.7%	June 2018 Sale
HRB	23.45	06/22/2017 13:25	-22.8%	June 2018 Sale
NHTC	23.67	06/22/2017 13:25	-8.1%	June 2018 Sale
ALL			10.4%	June 2018 Sale

Ticker	Executed price	Execution date
CRSPSCVT	2234.46	06/21/2018 13:30	Benchmark
VBR	139.12	06/21/2018 13:30	Benchmark
VOO	253.54	06/21/2018 13:30	Benchmark
ACOR	30.00	06/21/2018 13:30	June 2018 Picks
IDCC	83.95	06/21/2018 13:30	June 2018 Picks
KLAC	110.27	06/21/2018 13:30	June 2018 Picks
TUP	40.89	06/21/2018 13:30	June 2018 Picks
WDC	81.83	06/21/2018 13:30	June 2018 Picks

[Totoro]

Would be interesting to see what happens in a down market.

[ncbill]

Paul Merriman advocates a small/large cap "all value" portfolio, but note the higher risk required for the higher return:

https://paulmerriman.com/wp-content/...rns-Update.pdf

[sengsational]

The August batch beat the market this time, coming in at 37.1% IRR. All 5 were winners. This scheme would need a lot more batches like this to catch up!

364 Days ending 08/16/2018	XIRR for Aug 2016 batch	XIRR 783 days (all)	gain/loss (all)
Magic Formula Picks	37.1%	10.2%	$16652
US Small Cap Value Index (CRSPSCVT)	19.1%	13.8%	$24289
Vanguard Small-Cap ETF (VBR)	19.1%	13.9%	$24315
Vanguard S&P 500 ETF (VOO)	18.7%	17.1%	$30207

There was an early sale due to a buyout (TIME). The cash from that went into the next batch of buying. This batch got all the cash flows associated with it, but the batches can swap funds in cases like this.

Ticker	Executed price	Execution date	XIRR
CRSPSCVT	2261.76	08/17/2017 14:30	19.1%	Benchmark August 2018 Sale
VBR	140.33	08/17/2017 14:30	19.1%	Benchmark August 2018 Sale
VOO	261.47	08/17/2017 14:30	17.1%	Benchmark August 2018 Sale
MD	46.57	08/17/2017 14:30	10.0%	August 2018 Sale
NATH	89.66	08/17/2017 14:30	65.7%	August 2018 Sale
TIME	18.50	02/02/2018 00:00	126.4%	Buyout
TRNC	17.19	08/17/2017 14:30	30.7%	August 2018 Sale
VIAB	30.58	08/17/2017 14:30	6.2%	August 2018 Sale
ALL			37.1%	August 2018 Sale

Random picks this time:

Ticker	Executed price	Execution date
CRSPSCVT	2261.76	08/16/2018 13:00	Benchmark
VBR	140.33	08/16/2018 13:00	Benchmark
VOO	261.47	08/16/2018 13:00	Benchmark
AEIS	59.40	08/16/2018 13:30	June 2018 Picks
CASA	12.11	08/16/2018 13:30	June 2018 Picks
DXC	87.15	08/16/2018 13:30	June 2018 Picks
MIK	20.24	08/16/2018 13:30	June 2018 Picks
SGH	29.57	08/16/2018 13:30	June 2018 Picks

[sengsational]

The October batch has come in negative; down over 6%. This rather unlucky October batch also was down about 6% last year.

370 Days ending 10/10/2018	XIRR for Oct 2016 batch	XIRR 838 days (all)	gain/loss (all)
Magic Formula Picks	-6.8%	7.1%	$12277
US Small Cap Value Index (CRSPSCVT)	5.8%	12.7%	$24289
Vanguard Small-Cap ETF (VBR)	5.9%	13.0%	$24990
Vanguard S&P 500 ETF (VOO)	13.2%	15.9%	$30776

The small cap value also has fallen away significantly from the S&P 500 in the last couple of months.

Ticker	Executed price	Execution date	XIRR
CRSPSCVT	2178.80	10/05/2017 15:06	5.8%	Benchmark October 2018 Sale
VBR	134.44	10/05/2017 15:06	5.9%	Benchmark October 2018 Sale
VOO	260.50	10/05/2017 15:06	13.2%	Benchmark October 2018 Sale
ABC	92.61	10/05/2017 15:06	11.5%	October 2018 Sale
AGX	42.69	10/05/2017 15:06	-34.8%	October 2018 Sale
GHC	572.98	10/05/2017 15:06	-0.4%	October 2018 Sale
IPG	22.64	10/05/2017 15:06	10.2%	October 2018 Sale
NLS	13.32	10/05/2017 15:06	-22.3%	October 2018 Sale
ALL			-6.8%	October 2018 Sale

Random picks this time included one OTC issue (CJREF), which I've never seen come up before.

Ticker	Executed price	Execution date
CRSPSCVT	2178.8	10/10/2018 11:46	Benchmark
VBR	134.44	10/10/2018 11:46	Benchmark
VOO	260.5	10/10/2018 11:46	Benchmark
CJREF	3.32	10/10/2018 11:46	October 2018 Picks
FTSI	12.37	10/10/2018 11:46	October 2018 Picks
NKTR	50.37	10/10/2018 11:46	October 2018 Picks
SRNE	3.71	10/10/2018 11:46	October 2018 Picks
STX	44.02	10/10/2018 11:46	October 2018 Picks

[ERD50]

Considering reversion to the mean, I'm amazed that this "Magic Formula" can be this far from the indexes at 2+ years. It is rather magical, just not in the direction you want!

-ERD50

[Totoro]

Well, we're not done yet.

If it consistently underperforms, we also have a winning strategy btw.

[ERD50]

Quote:

Originally Posted by Totoro Well, we're not done yet. If it consistently underperforms, we also have a winning strategy btw.

Just my luck, it would start 'working' then!

-ERD50

[sengsational]

Goldblatt was clear that it would take at least 3 years, and maybe 5. That's not saying I'm not skeptical, because I am. I've always been, which is why I'm trying to settle the matter as best I can through this thread. But we still have a while to go.


I think the reason it's lagging is that the equities market has been so strong since the start of the experiment. The stocks from the filter are already beaten down, so they might distinguish themselves by not going down as much if the whole market takes a beating. Of course that's a sad way to "beat the market", but that point was made stronger in the second edition, where he said beating the market doesn't always mean making a good return.


Bottom line take away so far for me is that luck has a lot to do with it. If I could start over, I'd do three separate experiments and see how widely they diverged.

[ERD50]

Quote:

Originally Posted by sengsational Goldblatt was clear that it would take at least 3 years, and maybe 5. ....

That seems odd. Why would an approach take "at least three years"? Sure, a certain strategy might do better in a certain market phase (bull, bear, flat, or other condition), but why couldn't that phase happen right at the start of the experiment? I'm having trouble with that.

Quote:

Originally Posted by sengsational ... Bottom line take away so far for me is that luck has a lot to do with it. If I could start over, I'd do three separate experiments and see how widely they diverged.

There you go. And I would hope that if you ran three experiments, at least one of them would beat the market over the time frame of the experiment. But where would that leave you? What actionable item could you take from that (sorry for the MegaCorp speak!)

-ERD50

[sengsational]

If the three we're highly divergent and generally not beating risk adjusted returns, then the action would be to avoid the magic formula. If the results were more tightly grouped, then that would say luck had less to do with it and 30 issues is enough. If grouped and ahead of the appropriate index, then the scheme "worked" and luck was not a large factor.



As to the 3 to 5 years, I think it is indeed a way to allow the scheme to run in various market conditions, but since I got the book from the library, I can't see exactly what he said about it.

[OldShooter]

Quote:

Originally Posted by ERD50 That seems odd. Why would an approach take "at least three years"? ...

Doesn't seem odd to me. Consider:

1. Over any relatively short period, the performance of a diversified portfolio approximates a random walk.
2. Over any relatively long period of time (maybe 5+ years) a diversified portfolio will exhibit a slight bias towards growth, something approximating the market's overall bias as observed in many decades of history.

So the longer he waits, the more likely it is that the market will bail him out regardless of what "magic" is in the portfolio. Smart strategy.

[sengsational]

The December batch came in just a tiny bit positive, ahead of the small cap indexes for past 12 month span. The 1.4% just happened to match the overall performance of the scheme since inception. Pretty sad state of affairs, making only 1/10th of the amount the index made over the 903 days since the start of the experiment.

We are half way through the experiment (5 years is about 1800 days). This scheme would have to really up it's game to come close to any of the benchmarks! I have very little confidence that this scheme is going to "beat the market".

The small cap indexes took a beating in this span compared to the S&P 500; they've diverged more than any earlier 12 month span that I've tracked (on the order of 15% this time, whereas the worst we've seen is 7% or 10% or something before).

365 Days ending 12/14/2018	XIRR for Dec 2016 batch	XIRR 903 days (all)	gain/loss (all)
Magic Formula Picks	1.4%	1.4%	$2481
US Small Cap Value Index (CRSPSCVT)	-5.8%	11.5%	$24289
Vanguard Small-Cap ETF (VBR)	-5.7%	11.9%	$24990
Vanguard S&P 500 ETF (VOO)	8.5%	14.5%	$30776

Here are the details for closing out the 12 month positions:

Ticker	Executed price	Execution date	XIRR
CRSPSCVT	1957.83	12/14/2017 14:25	-5.8%	Benchmark December 2018 Sale
VBR	120.74	12/14/2017 14:25	-5.7%	Benchmark December 2018 Sale
VOO	240.24	12/14/2017 14:25	8.5%	Benchmark December 2018 Sale
CNCE	13.75	12/14/2017 14:25	-47.6%	December 2018 Sale
DISCA	28.05	12/14/2017 14:25	39.2%	December 2018 Sale
SP	28.26	12/14/2017 14:25	-26.7%	December 2018 Sale
USNA	121.49	12/14/2017 14:25	68.6%	December 2018 Sale
UTHR	108.51	12/14/2017 14:25	-19.8%	December 2018 Sale
ALL			1.4%	December 2018 Sale

Here are the random picks this time:

Ticker	Executed price	Execution date
CRSPSCVT	1957.83	12/14/2018 14:00	Benchmark
VBR	120.74	12/14/2018 14:00	Benchmark
VOO	240.24	12/14/2018 14:00	Benchmark
EAF	12.04	12/14/2018 14:00	December 2018 Picks
HEAR	16.40	12/14/2018 14:00	December 2018 Picks
NANO	28.39	12/14/2018 14:00	December 2018 Picks
PETS	22.99	12/14/2018 14:00	December 2018 Picks
TUSK	19.38	12/14/2018 14:00	December 2018 Picks

[sengsational]

The batch bought last February and held for a year did quite well, beating all of the indexes handily. But since the start of the experiment, the magic formula picks returned only half of what the aligned benchmark returned and only a bit better than a third of the large cap benchmark. The long run is what counts, but these occasional wins are keeping the scheme from falling completely flat.

There was a buyout where CPLA stock was exchanged for cash and STRA stock. All of those transactions were joined to calculate the rate of return.

364 Days ending 02/21/2019	XIRR for Feb 2017 batch	XIRR 972 days (all)	gain/loss (all)
Magic Formula Picks	25.2%	4.9%	$10320
US Small Cap Value Index (CRSPSCVT)	3.3%	8.5%	$19266
Vanguard Small-Cap ETF (VBR)	3.3%	8.5%	$19267
Vanguard S&P 500 ETF (VOO)	4.3%	12.3%	$28577

Ticker	Executed price 2/2019	Sale Date	Buy Date	XIRR
CRSPSCVT	2167.25	02/21/2019	02/22/2018	3.3%	Benchmark February 2019 Sale
VBR	132.68	02/21/2019	02/22/2018	3.3%	Benchmark February 2019 Sale
VOO	255.50	02/21/2019	02/22/2018	4.3%	Benchmark February 2019 Sale
BPT	26.43	02/21/2019 13:00	02/22/2018	59.3%	February 2019 Sale
CPLA	108.38	08/01/2018	02/22/2018	41.4%	February 2019 Sale
EGOV	17.45	02/21/2019 13:00	02/22/2018	28.8%	February 2019 Sale
OMC	75.48	02/21/2019 13:00	02/22/2018	0.1%	February 2019 Sale
VEC	28.34	02/21/2019 13:00	02/22/2018	-0.6%	February 2019 Sale
STRA	125.13	02/21/2019 13:00	02/22/2018	(in CPLA)	February 2019 Sale
ALL				25.2%	February 2019 Sale

The random picks this time:

Ticker	Executed price	Execution date
CRSPSCVT	2167.25	02/21/2019 13:00	Benchmark
VBR	132.68	02/21/2019 13:00	Benchmark
VOO	255.5	02/21/2019 13:00	Benchmark
ALSN	49.82	02/21/2019 13:00	February 2019 Picks
FNJN	3.24	02/21/2019 13:00	February 2019 Picks
FRSH	5.37	02/21/2019 13:00	February 2019 Picks
LTRPA	15.99	02/21/2019 13:00	February 2019 Picks
SYX	24.60	02/21/2019 13:00	February 2019 Picks

[NW-Bound]

Quote:

Originally Posted by sengsational The screen on magicformulainvesting.com gave me a list of 50 stocks that ranked the highest on Goldblatt's valuation technique. I pasted those into a spreadsheet, typed =Rand() in the adjacent column and sorted the list. So, yes, using a computer and applying a mechanical, repeatable process.

Quote:

Originally Posted by Totoro Well, we're not done yet. If it consistently underperforms, we also have a winning strategy btw.

Perhaps the Rand() that sengsational uses is a snakebit one.

Instead of using it to choose stocks to buy, how about shorting the chosen stocks and going long the S&P? One makes a lot of money with the arbitrage.

[sengsational]

The batch selected last April fared quite well, at 11.2% as compared to the indexes, which were in the 3% to 6% range. I'm not going to try to boho the situation...one batch does not make a success; the S&P index has returned more than three times as much cash!

364 Days ending 04/18/2019	XIRR for Apr 2017 batch	XIRR 1028 days (all)	gain/loss (all)
Magic Formula Picks	11.2%	4.4%	$9642
US Small Cap Value Index (CRSPSCVT)	2.2%	8.0%	$19418
Vanguard Small-Cap ETF (VBR)	2.8%	8.0%	$19589
Vanguard S&P 500 ETF (VOO)	5.8%	13.6%	$34467

There were a few buyouts, so I combined all cash flows associated with the original purchase into one bucket for measurement purposes:

Ticker	Executed price	Execution date	XIRR
CRSPSCVT	2170.11	04/19/2018 12:50	2.2%	Benchmark April 2019 Sale
VBR	132.21	04/19/2018 12:50	2.8%	Benchmark April 2019 Sale
VOO	266.16	04/19/2018 12:50	5.8%	Benchmark April 2019 Sale
ESRX	96.85	04/19/2018 12:50	18.8%	April 2019 Sale
EVC	2.99	04/19/2018 12:50	-38.0%	April 2019 Sale
MSB	30.88	04/19/2018 12:50	42.5%	April 2019 Sale
NTRI	42.66	04/19/2018 12:50	58.1%	April 2019 Sale
PBH	28.10	04/19/2018 12:50	-8.2%	April 2019 Sale
CI	148.91	04/19/2018 12:50	reported with ESRX	April 2019 Sale
TVTY	20.03	04/19/2018 12:50	reported with NTRI	April 2019 Sale
ALL			11.2%	April 2019 Sale

Aaaaand.... this time the bewitched @rand() function helped me find:

Ticker	Executed price	Execution date
CRSPSCVT	2170.11	04/18/2019 15:40	Benchmark
VBR	132.21	04/18/2019 15:40	Benchmark
VOO	266.16	04/18/2019 15:40	Benchmark
AEZS	4.29	04/18/2019 15:45	April 2019 Picks
EGY	2.47	04/18/2019 15:45	April 2019 Picks
IMMR	9.19	04/18/2019 15:45	April 2019 Picks
SIGA	5.34	04/18/2019 15:45	April 2019 Picks
STRL	13.80	04/18/2019 15:45	April 2019 Picks

[Totoro]

Quote:

Originally Posted by sengsational I'm not going to try to boho the situation...

Thanks for keeping the reporting going!